Transcript of Credit You're in Charge What is Credit ??? Credit is an arrangement to Receive cash, goods, or...
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- Credit You're in Charge
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- What is Credit ??? Credit is an arrangement to Receive cash,
goods, or services now and pay for them in the future!
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- Consumer Credit Used for personal needs. Increases the amount
of money you have now Decreases the amount of money you have in the
future Risk Return Dangerous Major force in the US. Economy!
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- Advantages Enjoy Now with little or no immediate financial
burden You can combine several purchases to make one payment Travel
with out cash What about the debit card?
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- Why use Credit For Convenience Emergencies Identification
Travel Reservations To protect your personal finances! To enjoy the
good life
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- Disadvantages There will always be the temptation to spend
beyond your means! Falling behind in your payments will affect your
credit rating and you in the future. You could lose your income or
property
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- Credit Using a credit card does not increase your purchasing
power It does not mean you have more money. Misusing Credit is
Dangerous!
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- Credit misused is Dangerous! What are your Opportunity Cost?
Think!
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- Types of Credit Closed End Credit Open End Credit
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- Closed End Credit This is credit the is a one time loan that
will be paid off over a specified period of time in payments of
equal amounts. It involves a definite amount of Money Mortgage Car
Payment Installment Loan
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- Open End Credit Limits the amount of total $ borrowed Line of
Credit Credit Cards You can use it for just about anything you wish
as long as you do not go over your line of credit
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- Sources of Consumer Credit Commercial Banks Consumer Finance
Companies Credit Unions Life Insurance Companies Savings and Loan
Associations
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- Credit Cards Very popular The average credit card holder has 10
Cards. Convenience user pays off card each month. Borrower does not
carry a balance each month and carries a balance. Grace period a
certain time period offered by the card company where there are no
finances added to your account balance.
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- Finance Charge The total dollar amount pay to use credit. The
cost of using the card companies money
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- Debit Card This is a card that allows you to electronically
subtract money from your own savings or checking account to conduct
a transaction. You use your money! Smart Card Carries a computer
chip with much more info. Travel & Entertainment Card must be
paid in full the next month. American Express
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- Debit VS. Credit Debit Your Money No finance charges Directly
taken from your account Credit Card Not your money Finance Charges
Allows you more financial flexibility Interest is expensive
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- What % of net income should I allow for debt payments? 20 %
Max
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- Annual Percentage Rate What it will cost you to use their money
The finance charge is calculated using the APR How much above and
beyond the actual cost of the product
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http://www.youtube.com/watch?v=g6_YvIhPK Mk
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- The cost of paying a minimum balance
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- Example one You buy $500.00 in new books on your master card.
19.8% Apr Min. Monthly payment $21.67 30 months 21.67 X 30 = 650.10
650.10 500 = 150.10
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- Example 2 Month one $10,000 Balance Min pay $142. 17% 10000 147
= 9858 Add finance charge New balance $ 9999. Month 2 $ 9999.
Balance Min pay $142. 17% 9999 147 = 9857 Add finance charge
(interest) New balance $ 9998.
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- As time goes by You paid $1846 Your Credit Card debt went down
from 10,000 to 9995 Five Dollars At this rate 36 years to pay off
Total $ payments $61,060.00 All for the use of $10,000
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- Simple Interest Principal X Interest Rate X The Amount of Time
= Simple Interest.
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- Why would a lender encourage you to make a minimum payment each
month?
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- Applying for a loan The Five Cs of Credit Character Capacity
Capitol Collateral Credit History
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- Character Will you repay your loan The creditor wants to know
if you are trustworthy.
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- Capacity Your ability to pay off your new loan How much do you
earn? What is your current debt?
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- Capitol What is your worth Assets? Liabilities?
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- Collateral How can you secure the loan? Savings, home,
furniture, car?
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- Credit History Timely Payments Bankruptcy?
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- The Credit Bureau An agency that collect data on how promptly
people and businesses pay their bills The Big Three Experian Trans
Union Equifax The information they collect on you affects your
credit score.
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- Credit Score Range Between 700 and 850 Very good or excellent
credit score. Between 680 and 699 Good credit score. Between 620
and 679 Average or OK score. Between 580 and 619 Low credit score.
Between 500 and 579 Poor credit score. Between 300 and 499 Bad
credit score.
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- Bad Information? 7 to 10 years old - No Unless applying for a
loan over $75,000 or Life Insurance over $150,000
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- What's on your file Employer, wages and position Previous
address Previous employer Spouses name, soc. Sec. employer, and
income Own or rent NSF Checks
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- Dispute a billing error Notify your creditor in writing. Give
them as much data as you can to support your dispute. Pay the
portion that is not in question
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- Warning Signs Only paying the minimum The minimum is tough to
pay Monthly balance of Credit Card goes up monthly Missed payments,
or late Use of savings for the basics food, clothes, rent Past due
Notices Borrow $ to pay old debt Exceed Credit limits Denied
Credit
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- Bankruptcy Chapter 7Chapter 13
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