Credit

by: Gino Rivera p.7/8

Credit

the ability to borrow $$ in return for a promise of future payment.


Credit is not free!


you must pay interest (APR or annual % rate)





Creditworthiness

to get credit you must demonstrate your creditworthiness

'your reliability to pay back a loan


lenders judge this using 3 factors

'character' sense of financial responsibility dependability steady job. residence (long term)


'capacity' financial ability to repay loan. high enough income. major expenses and debt.


'capital' value of what you own. saving investments property. use capital to pay loan if needed

credit bureau

has a record of every adult

'bounced a check?

'missed a rent payment?

'been sued?

'bankruptcy?


assigns credit rating(score)

number that reflects your creditworthiness


do you have the ability and willingness to pay your bills on time.

credit rating

score between 300 and 850(aka FICO score)

'the higher, the better


effects on score

'on time payments = good score

'low debt = good

'long history = good

' limited # of credit cards = good

credit hitory

what?

'credit information

'credit score


Who?

'provided by credit bureaus

'requested by lenders


when?

'apply for credit

'once a year for free; otherwise pay small fee

'suspect identity theft



credit cards basics

common cards: VISA mastercards 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


Establish credit

establishing credit now will allow you to use credit easily in the future


start small

'store credit card

-easier to get approved


'cosigner

-promises to pay debts


preferred cards do not count

credit card costs

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 card fees

over the limit

'going over credit limit


late fee

'making payment late


penalty fees

'additional fee due to late payment over credit limit returned payment

'could also result in an increase in interest rate

control credit card costs

consider a loan as opposed to using a credit card

interest rate may be lower


pay credit card balance in full

'avoid minimum payment trap


choose card wisely

'least expensive greatest benfits


other tips

'avoid too many card pay cash dont miss payments read what you sign avoid identity theft, seek credit counseling if needed beware of bankruptcy

impact on the economy(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

impact on the economy(negative)

people overuse credit


fall into heavy debt


can no longer purchase goods must pay debt


decrease need for jobs


no job = less spending


less spending= lower demand for goods = job cuts