Please…

•Log into Moodle and complete today’s Bell Ringer

What is Credit?•Credit - means someone is willing to loan

you money in exchange for your promise to repay it, usually with interest. It is a contractual agreement▫Interest - is the amount you pay extra for

the convenience of using someone else’s money.

•It is a privilege – it can be damaged or taken away… but if used wisely, can be of great benefit to the borrower

•It is something that can have a great impact on your financial future

Different Types of Credit•Credit Card

▫Issued by banks, credit unions, stores, and/or gas stations

▫Has “Revolving Credit” – you can charge and pay anytime

▫No Payoff deadline and varied monthly payments

▫Has the highest interest rate

Different Types of Credit

•Installment Loan▫Typically used for large purchases (ex. car,

appliance)▫Has set monthly payments and has a payoff

deadline▫Lower interest rate

Different Types of Credit

•Mortgage▫Used specifically to purchase a home

(usually)▫Monthly payments are set and loan is

repaid between 15-30 years▫Even lower interest rate (tax break on

interest paid)

Different Types of Credit

•Student Loan▫Used for tuition and other college expenses▫Usually has a grace period▫Set monthly payment and payoff deadline▫Has one of the lowest interest rates (tax

break paid on interest)

Would you use credit?

•Please go to Moodle and make a decision on the two choice questions I ask ▫Let’s see the results

Debate•Do some research on the positives of

credit (if you will use credit cards in the future) OR the negatives of credit (if you chose NOT to use credit cards in the future)

•Get with a partner who is taking the same side you are

•Write a one paragraph “defense” on your side of the issue (you must include at least 3 GOOD reasons in your defense)▫Keep track of the websites you use

Positives of Using Credit•Good for buying purchases you could not

afford if you had to pay in one lump sum (car, college, house, etc)

•Good for emergencies•Credit Card incentives•Don’t have to carry so much cash – could be

safer•Builds credit – your credit score tells others

your responsibility in paying bills

Negatives of Using Credit•Temptation to overspend•Hard to keep track of what you buy•Ties up future income•Can accumulate debt by overspending,

paying late fees and/or interest payments▫Debt is hard on your family and your

reputation

Types of Credit Cards1. Retail – also known as co-branded cards;

these are store cards like Macy’s, GAP, etc. These have the highest interest rates

2. Bank Cards – Issued by a bank; examples include

MasterCard, Visa, Discover, American Express

3. Reward cards – offer perks such as airline miles, a percentage back on merchandise

Types of Credit Cards4. Secured Card – The amount that can be

charged is prepaid; deposit is held in a special savings account and only used at the request of the customer or when account is closed.

▫ They use this deposit if you can’t pay your bill

These are for students or those who have not established credit

Why is it so easy to get into credit trouble?

•Creditors target YOU!•You are constantly bombarded with credit

card offers•People tend to forget that borrowed money

still needs to be paid back▫It’s easy to swipe a card!

Using Credit WiselyJust starting out?

•Get 1 credit card with a limit of $500-$1000•Pay it off (in full) every month• Borrow only what you can repay ON TIME –

late fees and interest add up!• Read and understand any contract that you

sign.• Remember that purchasing on credit is still

something you must repay, do not get sucked into the trap of overspending.

• Notify creditor if you cannot make payments.

Cost of Credit•Using Credit comes with a price!

Always compare your options – read the fine print!1. Annual Percentage Rate (APR)• Tells you the cost of the loan per year, as a

percentage of the amount borrowed• Introductory APR - an annual percentage rate

that changes after a specific period of time2. Credit Limit –

▫ The maximum amount of credit a lender will extend to a customer

3. Over-the-Limit Fee▫ Fee for spending more than your credit limit

Cost of Credit4. Finance Charge

▫ Represents the actual dollar cost of using credit to maintain a balance (interest payment in a $ amount)

5. Origination Fee – ▫ Charge for setting up a loan (usually with

mortgages)6. Loan term –

▫ The length of time you have to pay off the loan▫ Excludes credit cards

7. Annual Fee – ▫ Usually charged by credit card companies – a

yearly charge your pay for the privilege of using credit

Cost of Credit8. Grace Period

▫ The length of time you have before you start accumulating interest

▫ Credit cards usually give you a 21-25 day grace period

▫ Student loans give you until 6 months after you graduate

9. Late Fee▫ Penalty for making a payment after the due date

10. Universal Default▫ They hike up your interest rate if you are late

for one payment

Comparing Credit Cards

•In the future, you may want to get a credit card; it’s good to know how to choose one▫You will find 3 credit cards offers to

compare▫Download and fill out the chart on Moodle

to keep track of your research

Advertisement Project•With a partner you will create an

advertisement as part of the “Wise Credit Campaign”

•Use Word, Publisher, or Photoshop•Must include:

1. A slogan that you come up with that encompasses what we went over today

2. Positives and negatives of credit3. Advice on how to use credit wisely4. Things to watch out for when using credit

Exit Slip

•Please download the Bell Ringer that you uploaded at the beginning of class▫See if there are any attitudes that you need

to change, based on the information from today

▫Change any answers you need to and re-upload

•Tomorrow▫Credit Score▫Credit Report