CREDIT

Fall 2007

CAN YOU DEFINE THESE TERMS?

• CREDIT--

• CREDITOR--

• PRINCIPAL--

What are four types of credit?

• CASH CREDIT/SALES CREDIT

• SECURED/UNSECURED CREDIT

• CLOSED-END/OPEN-END CREDIT

• SINGLE-PAYMENT/INSTALLMENT CREDIT

What are the PROS OF CREDIT?

1. T____

2. C____

3. F____

What are the CONS OF CREDIT?

1. I____2. I____3. O____Others drawbacks include:4. S____5. I____6. O____7. R____

When should you use credit?

Response:

QUALIFYING FOR CREDIT

• Three C’s of Credit

1. C

2. C

3. C

• Credit History

On-line Credit Application

• Credit Application (on-line Credit One)

--employment --residence

--home ownership --housing costs

--credit references --collateral

--bank references

EQUAL CREDIT OPPORTUNITY ACT

• Federal Law

• Equal chance to obtain credit

• Cannot discriminate based on--s --m--r --n--r --i--a

CREDIT REPORTING AND RATING

• Where do credit bureaus get info?

• What are the three national credit reporting agencies?

• What items are included on a credit report?

• What is the difference between a credit rating and a credit score?

ESTABLISH/MAINTAIN CREDIT

• First Time Credit

1. Open checking/savings

2. Put utility bill in your name

3. Apply for credit card from local

store

What is a cosigner?

FAIR CREDIT REPORTING ACT

Explain the purpose of the Fair Credit Reporting Act.

TYPES OF CREDIT CARDS

• PRIVATE LABEL/GENERAL PURPOSE

• REVOLVING/CHARGE

COMPARING TERMS1. A2. A3. W4. C5. M6. G7. M8. O9. C10. S

TRUTH IN LENDING ACT

• Explain the Truth in Lending Act.

USE CREDIT CARDS WISELY

• Credit limit is the MAX, not a goal

• Save receipts

• Set your own limit

• Pay balance in full

• Make the largest payment possible

• Pay bills on time

REVIEW THE MONTHLY STATEMENT

Why should you compare your credit card statement with your receipts?

Fair Credit Billing Act• Why should you write a letter?• To whom should you write the letter?• What is the time limit that the letter has

to reach the credit card company?• What should be included in the letter?• How long does the creditor have to

respond?• What happens when the party at fault is

determined?

Taking Out a LoanDefine:

consumer finance companyloan sharkdown paymentballoon paymentacceleration clauseadd-on clauseright of recission

HANDLING DEBT PROBLEMS

• Dangers of Excess

• Debt Collections Methods

• Repossessions/Shut-offs

• Collections Agencies

• Judgments/Liens

• Garnishments

Climbing Out of Debt

• W

• S

• C

• D

• B

1. Chapter 7

2. Chapter 13

Credit Card Disclosure5. If you are late in making a payment, how

much will you be charged?6. A friend of ;yours bought the same game

system at another store. The monthly loan rate was 1.7%. Who got the better deal—you or your friend?

7. You sell a short article to the local newspaper for $100. You would like to use the money to pay off the loan early. Will you benefit or lose by doing so? Explain.

CREDIT CARD DISCLOSURE

1.What is the monetary cost of credit in this situation?

2.What was the purchase price of the video game system? Explain.

3. What is the total amount you will have paid for the game system by mid-August? Assume you make all your payments on time. Show your calculations.

4. How long will it take to pay for the game system in full?

Credit Card Statement1. What kind of credit card is this? How can you

tell?2. What type of credit arrangement is being offered?

How can you tell?3. Which of the methods described in your textbook

was used to calculate the finance charge?4. How much interest is the store charging, 1.8% or

21.6%? Explain.5. Suppose the balance on this account was $27 for

the entire month. What would be the amount of the finance charge on the next bill? Why?

6. How can the cardholder avoid paying additional finance charges? Be specific.

CREDIT CARD DISCLOSURE

8. This disclosure form has a space for the borrower to sign up for credit life insurance. A. Who pays for the credit life insurance? How can ;you tell? B. Why do you think someone would want credit life insurance when taking out an installment loan?