Using Credit

Chapter 25, pgs. 469-487

Using Credit Vocabulary

• Credit• Creditor• Revolving charge account• Charge account• Installment account• Vehicle leasing• Cash loan• Collateral• Cosigner• Home equity loan• Equity• Credit rating• Credit bureau• Credit agreement• Finance charges• Interest• Annual percentage rate (APR)• Grace period• Bankruptcy

What are the terms I need to know for this chapter?

Using Credit

• Credit is easily available to most consumers. Many businesses make it easy to “buy now and pay later” with credit.

• A creditor may be a business or an individual who allows you to use credit for goods and/or service.

What is credit?

What is a creditor?

Advantages of Credit

• Allows the use of goods, such as a car or house

• Allows you to buy expensive items

• Can offer a source of cash• Offers convenience, you

don’t need to carry cash.• Provides a record of

purchases.

What are the advantages of using credit?

Disadvantages of Credit

• Using credit reduces future income, use credit now spend tomorrow’s income

• Using credit can be expensive

• Can encourage impulse buying

• Misusing credit can cause serious problems

What are the disadvantages of credit?

Using Credit • Credit card accounts• Charge accounts• Installment accounts• Vehicle leasing• Cash loans• Home equity loans

What are the different types of credit available to me?

Using Credit

• Many department stores and companies issue credit cards so consumers can use credit to buy their goods and services.

• Banks and credit card agencies also issue credit cards.

• This allows customers the option to pay off their balance or spread it over a period of time.

What is a credit card account?

What is a revolving charge account?

Using Credit • Some businesses allow customers to charge goods and services on a file at the business

• It is often used to charge expensive items like a major appliance or piece of furniture.

What is a charge account?

What is an installments account?

Using Credit

• Is a credit transaction by which a person rents a car according to certain restrictions.

• With a lease, you do not own the vehicle & will return after the lease term is up (2 to 4 years)

What is vehicle leasing?

Using Credit• This is when you need to

borrow money to buy items you need or want.

• To get cash loans, a borrower is required to pledge collateral.

• Collateral is something of value held by the creditor in case you are unable to repay the loan.

What are cash loans?

What is collateral?

Using Credit

• This type of loan provides automatic access to a sum of money separate from the amount the homeowner borrowed to purchase the house.

• Is determined by subtracting how much is owed on a house from the amount the house is worth.

What is a home equity loan?

What is equity?

Using Credit

• You may have a hard time starting credit for the 1st time because creditors need evidence that you can pay your bills.

• You will need to apply for credit by filling out a credit application

• This helps creditors evaluate your credit rating.

• Credit rating – is a way a creditor’s rates how you pay your bills.

How can you establish credit?

Using Credit

• Creditors consider people who have jobs w/ steady incomes as a good credit risks.

• Must make regular, on-time payments on credit purchases, loans, or fixed expenses such as rent or utilities

How is a person considered a good credit risk?

Using Credit

• Owning a car, home, stocks, or bonds

• Living in the same community for a period of time.

How is a person considered a good credit risk?

Using Credit

• Get a job and stay employed

• Open a checking account• Open a savings account• Buy an item on a layaway

plan.• Apply to a gasoline

company or a local store for a credit card

How can a person build their credit rating?

Using Credit

• Once you use credit, you automatically establish a credit record at a local or national credit reporting agency also known as a credit bureau.

What’s in a credit record?

Using Credit

• Information on your credit record shows only the facts collected by the credit bureau.

• Generally, negative information stays on your record for 7 years

What’s in a credit record?

Using Credit

• Before you sign any type of credit agreement, examine it carefully.

• A credit agreement is a legally binding contract between a borrower and a creditor.

• NEVER sign an agreement that has blank spaces.

What is a credit agreement all about?

Using Credit

• Knowing the exact cost of credit can help you compare finance charges & find the best deal.

• Finance charge are the total amount a borrower must pay for the use of credit.

What are finance charges about?

Using credit

When you apply for credit, the following factors determine the amount of finance charge you may pay:

• Amount of credit used• Interest rate• Length of the repayment

period

What is the cost of credit?

Using Credit

• Interest is the price paid for the use of money over a period of time

• Annual percentage rate (APR) is the actual rate of interest charged on a yearly basis

• Grace period is the number of days allowed to pay for a new purchase before interest is charged.

What is interest rate?

Using Credit

• Equifax• Experien• Transunion What are the three credit

agencies?