Unit 4 Credit and Debt . What is Credit ? Someone lends you money 1. The original amount borrowed is called the ___ Principal . Common Types of Credit. 2. Which type of credit has the highest interest rates? Credit Card (Revolving Credit)
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1. 35% - payment history
2. 30% - “debt to credit limit ratio”:
Compared to …..
3. 15% - length of credit history
They will look at a Borrower’s :
4. 10% - # of recently opened accounts and credit inquiries - when you pay for a credit score or potential lenders look into your score
5. 10% - mix of credit : higher scores if you can manage 2-3 cards and other loans at same time
These are not good ways to manage your credit
Know for test “70-20-10 Rule”
10% Pay Debt
20% Save Invest
70% Living Expenses
Previous Balance 1000
Paid the min - 50
New Balance ????? 950
But that 950 is charged interest. So…..
New Balance 960
Pay the min - 48
But add interest = 922
So you paid $98 on $1000 balance
Should owe $902 but owe $922
4. 7-10 year history
5. Make a Plan to Pay it Off
-bank sends contractors to take your possessions back (cars, boats, etc..)
d. Difficulty securing job …why?
-especially in business or finance
e. Hard to obtain future credit