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 • 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 • 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 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 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 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.)

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 • EquiFax • Experian • TransUnion • www.annualcreditreport.com

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 • (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 • ***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… 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 SCENARIO: • Interest Rate 17% • Minimum Payment 2.5% or $10.00

Cost of Credit ARFL

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.

Standard 3 Students will understand principles of money management.