Buy Now Pay Later…
How to analyze the advantages & disadvantages of consumer credit
How to distinguish among various types of consumer credit
How to determine what creditors look for while lending money
How to maintain a good credit score
Bank lends you money (principle) in exchange for your promise to pay it back with interest. Interest - $ you pay to use credit APR - annual percentage rate: amount it costs
you a year to use credit (in % rate) It includes interest, fees and service charges.
Annual fee - yearly charge for the privilege of using credit. YUK!
Finance charge: dollar amount of using credit
Origination fee: charge for setting up a loan (mortgage)
Access to cash in case of emergency Ability to buy now Safety and convenience Bonus points or cash back Safer than a debit card for on line
purchases You need good credit to make purchases
Credit costs money $$$$$ APR Temptation to overspend May lose your good credit reputation if
you do not repay on time Too much credit can lower your FICO
score
Buy now pay later – Open Ended Credit – you are given a
certain limit (line of credit) Grace period: number of days which no
interest or finance charge will apply. Pay quickly!
Minimum Payment - 2% of your credit purchases - pay more than the minimum!
Installment Loans: Closed Ended Credit Payments on a regular basis Auto Loans Mortgages: Closed Ended Credit
15 - 30 yrs home loan interest rates are lower than installment & credit card rates
Credit history - record of your financial transactions
Payments, credit lines, income FICO scores: 500-850 Everything is linked to your social
security # Three major credit reporting agencies:
Exquifax, Experian and Trans Union Allowed 1 free credit report per year -
GET IT!
Unable to pay debt, you may file: Chapter 7 – erase debt & you may have to go
through some credit counseling Chapter 13 - you may pay back some of your
debt with more time. Reorganize Can only file once every 7 years Bad credit for up to 10 years! More than 1.5 people filed last year
Capacity – money coming in Character - history Capital - assets Collateral – cash Credit History - score These all affect your FICO score