Checking and Credit

Do Now: Please read article and answer the two questions

Credit Unions

• Not for profit savings and lending financial institutions

• Loans are made to its members from the savings of other members

• Loan costs are often lower• Interest rates on savings accounts tend to be higher• Most offer free checking and debit cards• Mortgages, home equity loans, credit cards• There are negatives with Credit Union though

Debit Cards – ATM Fees

• Only use an ATM that is operated by the bank that has your checking or savings account

• Cash Back – In stores or supermarkets, no fee.• Be wary of using ATM’s in neighborhood

stores• Using your ATM card at a different bank’s ATM

wastes money

Direct Deposit

• A number of Benefits• Money is generally deposited into your

checking account quicker that it would have been if you were to actually deposit the check in person

• Eliminates the possibility that your check could get lost or stolen

• Also can get you free checking

??

• The term used to describe the ease and speed with which you can convert savings or an investment into cash is called ___________

Credit History

• When you ask for a loan or apply for a credit card, lenders look at your "credit history" to see how reliable you have been in repaying loans or credit.

• If you've never been granted credit, such as a credit card, store account, car loan or mortgage, you may not have a credit history.

Why is it important to have good credit?

• What can good credit help you get?

Good credit can help you?• Buy a home (mortgage).• Get a job.• Set up telephone, gas and electric, water or heating oil

accounts.• Rent an apartment.• Buy "big ticket" items (furniture, electronics or appliances)

without paying cash.• Finance a car.• Qualify for insurance coverage.• Borrow money.• Obtain a credit card.

Good Credit

• A positive credit record results from using credit wisely.

Good Credit

• People with good credit have:• Established credit—they have borrowed money or

used a credit card. Paid utility or other bills on time.• A proven record of making at least the minimum

payments on time—by the due date—and staying within their credit limits.

• Only obtained loans or credit cards that they are capable of paying back. (Don't overextend yourself—apply for only the credit you can afford.)

How can you hurt your credit rating?

• Think of at least 3 things:

How can you hurt your credit rating?

• Your credit can be negatively affected by:• Late payments.• Paying less than the minimum.• Having too many credit cards with large balances or large

amounts of available credit—even if you make on-time payments.

• Overdue accounts referred to a collection agency.• Declaring bankruptcy.• Having court-ordered withdrawals from your paycheck to

pay debts (garnishment).

3 C’s of Credit

• Qualification for credit and loans:• Character: Willingness to repay your debts. As

indicated by searching the applicant’s credit history.

3 C’s of Credit

• Capacity: Weighs whether or not you will be able to meet payment obligations, based on weighing current income and expected income versus current and expected expenses.

3 C’s of Credit

• Capital: The property and assets that total more than debts are known as capital. If your capital totals more than your debts you should be able to pay your bills.

What’s in your FICO® score

How are they calculated?• FICO Scores are calculated

from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart reflect how important each of the categories is in determining your FICO score.

Percentage Pie Chart

How Credit Scoring Helps You

• Credit scores give lenders a fast, objective measurement of your credit risk.

• Before the use of scoring, the credit granting process could be slow, inconsistent and unfairly biased.

• Credit scores – especially FICO scores, the most widely used credit bureau scores – have made big improvements in the credit process.

How Credit Scores Help

• People can get loans faster.Scores can be delivered almost instantaneously, speeds up loan approvals. Today many credit decisions can be made within minutes, even on mortgages.

• Scoring allows retail stores, Internet sites and other lenders to make “instant credit” decisions.

How Credit Scores Help

• Credit decisions are fairer.Lenders can focus only on the facts related to credit risk.

• Factors like your gender, race, religion, nationality and marital status are not considered by credit scoring.

Negative Credit

• Any negative information regarding your credit usually stays on a credit report for 7 years.

• If you declared bankruptcy, the limit is 10 years.

Keeping Good Credit 101

• Strategies:• Pay on time• Pay in full• Close credit card accounts that are

unnecessary• Notify credit card companies when faced with

payment problems

Collateral

• Collateral is a tangible asset that is used to secure a loan.

• In a mortgage loan (what is the collateral?)• If you default on the loan, what will the

bank/lending agency have the right to do?• What is a collateralized/secured loan?• Pawn shops

Uncollateralized/Unsecured Loan

• A personal loan without assets to cover the loan amount

• Larger risk for the lender

Question

• A person has 3 credit cards with large outstanding balances and is unable to make payments on any of them. Which action should the person take?

• A – Notify a credit reporting agency in order to avoid a late fee

• B – File for bankruptcy in order to maintain your current credit score

• C – Notify the credit card companies in order to negotiate a new payment plan

• D – Avoid paying income taxes for the new year

Open End Credit

• A revolving line of credit offered by banks and other lenders to consumers

• Set limit on the line of credit. • Funds are accessed using (credit/debit card,

store charge card, cash advance)• Amounts owed vary each month• Pay interest on any outstanding balance

Closed-end Credit

• What sorts of loans are considered forms of closed-end credit?

Installment Loan

• Any type of loan that you pay back in monthly payments for one or more years.

New Credit Card Regulations – President Obama

• Payments are due at least 21 days after they are mailed or delivered.

• Legal limits on the amount of interest rate hikes and fees that banks can charge for a credit card

• Must give 45 days before significant changes can be made on an account

Who wants Pizza?

• Credit card issuers – No if under 21, co-sign, or prove you have enough income

• Credit card companies must stay 1,000 feet from college campuses if they are offering free pizza or other gifts to entice students to apply for credit cards.