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How to Get and Keep Credit

Penalty fees for late or missed payments, over the credit limit ... Credit limit: the maximum amount a card holder can charge on a credit card ...

Kelvin_Ajay
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How to Get and Keep Credit

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    Slide 1:How to Get and Keep Credit

    Chapter 26.1

    Slide 2:Applying for Credit

    Why do you need a credit history? To prove you can handle credit responsibly

    Slide 3:Developing a Credit History

    Apply for credit Be approved for it Use it Make payments to the creditor

    Slide 4:Selecting a Credit Card

    Interest rate Extra fees Will interest rate change (introductory or not) Cosigner needed Is there a grace period?

    Slide 5:Selecting a Credit Card: Cost of Credit

    Interest rates: annual percentage rate (APR): cost of credit on a yearly basis Find out if it is an introductory rate or not Fees: Different fees for different services Cash advance: loan given in cash by a credit card company Penalty fees for late or missed payments, over the credit limit

    Slide 6:Selecting a Credit Card: Other Considerations

    Cosigner: someone who agrees to be responsible for a debt if the main applicant does not repay it Grace period: amount of time allowed to repay a debt WITHOUT having to pay interest charges

    Slide 7:Applying for a Credit Card

    Application Address, Employment, Income, Bank information, Other credit

    Slide 8:How old must you be to apply for this credit card? How do your choices influence your economic situation?

    Slide 9:Applying for Credit Creditworthiness: The Three C’s

    Capacity: applicant’s ability to repay the loan Verify employment, income Lots of debt already? Not as creditworthy

    Slide 10:Applying for Credit Creditworthiness: The Three C’s

    Character: shows if proven to trustworthy in repaying debts Credit references Check credit bureaus: businesses that provide information about consumers’ creditworthiness to companies or banks Personal/professional references Criminal record?

    Slide 11:Applying for Credit Creditworthiness: The Three C’s

    Capital: amount of money the applicant has beyond his or her debts Savings and investments Capital to be used as collateral

    Slide 12:Applying for Credit Credit Limits

    Credit limit: the maximum amount a card holder can charge on a credit card Limit increases as card holders pay off cards MAJOR penalties for going over or consistently being close to “maxing out” the card

    Slide 13:Applying for Credit Making the Minimum Payment

    Minimum payment: smallest amount to be paid each month Most cards: 2.5% of balance is minimum amount due Example next slide

    Slide 14:MONTH 1 $1,000 balance on a credit card with 18% interest Divide 18% into 12 months: 1.5% interest each month Minimum payment 2.5% of balance First month: $1000 x 2.5% = $25 is minimum payment However, 1.5% interest each month means only $10 of the $25 payment is applied to the balance, the remaining $15 is for interest / finance charge

    Slide 15: MONTH 2 $990 balance on credit card Divide 18% into 12 months: 1.5% interest each month Minimum payment 2.5% of balance $990 x 2.5% = $24.75 However, 1.5% interest each month means only $9.90 of the $24.75 payment is applied to the balance, the remaining $14.85 is for interest / finance charge

    Slide 16:Maintaining Credit

    Chapter 26.2

    Slide 17:Understanding Loans and Mortgages

    Many principles of using a credit card applies to other types of credit Similar with a few differences

    Slide 18:Understanding Loans and Mortgages How Installment Loans and Mortgages Work

    Loan: money lent by one party to another at interest Most require collateral & paid in installments Cars: 3-7 years Mortgage: loan agreement secured by property Homes: 15, 20, 30, 40 years

    Slide 19:Understanding Loans and Mortgages How Installment Loans and Mortgages Work

    Variable rate: interest rate that fluctuates or changes over the life of the loan Fixed rate: interest rate ALWAYS remains the same Down payment: portion of the total cost paid when item is purchased

    Slide 20:Understanding Loans and Mortgages How Installment Loans and Mortgages Work

    Principal: amount of borrowed money still owed and on which interest is based Simple interest loan: interest is based on the original principal alone Compounding interest loan: interest is also paid on added interest amount Finance charge: total amount it costs borrower to have the lender finance the loan Includes interest, application fee, etc.

    Slide 21:Understanding Loans and Mortgages Secured & Unsecured Loans

    Secured loan: loan backed by collateral Unsecured loan: loan NOT backed by collateral Higher risk = higher interest rate Mortgages = secured Credit card debt = unsecured What’s a car loan?

    Slide 22:Keeping a Healthy Credit Record

    Maintain good credit rating Pay bills on time Low credit rating = higher interest rate More restrictions

    Slide 24:Keeping a Healthy Credit Report Staying within your Income Limmits

    Experts suggest: no more than ______% of your income should be spent on credit payments 20

    Slide 25:Signs of Credit Trouble

    Cannot make monthly payments Receiving multiple payment due notices Calls from bill collectors Wages are garnished Garnishment of wages: Court order to take part of a debtor’s paycheck for payments Item is repossessed: creditor takes the item back

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