CREDIT. Introduction to Business & marketing. Objectives. Compare the types of consumer credit. Describe the advantages and disadvantages of using credit. Identify the elements of creditworthiness (3 C’s). Explain the importance of credit reports. What is Credit?. Credit: Key Terms.
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Introduction to Business & marketing
Compare the types of consumer credit.
Describe the advantages and disadvantages of using credit.
Identify the elements of creditworthiness (3 C’s).
Explain the importance of credit reports.
Credit – an agreement to obtain money, goods, or services NOW in exchange for a promise to pay LATER
Creditor – lends money or provides credit
Debtor – borrows money or uses credit
Credit is based on the creditor’s confidence that the debtor can and will repay the debt (creditworthiness).
Interest – fee that creditors charge a debtor for using their money
credit provided by a store or company for customers to buy its products
Credit Card – can be used in many different places
Issued by banks (i.e., Bank of America Visa card)
Some have annual fees ranging from $25 to $80
Creditors earn money from interest charges, annual fees, and penalties
Installment Loans – loans repaid in regular equal payments over a period of time
Includes student, car, and home improvement loans
Debtor receives loan for a certain about of time (i.e., 60 month loan)
Debtor makes equal monthly payments that cover loan plus interest
Mortgage Loan – a form of installment loan, only it is written for a long period of time (15 – 30 years)
Home serves as collateral, something of value the bank can take
Short-term: one year or less
Medium-term: one to five years
Long-term: more than five years
The more credit card bills you have, the harder they are to pay.
After a while, you may reach your credit limit (point where you cannot charge anymore).
Late or missed payments lower your credit rating!
When you apply for credit, creditors want to make sure you are worth the risk.
The Importance of Credit Reports