5555 5555 card a. risk 12/12 1234 5678 9012 3456 lance l. lancer12/12 credit: history, types,...
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5555 5555 5555 5555Card A. Risk 12/12
1234 5678 9012 3456
Lance L. Lancer12/12
Credit: History, Types,
Dangers Chapter 10
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Credit: What is it?
What is credit?
What are the current uses of credit?
Who can obtain credit?
What are the dangers?
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Credit Discussion: Activity
With a partner, discuss the following questions.
How do people use credit?
What are the positives and negatives of credit?
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Credit Vs. Debit
Credit Vs. Debit
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Credit
“Buy now, Pay later”
Purchase Items at present time- pay for it in the future
Purchase items that couldn’t be purchased otherwise
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Types of CreditOpen (Revolving)
Closed (Installment)
Service
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Open Credit
Revolving
Amount is charged to account as often as desired (to a certain dollar amount).
Payments are made each month
Ongoing balance can be maintained
Minimum monthly payment required
Ex: Credit Cards
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Closed Credit
Installment
Amount is set for purchase
Payments are made and balance is paid off in a certain amount of time
Ex: Store accounts (furniture/appliances) Car loans, mortgages
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Service
Receive service, pay for them later
Utilities
Ex: Electricity, water, sewer, etc.
Odd Ex: Doctor or dentist
Receiving service and paying later
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Activity 2: How Open Credit Works
CC Balance
$2,000
CC Annual Percentage Rate
11.25%
Monthly Payment
How many months will it take to pay off?
Money you paid just in interest
$20
$30
$100
$150
$200
Credit Card Calculator: Credit Payoff Calculator
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Types of Credit: Activity
Enrique is thinking about buying an Ipad. He will need to borrow money to make the purchase. He can arrange the financing ahead of time, or he can use the installment sales plan at the store.
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Activity Continued
Enrique is thinking about buying an Ipad. He will need to borrow money to make the purchase. He can arrange the financing ahead of time, or he can use the installment sales plan at the store.
1.What are the advantages/disadvantages of borrowing money ahead of time?
2.What are the advantages/disadvantages to the installment plan?
3.What type of credit is the installment plan an example of?
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3 C’s of Credit
Credit Worthiness
Measure of your reliability to repay a loan.
A lender judge creditworthiness based on 3 factors:
Character
Capacity
Capital
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Character
Will you repay debt?
Credit history- Do you have a history of paying back debt?
Capacity
Can you repay debt?
Do you have the Income to pay?
3 C’s Of Credit
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Capital
Is the creditor (lender) fully protected if you fail to repay?
Assets (own)- Liabilities (owe)= payment of debt
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Credit History
A record of your past borrowing and repayments.
If you paid your bills on time in the past, lenders will be more likely to lend you money in the future.
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What assets back up your promises to pay?
Car
House
Jewelry
You can sell collateral to pay off debt
Collateral
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CosignA parent or older person will sign the loan with you . By them signing the loan, they are agreeing to pay if you are unable to.
** Usually this is a way younger people can get loans.
The lender will feel safe in lending you the money.
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Credit Application - Activity
Examine the sample credit application
Please put false information in the application, do not write in your SSN!
What information do they want from you?
Why do you think they need this?
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Requirements
What is needed in order to open a credit card?
Credit Card Requirements
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Credit Card Debt
Credit Debt- A Students Story
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Credit Rating
A measure of your creditworthiness.
A judgment about whether or not you have the ability and willingness to pay your bills on time.
Lenders will decide to give you a loan usually based on your FICO Score
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FICO Score
Computerized scoring system.
Score will be between 300 and 850, with 850 being the highest.
The score is based on the following:
Payment history, current debt, length of credit history, new accounts and inquiries, and types of credit used.
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How do you establish credit?
Open a checking and savings account
Get a small loan in your name (auto loan)
Open up a credit card with a small balance ($500). Use it for gas and pay it off on time every month!
Maintain a low balance on credit cards and pay it off every month!
DO NOT BOUNCE CHECKS!
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3 Credit Bureau's
Experian
Equifax
Trans Union
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What determine my credit
score?Payment History 35%
Amounts Owed 30%
Length of Credit History15%
Types of Credit in Use 10%
New Credit 10%
Other Factors
How long at current residence
How long on current job
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Grace Period
The time between the billing date and the payments due date when NO interest is charged.
For most credit cards, the grace period is 15 days.
If you do not pay your bill within the grace period time frame, interest will be charged.
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Credit Limit
Maximum amount you are allowed to charge.
If you go over your limit, you will have to pay a penalty that can be as much as $30 or more for each charge made beyond your limit.
NEVER EXCEED YOUR LIMIT!
You should never have more than half of your limit charged on your credit card! This decreases your credit score.
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Finance Charge
Total cost a borrower must pay for a loan, including all interest and fees.
Annual Percentage Rate (APR)
The finance charge calculated as a percentage of the amount borrowed.
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What can hurt your credit score?
Bouncing checks
Not making payment on time
Having too many credit cards
Having a high balance (over 50% of your credit limit).
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Dangers
Overspending
Identity Theft
High Interest Rates
Ruining Credit Record
Tying up Future Income
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Identity Theft
Involves using someone else’s identity to get cash or buy products using credit cards, or to access financial accounts that belong to the victim.
60 Minutes Identity Theft
ATM Scam
Children's Identity Stolen
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How do they become you?
All criminals need your social security number, your driver’s license, or even your credit card number to open charge accounts in your name.
They don’t even have to give a real address, a P.O. Box will work!
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How to Protect Yourself?
Guard personal documents
NEVER give out your SSN to ANYONE unless absolutely necessary
Keep personal documents in a safe place
Keep track of your bills and what you are spending
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What to do if your identity is stolen
Report the theft to the three major credit bureaus. They will put a fraud alert on your account.
Report theft to law enforcement
Contact your bank or other organizations you have credit accounts with
Call the FTC