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Standard 3 Students will understand principles of money management. Objective 2 Understand credit uses and costs. Objective 3 Describe the impact of credit on money management. Credit. A legal agreement to receive cash, goods, or services now and pay for them in the future.

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standard 3 students will understand principles of money management
Standard 3Students will understand principles of money management.
  • Objective 2
    • Understand credit uses and costs.
  • Objective 3
    • Describe the impact of credit on money management.
credit
Credit
  • A legal agreement to receive cash, goods, or services now and pay for them in the future.
  • Interest: the cost you pay for using credit. (On credit card statements it’s called Finance Charge.)
common types of credit
Common Types of Credit
  • Installment Loan: A loan in which the amount of payment and the number of payments are predetermined—monthly payments.
    • (Typically used for autos, appliances, furniture…)
    • (Usually has a lower interest rate than a credit card.)
common types of credit1
Common Types of Credit
  • Student Loan: Used for tuition and college expenses.
    • Usually has a lower interest rate than an installment loan.
    • Federal government through college institution.
common types of credit2
Common Types of Credit
  • Credit Card: A plastic card that you can use to make purchases or obtain cash by using a line of credit. (Store cards generally have a higher interest rate than bank cards.)
    • Grace Period: Time allowed in which you can pay off new purchases without being charged interest, usually 20 – 30 days.
    • APR: Yearly interest rate for using credit.
    • Credit Limit: Maximum amount you can charge.
common types of credit3
Common Types of Credit
  • Mortgage Loan: Used specifically for home purchase.
    • (Usually has a lower interest rate than an installment loan
    • May provide an income tax break on interest paid.
    • Usually repaid over 15 – 30 years.)
slide7
Did you know 61% of adults said their knowledge of credit reports is fair to poor?Did you know only 3% of adults can name the three main credit reporting agencies? Can YOU?

Source: Consumer Federation of America

credit reporting agencies
Credit Reporting Agencies
  • EquiFax
  • Experian
  • TransUnion
  • www.annualcreditreport.com
credit reports and scores
Credit Reports and Scores
  • Credit Report: A detailed record of how you have repaid your credit obligations.
  • Credit Score: A number that reflects your creditworthiness, based on your credit report
    • Ranges from 300 to 850, the higher the better.
    • A score of 700 or above is considered good. A score ranging between 730 and 850 qualifies for the best interest rate.
    • A low score can result in a higher interest rate or denied credit approval.
building positive credit students
Building Positive Credit--Students
  • (Start with a checking account--Manage your checking account/debit card wisely)
  • Qualify for overdraft protection (line of credit)
  • Co-sign on a loan with parent (car loan, student loan…)
  • Make a purchase using installment payments (tires…)
  • Get one credit card or have your parents add you as an authorize user on their card.
ways to improve your credit score
Ways to Improve Your Credit Score
  • ***Pay your bills on time. (Accounts for 35% of score.)
  • Watch your balances. (When you exceed 50% of your credit limit, your FICO will suffer—30%.)
  • Old and long are good. (Longer credit history is an asset—15%)
  • Resist opening new accounts. (Too many inquiries—10%)
  • Diversify. (Variety and type of loans—10%)
concerning interest on debt
Concerning interest on debt…

Interest never sleeps nor sickens nor dies;

It never goes to the hospital;

It works on Sundays and holidays;

It never takes a vacation;

It never visits or travels;

It takes no pleasure;

It is never laid off work nor discharged from employment;

It never works on reduced hours

the cost of using credit
The Cost of Using Credit

SCENARIO:

  • Interest Rate 17%
  • Minimum Payment 2.5% or $10.00
ways to lower credit cost
Ways to Lower Credit Cost
  • Pay off loan early.
  • Pay extra or higher than minimum payment due.
  • Look for the lowest interest rate.
  • Set up loan for shortest time period possible.
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