Unit 8: Credit

Ins and Outs of Credit Cards

Annual Fees - Some still have these fees - shop around! Check out interest rates - Remember: this is a LOAN. Beware of introductory offers - Many cards charge little or no interest for the first 6 months...then the rate jumps. Late payment penalties - They can be high!

credit card costs

Annual Fees Interest Grace Period Credit Limit

Types of Consumer Credit

Secured Loan Collateral Installment Loan Unsecured Loan Finance Companies Life Insurance Companies Credit Card Cash Advances Pawnbrokers Rent-to-Own Companies

My credit report contains information on bills I have not paid.

True Actually, your credit report contains a lot more than that.

Most credit cards have a credit limit.

True Cardholders may charge only up to a certain dollar amount set by the card company. The limit is set based on your ability to pay the debt.

Credit cards are accepted as cash by stores.

True Credit cards are a type of loan. You borrow money from the bank. The bank pays the store.

If I pay my credit card in full by the due date, I will not owe any interest.

True If you pay the entire balance within the grace period allowed (usually about 28 days), you will not owe any interest on your purchase.

Credit card companies charge merchants a percentage of the price of anything purchased with a credit card.

True When you use a credit card to make a purchase, the credit card company charges the merchant a percentage of the sale.

Disadvantages of credit cards

Way too tempting! - It is so easy! - It doesn't even feel like you are spending money! - Do that enough times a month, and SURPRISE! - Look at that balance! Carrying a Balance - "I'll always pay my bill in full and on time." - That may be what you intend to do... - 60% of cardholders carry a balance from month to month. - Many of these people thought that they would pay off their bills each month too. - The convenience of credit can be VERY hard to resist!

Saving vs. using credit

When you SAVE you are giving up spending NOW for the ability to spend in the future. When you use CREDIT you are making the opposite trade-off - You are giving up the ability to spend in the future in order to spend NOW. - PLUS INTEREST!

credit rating

1. Payment history 2. Current Debt 3. Length of credit history 4. New accounts and inquiries

Creditworthiness

3 C's of Credit - Character - Capacity - Capital Credit History Cosign a loan

advantages of credit cards

A safe alternative to cash - Cash can be lost or stolen - Most cards - you are only responsible for the first $50 charged to your card Builds a good credit history - Proof that you pay your debts - A good credit history - helps you get a loan - A poor credit history - works against you Promotes efficient record keeping. Bails you out of emergencies - Engine trouble miles from home - Major appliance quits Gives you time to pay - Depending on when you make your purchase and when your monthly bill comes due. For your goals - Education (Few can do it w/o borrowing!) Necessities - Car, books For a Home - The American dream! Get things NOW!

Maintain a Good Credit Rating

Do not miss a payment Save regularly Credit for married people Read what you sign Acceleration Clause Balloon Payment Bankruptcy True-name fraud Debt consolidation loan

If I pay the minimum monthly payment, then I won't owe any interest.

False After you subtract the minimum payment from your balance, finance charges will be added to your remaining balance.

There's no penalty if I pay my balance after the due date.

False Credit card companies charge late fees ($25+) to cardholders who do not pay their bill by the due date.

Credit reports contain

Full name, nickname and maiden name Marital status Spouse's name Social Security # Year of birth Current & previous address, employers Estimated income Detailed information on each credit acct. Type of account When opened Credit limit or loan amount Balance you owe Late payments Information such as: - Lawsuits - Bankruptcies - Liens against your property - All the people who have requested copies of your credit report in the last six months.

credit card

It's a loan. Credit card companies and banks that issue credit cards are letting you borrow their money when you use their credit cards. When you hand the clerk your card and say "charge it", you're going into debt.

Are credit cards dangerous or great?

both Plastic purchasing power has advantages and disadvantages. It all depends on how you use them.

Credit

the ability to borrow money in return for a promise of future repayment