Personal Finance And Credit

1. Personal FinanceAnd Credit How to Get and Keep Credit

2. FYI • The average college student has about three credit cards and is $1,843 in debt. • You should try not to use credit if you can, but sometimes it’s unavoidable. • If you do decide to get a credit card, there are some things you need to know…..

3. Applying for Credit • Must fill out an application form. • Form asks questions such as: • Address, name, employment, income, credit history, banking information.

4. Credit Worthiness: The five Cs • Capacity: Do you have the ability to pay? • Character: What kind of person are you? They may ask for credit references. • Credit history: Creditor will check with a credit bureau. • Capital: Cash, savings, investments, possessions. • Collateral: Property or valuables you have.

5. Credit Bureau • Credit bureau is an agency that collect information about you and other credit consumers. • Credit bureau report tells if you pay your bills on time or failed to pay debts. • Shows the amount of debt you have.

6. Credit Limit • The maximum amount you can spend or charge on a credit account. • The creditor will take into account the five Cs of credit when giving a limit.

7. Cosigner • A person who signs with you for a loan. • This person responsible for the loan if you don’t make the payments.

8. Fast Review • What kind of things can be used as collateral for a loan? • What is a credit limit? • What is the responsibility of a cosigner? • List the five Cs of credit.

9. Using credit

10. Why use credit? • To purchase expensive items such as: • Cars • Furniture • Appliances • Make payments over a series of months.

11. Down Payment • A portion of the total cost that you pay when you purchase a product.

12. Principal • The amount of money you still owe and on which the interest is based.

13. Cash loans • Obtained from banks, credit unions, savings and loans and finance companies. • Bank credit cards can be a source of cash loans.

14. Installment loans • Requires down payment • A portion of the total cost that you pay when you purchase a product. • The principal • Amount of money you still owe and on which the interest is based.

15. Cash loans • Obtained from banks, credit unions, savings and loans, and finance companies. • Paid back like an installment loans. • Example: bank credit card like VISA

16. Secured and unsecured loans • A loan backed by collateral. • Interest rate may be lower. • A loan not backed by any collateral. • Because of increased risk, interest charge is usually higher than a secured loan. Secured Unsecured loan

17. Fast review • If you make a $500 down payment on furniture that costs $2,000, what is the $1500 that you still owe called? • What is the difference between a secured loan and an unsecured loan?

18. Paying for credit

19. Paying for Credit • Before you borrow, figure out what it will cost to borrow. • Different fees and other charges • Different interest rates

20. apr • Annual percentage rate • Determines the cost of your credit on a yearly basis. • Amount of interest you pay depends on: • Interest rate • Length of loan • Amount of loan

21. Finance charges • According to law, each lender must show the APR and finance charges. • Finance charge • The total amount it costs you to finance the loan stated in dollars and cents. • Includes interest and other charges such as application fees.

22. Changes in interest rates • Does loan have a Variable rate or fixed rate • Variable rate • The rate changes as interest rates in the banking system change. • Banks might change the interest rate to adjust for inflation. • Fixed rate: • The interest rate always remains the same. • BE AWARE: • Introductory rates creditors offer

23. Fees • In some cases you have to pay an application fee to cover the cost of the credit check. • Some companies charge an annual fee to use their card. • Fees are charged in addition to interest and added to the total amount interest is calculated on.

24. Cash advance • A person borrows money on a credit card rather than use it to make a purchase. • There is often a separate fee for a cash advance.

25. Grace period • Amount of time you get to pay off a debt without having to pay interest charges. • Pay the total amount owed by due date, you won’t be charged any interest. • This is one case credit does not cost money. • Cards also have a grace period for making a late payment before charged extra interest.

26. Fast review • Why should you beware of low introductory interest rates? • What are some types of fees credit cards charge?

27. Keeping credit

28. Keeping credit • Maintain your good credit rating! • Pay bills on time! • Be responsible when using credit! • Don’t overextend your credit!

29. Your credit burden • Consider how much credit you can afford. • Experts say: • You shouldn’t use more than 20% of your income for credit payments.

30. Minimum Payment • Each credit card statement always includes a minimum payment you have to make on the bill. • To pay off a credit card debt of $2,500 at 18.9% interest would take over 30 yrs if you only paid the minimum payment. • Total interest would be more than $7000 • You should always pay more than the minimum payment.

31. Overextending Your credit • A problem is that once you reach your credit limit on one card, you might be tempted to use another credit card. • The more credit cards you have, the more you might be tempted to make impulse purchases.

32. Credit problems • Signs of credit problems: • Trouble making minimum monthly payments • Getting 2nd or 3rd payment due notices • Things to give you a bad credit rating • Late payments • Missed payments • Too much credit

33. Garnishment of wages • Some credit contracts allow the creditor to take all or part of your paycheck if you miss a payment.

34. repossess • Creditor has the legal right to take your collateral back. • The creditor then sells the collateral to someone else to get the money you still owe.

35. Fast Review • What is the highest percentage of your income that personal finance experts say you should spend on credit payments. • What is garnishment of wages?

36. Uses of credit!

37. Charge Account • Represents a contract between the firm offering it and the customer. • Three types of charge accounts are usually available for your use: • Regular accounts • Budget • Revolving

38. Regular Charge Account • Seller or provider expects payment in full within a certain period of time. • Usually 25-30 days after the billing date. • Customers can purchase goods or services up to a fixed dollar limit at any time. • Generally used for everyday needs and small purchases.

39. Revolving accounts • Most popular for of credit. • Purchases can be charged at any time but only part of the debt must be paid each month. • Usually maximum amount that may be owed at one time. • A payment is required each month, but the total amount owed need not be paid in one month. • A finance charge is added, if the total amount is not paid.

40. Underage credit cards • Under contract law, minors can’t be held liable for their personal debts. • Businesses aren’t willing to extend credit.

41. Types of Credit Cards • Travel and entertainment cards • Oil company cards • Retail store cards • Mastercard, Discover, Visa • Multipurpose cards

42. Installment sales credit • Contract issued by the seller that requires periodic payments to be made at certain times. • Finance charges are added • Must fill out a credit application • Must sign a written agreement (a sales contract) • Receive and own the goods at the time of purchase. • Make a down payment • Make regular payments

43. Consumer Loans • A loan is an alternative to charge-account buying or installment of credit. • There are several kinds of consumer loans available. • Installment loan • Single-payment loan

44. Single-payment loan • You don’t pay anything until the end of the loan period, possibly 60 or 90 days. • At due date, you repay full amount borrowed plus the finance charge. • If you are a good credit risk, you may be able to sign a promissory note.

45. Promissory note • Written promise to repay based on a debtor’s excellent credit rating. • You may be asked to offer collateral

46. Maturity date • The date on which a loan must be repaid.

47. “2/10, n/30” • 2% discount if paid within 10 days • Net is due within 30 days.

48. Questions??????????????