Credit in America

1. Credit Management Unit 4 Credit in America Chapter 16

2. FUN FACTS • In 2006, the credit card industry took in $55 billion in credit card fees and $90 billion in finance charges. Makes you want to pay your credit card bills on time.10% - Credit Cards • U.S. consumers racked up an estimated $51 billion worth of fast food on their personal credit and debit cards. That is equal to 10.2 Billion Big Mac meals, 3 billion pounds of fries and 1.7 billion gallons of coke.Owes about $230 • U.S. Visa cardholders alone conduct more than $1 trillion in annual volume. Average Family: $9,000 • Average Household Credit Card Debt is $8,400.00

3. Certain terms are commonly used to describe credit, its availability and its cost. • Borrower: or debtor: When you borrow money or used credit • Creditor: The person or company who loans money or extends credit to you • Capital: is property you possess(bank accounts, investments, other assets) • Collateral: is property pledged to assure repayment of a loan. • Line of Credit: Pre-established amount that can be borrowed without collateral

4. Once you have completed the credit purchase, you owe money to the creditor. Principal: amount borrowed Balanceddue: is the amount borrowed plus interest for the time you have the loan FinanceCharge: total dollar amount of interest and fees you pay for the use of credit.

5. FINANCE CHARGES • Minimumpayment: the least amount you may pay that month under your credit agreement. • DueDate: credit payments are due on a specific date or you will be charged a late fee • Latefee: charged to a balance if you do not pay within a certain time • Securedloan: you agree to repay entire debt or goods will be returned at end of a time

6. Advantages of Credit • Able to buy needed items now • Don’t have to carry cash • Creates a record of purchases • More convenient than writing checks • Consolidates bills into one payment

7. Disadvantages of Credit • Interest (higher cost of items) • May require additional fees • Financial difficulties may arise if one loses track of how much has been spent each month • Increased impulse buying may occur

8. Kinds of Credit • Open-Ended Credit • Can be used over and over again pending customer agreement • Open 30-Day accounts • Travel-entertainment cards (American Express and Diner’s Club) • Widely Accepted nationwide and overseas • Have high or no credit limits • Provides instant purchasing power

9. Kinds of Credit • Revolving Credit Accounts • All purpose credit card: Visa, MasterCard, and Discover • Widely accepted nationwide and overseas • Provide instant purchasing power • Retail store cards: department stores and gas companies • Only accepted at participating stores • Provide instant purchasing power

10. Applying for a Credit Card • Costs: • Annual Percentage Rate (APR) • Grace period (free period) • Annual Fees • Transaction Fees • Balancing computation method for the finance charge • Features: • Credit limit • How widely the card is accepted • What services and features are available

12. Kinds of Credit • Open-Ended • Closed-Ended Credit • A loan for a specific amount of time that must be repaid, in full, including all finance charges, by a stated due date. • Very expensive items: cars, furniture, and major appliances. • Statement includes: Amount loaned, finance charges, payment amount. • Collateral • Service Credit • Have a service performed now and pay for it later • Examples: Phone, utilities, doctors, and lawyers • Terms are set by individual businesses • Usually paid in full with no finance charges or a budget plan

13. Sources of Credit • Retail Store • Credit Card Companies • Banks and Credit Unions • Finance Companies • Pawnbrokers • Private Lenders • Other Sources of Consumer Credit

14. Credit Cards Do’s and Don’ts • Shop around • Look at various sources. • Read and understand the contract • Read the contract carefully • Don’t rush into signing anything • Once a contract is signed, get a copy of it. • Know the penalties for missed payments • Know your cost • Figure out the total price when paying with credit. • Make the largest payments possible • Know the penalties for missed payments • Buy on installment credit only after you have evaluated all other possibilities. • Don’t be misled into thinking small payments will be easy.

15. Credit Rating and Report

16. How a Credit Score is Calculated

17. This central site allows you to request a FREE credit report, once every 12 months from each of the nationwide consumer credit reporting companies. Equifax, Experian, and TransUnion.

18. How is My Credit Score Affected?

19. Credit Rating and Report • Summary of Information • Public Record Information • Credit Information • Account Detail • Requests for Credit History • Personal Information

20. Consumer Protection • Truth in Lending Act (1968) • Ensures consumers are fully informed about cost and conditions of borrowing. • Fair Credit Reporting Act (1970) • Protects the privacy and accuracy of information in a credit check. • Equal Opportunity Act (1974) • Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance. • Fair Credit Billing Act (1974) • Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts. • Fair Debt Collection Practices Act (1977) • Prevents abuse by professional debt collectors, and applies to anyone employed to collect debts owed to others; does not apply to banks or other businesses collecting their own accounts.

21. CARD ACT • On Feb. 22, 2010, the Credit Card Accountability Responsibility and Disclosure Act (CARD Act) took effect. • It is a comprehensive credit card reform legislation that aims to establish fair practices relating to the extension of credit under an open end consumer credit plan. • New rules credit card companies must follow to ensure CONSUMER PROTECTION. • Provisions include: Interest rates, due dates, misleading terms, set limits, minimum payment explanation