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Ch 4: Consumer Credit . 4.1 Introduction to Consumer Credit. A couple fun tips…. There are almost a billion MasterCard and Visa credit cards in use in the US In 2006, Visa cardholders made more than $1,000,000,000,000 in purchases

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ch 4 consumer credit

Ch 4: Consumer Credit

4.1 Introduction to Consumer Credit

a couple fun tips
A couple fun tips…
  • There are almost a billion MasterCard and Visa credit cards in use in the US
  • In 2006, Visa cardholders made more than $1,000,000,000,000 in purchases
  • Today’s consumer owes money, on average, to 13 different lending institutions, including credit cards and loans
  • More than half of the US has at least 2 credit cards
what do you need to know before using credit
What do you need to know before using credit????

Answer the following questions with your groups!

  • Why does credit compel people to overspend?
  • Have you ever seen an advertisement about obtaining your credit score on TV, on radio, or in print media?
  • How is your credit score like a credit “report card?”
what do you need to know before using credit1
What do you need to know before using credit????
  • Using cash or debit = buy now, pay now
  • Purchasing something but not paying immediately means you are using credit
    • People who use credit are called debtors
    • Every time you use electricity, you are using credit. You use the electricity and then pay for it when the monthly bill arrives
  • Organizations or people that extend credit to consumers are called creditors
    • For example, Bank of America
advantages vs disadvantages
Advantages vs. disadvantages

YAY!!!

  • Don’t have to carry lots of cash
  • Can use something while still paying it off
  • Don’t have to pay something in full before purchasing

But…

  • Interest!
  • Tendency to overspend (think you have more money than you do)
with your group
With your group…
  • Create a pros and cons list of having a credit card
    • You may not use the ones on the previous slide
    • Must have 5 of each
when getting a credit card
When getting a credit card…
  • Creditors have you fill out an application and they will check your financial history. The history includes three basic items…
    • Assets – everything you own (car, home, bank accounts etc)
    • Earning Power – your ability to earn money now and in the future. They look to make sure you have enough income to pay back debt
    • Credit rating – aka your “credit report card”. Creditors report how well you met your financial obligations to a credit reporting agency. You are given a score from 300-850.
when getting a credit card1
When getting a credit card…
  • A credit reporting agency compiles records on all credit users.
    • These records are used by creditors before they issue credit to a consumer
  • How do you start a good credit history?
    • Open a checking and savings account
    • Pay all bills on time
    • Successfully handle all credit transactions
  • Given score based on those 3 criteria
    • Most popular score is called FICO score
    • 300 – 850
    • Higher the score the better the credit
what else
What else??
  • Some stores offer an installment plan to creditworthy customers. This gives consumer the convenience of paying for merchandise or services over a period of time.
    • The consumer pays part of the selling price at the time of purchase. This is called a down payment
    • Payments made on monthly basis
    • Installment buyers are charged an interest fee or finance charge that is added to the cost
example 1
Example 1
  • Heather wants to purchase an electric guitar. The price of the guitar with tax is $2,240. If she can save $90 per month, how long will it take her to save up for the guitar?
check your understanding
Check your understanding
  • If Heather’s guitar costs x dollars and she could save y dollars per month, express algebraically the number of months it would take Heather to save for the guitar.
example 2
Example 2
  • Heather, from Example 1, speaks to the salesperson at the music store who suggests that she buy the guitar on the installment plan. It requires a 15% down payment. The remainder, plus an additional finance charge, is paid back on a monthly basis for the next two years. The monthly payment is $88.75. What is the finance charge?
check your understanding1
Check your understanding
  • Assume the original price of the guitar was p dollars, and Heather made a 20% down payment for a one-year installment purchase. The monthly payment was w dollars. Express the finance charge algebraically.
example 3
Example 3
  • Carpet King is trying to increase sales, and it has instituted a new promotion. All purchases can be paid on the installment plan with no interest, as long as the total is paid in full within six months. There is a $20 minimum monthly payment required. If the Schuster family buys carpeting for $2,134 and makes only the minimum payment for five months, how much will they have to pay in the sixth month?
check your understanding2
Check your understanding
  • The Whittendale family purchases a new refrigerator on a no-interest-for-one-year plan. The cost is $1,385. There is no down payment. If they make a monthly payment of x dollars until the last month, express their last month’s payment algebraically.
example 5
Example 5
  • Mike has a credit rating of 720. Tyler has a credit rating of 560. Mike and Tyler apply for identical loans from Park Bank. Mike is approved for a loan at 5.2% interest, and Tyler is approved for a loan that charged 3 percentage points higher because of his inferior credit rating. What interest rate is Tyler charged?
chapter 4 asnmt 1
Chapter 4 Asnmt 1
  • Pg. 178 #1 – 7, 11 - 13