CREDITPART 1

Mr. Stasa – Willoughby-Eastlake City Schools ©

https://www.youtube.com/watch?v=xdflQV9QKXQ

Credit Card facts…

Americans currently owe over 1 trillion dollars in credit card debt

At least 7 million Americans owe more than $25,000 on just credit cards alone

Americans are charged more than $116,000,000,000 each year in just interest alone

Americans are charged more than 23 billion in late fees each year.

https://www.youtube.com/watch?v=i5pXFvOAu5I

What Would You Do? What would you do if a student, who

you didn’t know, approached you at lunch to borrow $5 and promised to pay you back the next day?

Would you instantly let that student borrow your $5?

What question(s) would you have for this student?

What could you do to determine if this student is a reliable borrower?

Terminology Credit is money loaned to you by a

creditor that must be paid back.

A Creditor (or lender) is someone who must be repaid for having lent money.

Examples of creditors

Credit card companies Banks Department stores Gas stations Cash-advance stores

What should a creditor should do if…

You take out a loan to buy a car, but never make payments on the loan?

You take out a loan to go to college, but you never make payments on the loan?

You buy clothes on your store credit card but never make payments on the card?

REPOSSESS

GARNISH WAGES SUE

What if you miss payments?

1. Begin receiving overdue notices in mail

2. Receive phone calls from card company or collection agency

3. Card company reports you to credit bureaus

4. Late fees will begin with interest rates increasing

5. Legal action will be taken (garnish wages, court action)

Types of Loans An unsecured loan is when the

lender agrees to provide a loan that is not tied to any collateral.

If the borrower is unable to re-pay the loan, the lender does not have the ability to take possession of personal property.

Interest rates are typically higher

Examples are: Personal loans Student loans

Types of Loans A secured loan is when the lender

agrees to provide the loan that is tied to collateral.

If the borrower is unable to repay the loan, the lender can repossess personal property that is tied to that loan.

Example: If someone purchases a house using a mortgage, the bank can repossess the house if the borrower can’t make payments. Examples:

House Car

Did you know…

There are companies that keep track of whether or not your pay your bills and if you make your payments on time?

Making irresponsible choices can stay on your record (credit history) for 7 years or more

https://www.youtube.com/watch?v=N0zS0gJiOfI

Three Types of Credit

1.Installment Credit2.Revolving Credit3.Open Credit

Installment Credit

Installment credit are loans that must be repaid with fixed monthly payments. Late fees and interest increases can result with missed payments.

Examples include: Car loans Mortgage Student loans Personal loan

Revolving Credit

Revolving credit allows you to pay your balance in full each month but are required to make at least the minimum payment.

Examples include: Credit cards Store credit cards

When Making Payments You Can…

Minimum Payment is the smallest amount that can be paid every month

1. Pay total amount owed OR

2. Make smaller

payments (minimum payment)

Minimum Payment SampleYou receive your credit card bill:• Total amount owed is $2,720.12• The interest rate on your card is 15.24% • The minimum payment is $54.00

Open Credit

Open credit requires you to pay your balance in full each month for services used. Failure to make full payment can result in immediate termination of services.

Examples include: Cell phones Utilities Rent Car lease

Guess which is which!!

Which are OPEN, REVOLVING, or INSTALLMENT?

Cell Phone Student Loans

Rent

Credit Card Water Bill Mortgage

Car Loan Car Lease Store Credit Card

What’s a Credit Score?

A credit score is a three-digit number that predicts a person’s financial risk

Scores range from 300 – 850 points

The higher the number, the lower the risk you are

Credit Score Description

850 - 760

Excellent score. The lender will offer you their best interest rate.

759 - 700

Great score. There won't be any trouble in getting a loan at good interest rate.

699 - 660

Good score. There won't be any problem in getting a loan at good interest rate.

659 - 620

Fair score. You may qualify for the loan but not at good interest rates.

619 - 580

Poor score. You may qualify but the interest rates will be very high.

579 - 300

Very poor score. It's doubtful that you may qualify for the loan, and if you qualify, the interest rates will be extremely high.

http://www.youtube.com/watch?v=gkpqzyZMg4o

Credit Score Impact

EXAMPLE: $15,000 LOAN (3 YEAR FIXED AUTOMOBILE)

FICO Score

Interest Rate

Monthly Payment

3 Year Amount

$2,124 can be saved over the lifetime of this loan because of a good credit score!

Credit score determines the interest rates for loans

730 6.16% $457 $16,452

660 8.77% $475 $17,100

590 14.43%

$516 $18,576

Where Does America Fall?

http://www.youtube.com/watch?v=CHaqAF5PEVM&feature=related

What’s a Credit Score Made of?

There are five major categories that make up a credit score:1. Payment history2. Amounts owed3. Length of credit history4. New credit5. Types of credit used

http://www.youtube.com/watch?v=lx4SXQeO6Iw

The 4 C’s of Credit Collateral

What do you have of value that a lender can take if you do not repay the loan as promised?

Capacity Do you have the financial ability to

repay a loan with your current income?

Lenders look at income and employment history.

Capital Is the lender fully protected if you

cannot repay the loan? Character

Are you responsible? Do you have good credit history of paying your bills on time?

http://www.youtube.com/watch?v=5QEBXr7GzF4