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Credit

Credit. Good, Bad, or Ugly???. What is Credit?. When goods, services, or money is received in exchange for a promise to pay at a future date, usually with interest. Who is the Lender? Who is the Borrower?.

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Credit

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  1. Credit Good, Bad, or Ugly???

  2. What is Credit? • When goods, services, or money is received in exchange for a promise to pay at a future date, usually with interest

  3. Who is the Lender? Who is the Borrower? • Lender – The person or organization who has the resources to provide the individual with a loan. • Borrower – The person or organization that is receiving the money from the lender.

  4. How does credit work? • Interest – The amount you pay to use someone else’s money. • Annual Percentage Rate (APR) – The amount it costs you per year to use credit, expressed as a percentage rate. • Annual Fee – A yearly charge for the privilege of using credit.

  5. How does credit work? • Credit Limit – The maximum amount of money you can spend on a particular credit card. • Minimum Payment – The least amount you must pay each month in order to stay in good standing with the credit card company and avoid a late payment. • Grace Period – The number of days you get to pay off your card before the company begins to charge you interest.

  6. What types of credit can I get? • Installment – A one time loan which the borrower repays the amount in equal payments. • Examples – Home mortgage, car loan, student loan, etc. • Non-Installment – An amount given in advance, don’t have to use it all, payments fluctuate • Examples – Credit Card, Store Card

  7. Advantages of Credit • Convenience • Take advantages of sales and promotions • Emergencies • Make reservations or purchase things on the Internet

  8. Disadvantages • Very high interest rates • Add-on Fees • Danger of over-spending and unable to repay loan

  9. STOP!

  10. How do I improve my credit score? • Have a checking and savings account – do not bounce checks or overdraft the account • Apply for credit early in life and always repay your loans on time • Pay off all loans, if unable contact your lender and ask for more time

  11. What happens if I have too much debt? • First – • List all the debt you have, including your balance and the interest rate. • Always pay at least the minimum payment on all debt. Then, whatever you have left over start paying the highest interest rate debt first. • Continue doing this until it is all gone

  12. Which debt should I pay first? 1st – Visa 2nd – MasterCard 3rd – Best Buy Card 4th – Car Loan 5th – Student Loan

  13. What happens if I have too much debt? • Second – • Contact a credit counselor. They can many times reduce your payments or get you more time. • Make sure you are using a non-profit organization. Some credit counselors are trying to get more money from you. They work for the credit cards.

  14. What happens if I have too much debt? • Third – • Last Resort – Declare Bankruptcy • Bankruptcy - a legal process in which the borrower erases all debt. • 1.4 million Americans filed for bankruptcy last year.

  15. What happens if I do declare bankruptcy? • Gives you a horrible credit rating • Bankruptcy – Stays on your credit report for 10 years • Loan Default – Stays on your credit report for 7 years

  16. What can bad credit do to you? • Keep you from getting loans • Force you to have higher interest rates • Unable to rent • Unable to get electricity, water, or gas • Keep you from getting a job • Employers look at credit scores as a sign of your responsibility

  17. What are the two types of bankruptcy? • Chapter 7 – All debt is erased. Must be unemployed or have very low income. Must go through financial counseling. • Chapter 13 – Erases most of the debt or extends the amount of time to repay. A court typically oversees the repayment process, such as taking your wages directly from you.

  18. What are the 2 main reasons people file for bankruptcy? 1. Irresponsible spending and borrowing 2. Unforeseen and Unavoidable misfortunes

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