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Credit and Credit Cards

Economics Unit 5, Lesson 2. Credit and Credit Cards. Costs and Benefits of Having a Credit Card. Credit Cards.

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Credit and Credit Cards

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  1. Economics Unit 5, Lesson 2

    Credit and Credit Cards

    Costs and Benefits of Having a Credit Card
  2. Credit Cards A card issued by a bank or other financial intermediary giving the holder or owner  an option to borrow funds, usually when you purchase items. Credit cards charge interest and are primarily used for short-term financing.
  3. Credit Cards Interest usually begins one month after a purchase is made, and the amount you may borrow is predetermined. The amount you may borrow (or your credit limit) and your interest rate will be determined by your credit rating.
  4. Benefits of a Credit Card Ease of making purchases - Makes it easier to buy items, especially if you do not want to carry a lot of cash. Some businesses require a credit card, such as hotels and car rentals.
  5. Benefits of Credit Cards 2. Your purchase may be protected if it is lost, broken, or stolen. It may make it easier for you to return the item.
  6. Benefits of Credit Cards 3. Building your credit history - Having a good credit history is often important, not only when applying for credit cards, but also when applying for things such as loans, rental applications, or even some jobs. Having a credit card and using it wisely (making payments on time and in full each month) will help you build a good credit history.
  7. Benefits of Credit Cards 4. Emergencies -Credit cards can also be useful in times of emergency. While you should avoid spending outside your budget (or money you don't have!), sometimes emergencies (such as your car breaking down or a flood or fire) may lead to a large purchase (like the need for a rental car or a motel room for several nights).
  8. Benefits of Credit Cards 5. Safety - You can make purchases without carrying around a lot of cash. Helps prevent you being robbed and losing all your money.
  9. Benefits of Credit Cards 6. Extra benefits - In addition to the benefits listed above, some credit cards offer additional incentives, such as discounts from particular stores or companies; bonuses, such as free airline miles or travel discounts; and special insurances (like travel or life insurance). While most of these benefits are meant to encourage you to charge more money on your credit card (remember, credit card companies start making their money when you can't afford to pay off your charges!) the benefits are real and can be helpful as long as you remember your spending limits.
  10. Risks of Credit Cards Overspending - Credit cards encourage people to spend money they do not have. Many people will not pay off the balance each month and continue to charge, blowing their budget.
  11. Risks of Credit Cards 2. Interest - If you do not pay off your credit card each month, you will be charged interest. The interest rate is usually very high on credit cards, higher than you earn on money saved.
  12. Risks of Credit Cards 3. Debt - When people do not pay off credit cards each month, allow the balance to increase with interest, and continue to charge new purchases, they go into debt.
  13. Risks of Credit Cards 4. Credit card fraud - Credit cards can be stolen or lost. People may also steal the information off your credit card and make fraudulent purchases. You must protect your credit information.
  14. Risks of Credit Cards 5. Impulse buying - People will not wait until they have the cash or for the item to go on sale.
  15. Risks of Credit Cards 6. Sacrifice - You may have to sacrifice things you need now because you must pay off credit cards for things you have already purchased. You may have to give up some long-time goals or give up saving.
  16. Credit Bureaus A private, for profit company that collects individual consumer information. Banks, credit card companies, and mortgage lenders buy this information to screen applicants for loans and credit cards. This can also affect your ability to get insurance, rent an apartment, or even get a job.
  17. The 5 C’s of Credit Creditors look for 5 C’s before granting credit to an individual or business. Character - Integrity Capacity - Ability to repay the loan; job history Collateral - Some loans require property to secure a loan. Capital - Net worth Conditions - The purpose for the loan; local economic conditions
  18. Establishing Credit Borrow from your bank against your savings. Establish an account with a gas company or department store. Without prior credit history, you may need a co-signer. Saving may be a better way to be prepared for emergencies.
  19. What Impacts Your Credit Rating Past credit history Amount you owe Length of having an established credit history Amount of new credit Number of credit cards you have
  20. Credit Trouble Warning Signs Charging to limit and applying for many new cards Using credit cards and cash advances to pay for essentials like groceries. Use one credit card to make payment for another credit card.
  21. Credit Trouble Warning Signs Borrowing from family members to pay bills You are afraid to get the mail and open your credit card statements. No savings or frequently dipping into savings to pay on your accounts
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