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Chapter 8-Section 3

Chapter 8-Section 3. Credit Management. Managing Credit. When using credit: Go slowly Do not use too much at once Establish credit when you don’t need it, so you have it when you do need it Build a solid credit history by paying all credit bills on time

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Chapter 8-Section 3

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  1. Chapter 8-Section 3

    Credit Management
  2. Managing Credit When using credit: Go slowly Do not use too much at once Establish credit when you don’t need it, so you have it when you do need it Build a solid credit history by paying all credit bills on time This will help you get a good credit rating-resulting in a low interest rate
  3. Managing Credit (continued) Buying items on credit ties up future income Things to consider: Billing cycle-the time period during which you must make your monthly payment Unused credit-the difference between your credit limit and your current balance Consider the economy-good economy leads to optimism and increase buying—a slowing economy leads to pessimism and decreased buying
  4. Credit Offers Disclosure terms: Interest rates: fixed or variable, how often do these increase Grace period: the amount of time you have to pay your credit card bill without having to pay interest on your new purchases. Annual fee: a membership fee charge regardless of account balance, interest rate or other features Minimum finance charge: smallest amount charged on unpaid balances in each billing cycle Transaction fees: When you transfer balances from other credit accounts, usually charged as a percentage Cash advance fees: fee charged to cash advance on credit card Late fees: fee charged for paying bill late Over-the-limit-fees: flat amount when you go over your credit limit
  5. Manage Debt Load Debt load-the amount of outstanding debt at a particular time Depends on your ability to make regular payments Ability to pay off the debt quickly Your level of comfort with the amount you owe Installment loan debt should not exceed 20 percent of yearly take-home pay Debt represents future earnings already spent
  6. Avoiding Unnecessary Credit Costs Pay cash for small purchases Pay the full account balance each billing cycle Keep the number of credit cards and accounts to a minimum Comparison shop when getting a loan or credit card Consider special deals and financing arranged by the seller Use credit to take advantage of sale prices Time your credit purchases Take advantage of cash rebates and rewards Always pay your times on time or early
  7. Avoiding Unnecessary Credit Costs Sales Finance Company-a lender that makes loans for the purchase o consumer goods, such as cars or household appliances Works closely with seller Arranges financing at favorable terms for customers Consumer Finance Company Extends high-interest loans to consumers who may be ineligible for other types of low-interest loans These loans are always in the best interest of the consumer
  8. Unethical Loan Practices Usury Laws-laws that limit interest rates, illegal loans practices Advance-fee loan-Lender agrees to make a loan if the borrower pays a large upfront fee Fee may be applied to the loan once it has been approved Loans may not be approved and the fee is forfeited. Loan Sharks-A person who offers illegal unsecured loans at very high interest rates Equity Stripping-unethical practice of extending a loan to a distressed homeowner who cannot afford the loan payments. Lender encourages borrower to use the equity in his/her home to get a loan Lender then takes possession of the home when payments are missed on the loan
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