The Basics of Credit - Marissa Gutierrez
The ability to borrow $$ in return for a promise of future payment
• aka “Buy Now…Pay Later”
Forms of credit can be Loans or Credit Cards.
• To get credit, you must demonstrate your creditworthiness
-Your reliability to pay back a loan
• Lenders judge this using 3 factors…
• Steady job
• Residence (long term)
• Financial ability to repay loan
• High enough income
• Major expenses & debt
• Value of what you own
• Savings, investments,
Has a record of every adult.
Bounced a check?
Missed a rent payment?
SECTION 2 Vocab You Should Know...
CREDITWORTHINESS - Your reliability to pay back a loan.
CREDIT RATING - Score between 300 & 850 (The higher, the better)
CAPITAL - Value of what you own.
CAPACITY - Financial ability to repay loan.
CHARACTER - Sense of financial responsibility.
SECTION 3: CREDIT CARDS
Common cards: VISA, MasterCard, Discover, AMEX
• Incentives: cash back, points, airline miles
• Regular charge accounts
-Must pay balance in full
- Ex. American Express
• Revolving charge accounts
-Can carry balance from month to month
- Ex. Visa, Mastercard
• Annual Fee
-Required annual $ amount you must pay
- $15 - $100
• Interest (APR)
- 0% to 29%
- Pay entire balance by due date = no interest
• Credit Limits
- Max amount you can spend using card
- Over limit = penalty fee or declined
- Approx $30 for each charge made beyond limit
• Credit allows consumers
to purchase more goods
• More goods = more
people to make goods =
• People w/jobs are able to
spend more money
• Use credit to purchase
even more goods
WORDS TO KNOW...
● Annual Fees - fee associated with having a credit card is a separate fee from interest rate on purchases.
● Credit Limit - maximum amount of credit that a financial institution.
● Interest Rate (APR) - he percentage of a sum of money charged for its use.
● Penalty Fees - Fees charged if you violate the terms of your cardholder agreement or other requirements related to your account.
● Over-the-limit fee - For each month that their balance exceeds their loan limit, borrowers are charged this type of fee.
Section 4: Smart Consumers: Don’t Fall Into the Credit Card Trap!!!
- 580 to 619
Not too bad, but not great either. Scores in this range are leaning toward bad, but you can still find lenders that will work with you. However, the interest rates you get won't make you happy.
- 500 to 579
FICO scores in this range are "bad" credit scores. You'll have few options for credit, and if you do find them, they'll cost you in terms of interest rates, upfront fees, and arbitrary payment schedules.
- 300 to 499
Bad credit score. Very bad. Scores in this range mean that you haven't managed your credit responsibly, you've been very, very unlucky, or a combination of both. You have some work to do, and it'll take a while before things get any better.