Credit Wisdom

Credit Basics

• 1- Interest: cost of credit

• 2- Collateral: Security on a loan

• 3- Co-signer: second signer who will pay if #1 defaults

• 4- Default: failure to repay the loan

• 5- Bankruptcy: Legally getting out of having to repay the loan

Credit Basics

• 6- Garnishment: Your employer pays your credit, before he/she pays you

• 7- Credit: Allows the immediate use of products or services in exchange for a promise to pay in the future

• 8- APR: cost of a loan over a full year expressed as a %

• 9- Credit Rating: A rating based on how promptly a person pays his/her debt.

Managing Money & Credit: A Lifelong Skill

Credit Rating

• Your credit score is a three-digit number generated by a mathematical algorithm using information in your credit report.

• It is used to determine risk.

• It is important because it states whether or not banks and other lenders will offer you a loan, and for what interest rate they will charge you.

• What 2 owing balances do you pay down with each credit payment you make?

• -Principle amount • -Interest amount

“Black Marks”

• Not paying bills on time

• Not paying bills

• Opening too many credit accounts

• Maxing out credit cards

• Credit checks

• How can you improve your credit rating?

Advantages & Disadvantages of Credit Card

• Advantages – Convenient – On-line purchases – Kick-backs i.e. cash, airline

miles, etc. – Can rent a car – Can build credit score – Nice for emergencies – Buy now pay later

• Disadvantages – Doesn’t seem like real money – Easy to overspend – Identity Theft – Interest – Annual Fees

Identity Theft

• Ways to protect yourself

– Shred important documents

– Keep information secure

– Protect SS#

– Don’t give out personal info to just anyone

– Don’t use obvious passwords

– Protect wallet/purse

Use Credit Wisely

You should use credit to buy:

– House

– Car

– Education (student loan)

and you’ll avoid trouble

Only Buy What You Can Afford

• Pay off monthly balances

– Avoid interest

– Avoid late fees

• Know your budget

• Know yourself

– Are you an impulse buyer?

Pay More than the Minimum

• If you have a credit card balance:

– Make a plan to pay as much as you can every month

– Start with the credit card with the highest interest rate

– Pay off the credit cards as quickly as you can

Limit the Number of Cards

Americans have an average of 8 credit cards

Always Pay on Time

• Avoid late fees

• Keep your money in your pocket

• Maintain a good credit score – Late payments have the

biggest negative impact.

• Easiest way to make money is to save money.

Choose a Low Rate

• 0% is lowest – But remember the catch

• 15.75% average fixed rate.

• If you pay your card off every month, the rate won’t matter.