Chapter 15

Credit

Factors to Consider Before Using Credit

Chapter

15

Consumer Credit

What should you know before using credit?

Do you have the cash you need for the down payment?

Do you want to use your savings instead of credit?

Can you afford the item?

Could you use the credit in some better way?

Could you put off buying the item for a while?

What are the opportunity costs of postponing the purchase?

What are the costs of using credit?

Factors to Consider Before Using Credit

Chapter

15

Consumer Credit

Advantages of Credit

You enjoy goods and services now instead of later

Combining several purchases while making one monthly payment

A credit card is needed for transactions such as renting a car

Traveling with a credit card is safer than cash

Good credit results in other lenders viewing you as a responsible person

Disadvantages of Credit

Credit costs money

Failure to pay your bills can ruin a good credit reputation

Failure to pay your bills can can lead to a loss of income and property

Using credit does not increase your total purchasing power

Sources of Consumer CreditChapter

15

Consumer Credit

Loans Credit Cards

Inexpensive LoansMedium-Priced Loans

Expensive- Loans

Home Equity Loans

Debit CardsCobrandingSmart Cards

Store-Value Cards

Travel and Entertainment (T&E) Cards

Can You Afford a Loan?Chapter

15

Consumer Credit

Add up all your basic monthly expenses and then subtract the total

from your take-home pay.

Consider what you might give up to make

a monthly loan payment.

The Cost of CreditSection 2

Chapter

15

Consumer Credit

Annual Percentage Rate Table for Monthly Payments

Daily Balance Method

• To determine the daily periodic rate on a yearly APR of 18%:

• 18% ÷ 365 days = .05%• To calculate the finance charge using a daily

periodic rate, multiply:Average Daily Balance x Daily Periodic Rate x Days in

the Cycle = Monthly Finance Charge• (For this example, $100 is the account balance)

$100 x .03288% x 31 = $1.02

Applying for CreditChapter

15

Consumer Credit

The Five Cs of Credit

Character Capacity Capital Collateral Conditions

Applying for CreditChapter

15

Consumer Credit

Two Types of Credit Reports

FICO Vantagescore

Applying for CreditChapter

15

Consumer Credit

Personal Credit Score

Applying for CreditSection 2

Chapter

15

Consumer Credit

Because of the Equal Credit Opportunity Act (ECOA),a Creditor May Not:

Turn you down or decrease your credit because of your age

Ignore your retirement income in rating your application

Close your credit account because you have reached a certain age

Close your credit account because you have retired

Deny you credit because you receive public assistance

You have a right to know why you are refused credit.

Your Credit ReportChapter

15

Consumer Credit

The Three Major Credit Bureaus

Experian

Trans Union

Equifax

Where Do Credit Bureaus Get Information?

Banks

Finance Companies

Stores

Credit Card Companies

Other Lenders

Your Credit ReportChapter

15

Consumer Credit

Contents of Your Credit FileEmployer, Position, Income

Previous Address

Previous Employer

Spouse’s Information

Homeowner or Renter Status

Checks Returned or Insufficient Funds

Your Credit ReportSection 2

Chapter

15

Consumer Credit

You and Your Credit File

There are time limits on unfavorable data.

Credit bureaus must ensure information in your credit file is correct.

You can sue a credit bureau or creditor that has caused you harm by not following rules established by the Fair Credit Reporting Act.

Your Credit ReportSection 2

Chapter

15

Consumer Credit

Billing Errors and DisputesChapter

15

Consumer Credit

If you write a letter to a creditor to dispute a charge:

The creditor must acknowledge your letter within 30 days.

If the creditor made a mistake, you do not have to pay any finance charges on the disputed amount.

If no mistake is found, the creditor must promptly send you a letter of explanation.

Billing Errors and DisputesChapter

15

Consumer Credit

For your protection:

A creditor may not threaten your credit rating.

A creditor cannot take any action against you until a complaint is settled.

You may instruct a credit card company to hold payment if you purchase a defective item.

Credit and Stolen IdentityChapter

15

Consumer Credit

If you think you are a victim of identity theft:

Contact the Credit

Bureaus

Contact the Creditors

File aPolice Report

Protecting Your Credit From Theft or Loss

Chapter

15

Consumer Credit

Avoid Having Your Credit Card Being Stolen or Lost

Always retrieve your card after a purchase.

Keep a record of your credit card numbers.

Notify the credit card company immediately if your card is lost or stolen.

Protecting Your Credit from Theft or LossChapter

15

Consumer Credit

Protecting Your Credit on the Internet

Use a secure browser.Keep records of online transactions.

Review monthly bank and credit card statements.Read privacy and security policies of Web sites.

Keep your personal information private.

Never give your password to anyone online.

Do not download files sent to you by strangers.

Complaining About Consumer CreditChapter

15

Consumer Credit

Consumer Protection Laws

Credit Card Act

Truth in Lending Act

Consumer Leasing Act

Equal Opportunity Act (ECOA)

Fair Credit Opportunity Act

Fair Credit Reporting Act

Consumer Credit Reporting Reform Act

Signs of Debt ProblemsChapter

15

Consumer Credit

Are You Experiencing Two or More of These Warning Signs?

You make only the minimum monthly payment

You struggle to make the monthly payment

The total balance increases every month

You miss payments or you are often late

You use savings to pay for necessities

You receive second or third late payment due notices

You borrow money to pay off old debts

You exceed credit limits

You have been denied credit because of bad credit

Debt Collection PracticesChapter

15

Consumer Credit

Creditors often turn over bad debts to debt collection

companies.

The Federal Trade Commission enforces the Fair Debt Collection Practices Act

(FDCPA).