Chapter 6. Building and Maintaining Good Credit. Learning Objectives. Explain reasons for and against using credit. Establish your own debt limit. Achieve a good credit reputation. Describe common sources of consumer credit.
Building andMaintaining Good Credit
Ratio of debt-to-equity method uses your Debt-to-Equity Ratio: Ratio of your consumer debt to your assets.
Equity: Amount by which the value of a person’s assets exceeds debts.
Example: Assume a household has $9,120 monetary assets, $20,500 tangible assets and $167,000 investment assets for total assets of $196,620. If total household debt is $9,365, the equity is $187,255 ($196,620 - $9,365) and the debt-to-equity ratio is 5% ($9,365/$187,255)
A ratio of 33% or higher is excessive.
- Interest rate charged
based upon level
People experience difficulty in building and maintaining good credit when they do the following: