Credit in america
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Credit Management. Unit 4. Credit in America. Chapter 16 . FUN FACTS. In 2006, the credit card industry took in $55 billion in credit card fees and $90 billion in finance charges. Makes you want to pay your credit card bills on time. 10% - Credit Cards

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Credit in America

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Credit

Management

Unit 4

Credit in America

Chapter 16


FUN FACTS

  • In 2006, the credit card industry took in $55 billion in credit card fees and $90 billion in finance charges. Makes you want to pay your credit card bills on time.10% - Credit Cards

  • U.S. consumers racked up an estimated $51 billion worth of fast food on their personal credit and debit cards. That is equal to 10.2 Billion Big Mac meals, 3 billion pounds of fries and 1.7 billion gallons of coke.Owes about $230

  • U.S. Visa cardholders alone conduct more than $1 trillion in annual volume. Average Family: $9,000

  • Average Household Credit Card Debt is $8,400.00


Certain terms are commonly used to describe credit, its availability and its cost.

  • Borrower: or debtor: When you borrow money or used credit

  • Creditor: The person or company who loans money or extends credit to you

  • Capital: is property you possess(bank accounts, investments, other assets)

  • Collateral: is property pledged to assure repayment of a loan.

  • Line of Credit: Pre-established amount that can be borrowed without collateral


Once you have completed the credit purchase, you owe money to the creditor.

Principal: amount borrowed

Balanceddue: is the amount borrowed plus interest for the time you have the loan

FinanceCharge: total dollar amount of interest and fees you pay for the use of credit.


FINANCE CHARGES

  • Minimumpayment: the least amount you may pay that month under your credit agreement.

  • DueDate: credit payments are due on a specific date or you will be charged a late fee

  • Latefee: charged to a balance if you do not pay within a certain time

  • Securedloan: you agree to repay entire debt or goods will be returned at end of a time


Advantages of Credit

  • Able to buy needed items now

  • Don’t have to carry cash

  • Creates a record of purchases

  • More convenient than writing checks

  • Consolidates bills into one payment


Disadvantages of Credit

  • Interest (higher cost of items)

  • May require additional fees

  • Financial difficulties may arise if one loses track of how much has been spent each month

  • Increased impulse buying may occur


Kinds of Credit

  • Open-Ended Credit

    • Can be used over and over again pending customer agreement

    • Open 30-Day accounts

      • Travel-entertainment cards (American Express and Diner’s Club)

      • Widely Accepted nationwide and overseas

      • Have high or no credit limits

      • Provides instant purchasing power


Kinds of Credit

  • Revolving Credit Accounts

    • All purpose credit card: Visa, MasterCard, and Discover

      • Widely accepted nationwide and overseas

      • Provide instant purchasing power

    • Retail store cards: department stores and gas companies

      • Only accepted at participating stores

      • Provide instant purchasing power


Applying for a Credit Card

  • Costs:

    • Annual Percentage Rate (APR)

    • Grace period (free period)

    • Annual Fees

    • Transaction Fees

    • Balancing computation method for the finance charge

  • Features:

    • Credit limit

    • How widely the card is accepted

    • What services and features are available


Kinds of Credit

  • Open-Ended

  • Closed-Ended Credit

    • A loan for a specific amount of time that must be repaid, in full, including all finance charges, by a stated due date.

    • Very expensive items: cars, furniture, and major appliances.

    • Statement includes: Amount loaned, finance charges, payment amount.

    • Collateral

  • Service Credit

    • Have a service performed now and pay for it later

    • Examples: Phone, utilities, doctors, and lawyers

    • Terms are set by individual businesses

    • Usually paid in full with no finance charges or a budget plan


Sources of Credit

  • Retail Store

  • Credit Card Companies

  • Banks and Credit Unions

  • Finance Companies

  • Pawnbrokers

  • Private Lenders

  • Other Sources of Consumer Credit


Credit Cards Do’s and Don’ts

  • Shop around

    • Look at various sources.

  • Read and understand the contract

    • Read the contract carefully

    • Don’t rush into signing anything

    • Once a contract is signed, get a copy of it.

    • Know the penalties for missed payments

  • Know your cost

    • Figure out the total price when paying with credit.

    • Make the largest payments possible

    • Know the penalties for missed payments

    • Buy on installment credit only after you have evaluated all other possibilities.

    • Don’t be misled into thinking small payments will be easy.


Credit Rating and Report


How a Credit Score is Calculated


This central site allows you to request a FREE credit report, once every 12 months from each of the nationwide consumer credit reporting companies. Equifax, Experian, and TransUnion.


How is My Credit Score Affected?


Credit Rating and Report

  • Summary of Information

  • Public Record Information

  • Credit Information

  • Account Detail

  • Requests for Credit History

  • Personal Information


Consumer Protection

  • Truth in Lending Act (1968)

    • Ensures consumers are fully informed about cost and conditions of borrowing.

  • Fair Credit Reporting Act (1970)

    • Protects the privacy and accuracy of information in a credit check.

  • Equal Opportunity Act (1974)

    • Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance.

  • Fair Credit Billing Act (1974)

    • Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts.

  • Fair Debt Collection Practices Act (1977)

    • Prevents abuse by professional debt collectors, and applies to anyone employed to collect debts owed to others; does not apply to banks or other businesses collecting their own accounts.


CARD ACT

  • On Feb. 22, 2010, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) took effect.

  • It is a comprehensive credit card reform legislation that aims to establish fair practices relating to the extension of credit under an open end consumer credit plan.

    • New rules credit card companies must follow to ensure CONSUMER PROTECTION.

  • Provisions include: Interest rates, due dates, misleading terms, set limits, minimum payment explanation


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