Credit

by Tess Arciniega

The Basics of Credit

● What is credit?

-The ability to borrow $$ in return for a promise of future payment

-aka “Buy Now…Pay Later”

● What are the forms of credit?

-Two Forms:

1.Loans (School, House, Car)

2.Credit Cards

● What costs are associated with credit?

-Credit Cards are not free!

-You must pay interest!

Ex:

-Debbie borrowed $100 w/ an interest rate of 15% per year

-$100 x 0.15 = $15

-$100 + $15 = $115

-It will cost her $115 to borrow $100

-Sometimes there are annual fees!

● What determines if someone gets credit and how much they get?

-A credit report determines how much credit someone will get from a credit lender.

-If you have a bad credit history, you might not get credit!

-You must show you are reliable (have a job and can pay on time).

-In order to determine your creditworthiness, they will use the Three C's:

Capital

• Savings, investments,

property

• Value of what you own

• Use capital to pay loan if

needed

• Financial ability to repay

loan

Capacity

• High enough income

• Major expenses & debt

• Sense of financial

responsibility

Character

• Dependability

• Steady job

• Residence (long term)

• Credit history

-With these, they can determine your credit score!

-Sometimes personal loans, or other credit history, can benefit or hurt your score!

-This info comes from the Credit Bureau, which collects info on consumers’ credit and

sells it.

Credit Cards: What You Need to Know

● What is a credit card?

-A card in which you borrow money from a company/bank/corporation, and then you pay it off at the end of the month.

-They may have annual fees!

-There will be a credit limit, or a limit on how much money you have on the card. If you do not follow this limit, you will get a over-the-limit fee! :(

● Where can you use credit cards?

-You can use credit cards in most places.

● What are the benefits and costs of using credit cards?

-The benefit is that you can buy an item ahead of time, when you do not have the money, and pay for it later, when you do. The cost is that there will be an interest rate fee. If you do not pay back this money, there will be a penalty fee!

Positive

• Credit allows consumers

to purchase more goods

• More goods = more

people to make goods =

more jobs

• People w/jobs are able to

spend more money

• Use credit to purchase

even more goods

Negative

• People overuse credit

• Fall into heavy debt

• Can no longer purchase

goods – must pay debt

• Decrease demand for

goods = decrease need

for jobs

• No job = less spending

• Less spending = lower

demand for goods = job

cuts

Smart Consumers Don’t Fall Into the Credit Card Trap

-Do not sign up for multiple credit cards! It WILL affect your score!

-Don't just sign up if they will give you a free item, or 0% APR, because they can later charge you very high prices!

-Only buy items in which you know you can pay them back in a month!

-Always pay the full price on time! Otherwise, the money carries over, and you will also have to pay interest! It gets expensive!