Credit

1
Credit

• Definition the ability to obtain goods or
  services before paying for them, based on the
  promise to pay later.
• Each time a person uses credit, he or she is
  borrowing money.
• Credit can be the use of a credit card or it can
  be the acquisition of a loan from the bank.
• How well a person uses credit determines how much
  credit they will be offered.
• Using credit can have many advantages but it can
  also be very risky!

2
Advantages of Credit

• Provides a way to make big purchases.
• Provides a way to purchase something now and
  defer payment for a while.
• Useful in an emergency.
• Allows consumers to take advantages of
  opportunities such as sales.
• If used properly, it can help a person to
  establish good credit, which may save them money
  in the future (lower interest rates, etc.)

3
Disadvantages of Credit

• May reduce ones ability to make future purchases
  if money made is always being used to pay past
  debt, it is hard to get ahead.
• May cause individuals to borrow more than they
  can afford to pay back.
• Credit card rates are compounding interest rates
  (debt can add up quickly!)
• A poor credit history can follow a person and
  make it more difficult to acquire future loans.

4
Important Vocabulary

• Annual fee A fee charged to the cardholder by
  the card issuer. Cardholders pay this fee in
  order to obtain the credit card in question.
• Finance charge The amount of interest charged on
  the account for a particular billing cycle.
• Minimum payment The smallest amount of money
  that must be paid by the cardholder for the
  billing cycle.
• Billing cycle The days between the last
  statement and the current statement.
• APR The annual percentage rate of the finance
  charge. This yearly interest rate will be a fixed
  or variable rate.
• Grace period The time period during which a
  cardholder may pay off his or her balance without
  incurring a finance charge.
• Late payment fee A fee charged to cardholders
  for being delinquent with their payments.
• Credit limit The amount a card holds in
  other words, what is available to be borrowed.

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Important Vocabulary (continued)

• Classic card A credit card that usually comes
  with a low credit limit. Also known as the basic
  card.
• Gold card A credit card that offers the
  cardholder more benefits and a higher credit
  limit (usually 2,000 to 5,000) than a classic
  card.
• Platinum card A credit card typically issued to
  people with higher incomes. The credit limit is
  usually more than 5,000.
• Rebate card In using a rebate card, the
  cardholder earns points or money which may be
  applied later in the purchase of certain goods
  and services.
• Secured card A credit card that is secured by
  the cardholder's opening of a savings account
  with the issuer. It is intended to help people
  who are looking to rebuild their credit.
• Unsecured cards Credit cards that are not
  secured by collateral. Most cards issued are
  unsecured.
• Cash advance Money the cardholder obtains, by
  using his or her credit card, from the card
  issuer.
• Prime rate The lending rate set by the Fed.
  This is usually the lowest possible interest rate
  and is reserved by commercial banks for their
  best clients.

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Types of Loans

• Student/Education loans
• Vehicle loans
• Personal loan
• Mortgage

7
Student Loans

• Student/Education loans
• Tend to have very low interest rates.
• Repayment usually starts after the person has
  graduated or completed the education/training.

8
Vehicle Loans

• Vehicle loans
• Tend to have relatively low interest rates
• A down payment on the car is usually expected.

9
Personal Loan

• Personal loan
• Loan taken out for the expensive purchases of
  life
• Home improvements
• Weddings
• Vacations

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Home Loans

• Mortgage
• Loan to purchase a home
• Interest rates vary with the state of the overall
  economy.
• There are many options, including fixed-rate
  mortgages, variable rate mortgages, and
  interest-first mortgages.

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Credit Card or Loan?

• Credit Cards
• Generally, have higher interest rates than loans.
• Provide immediate access to funds.
• Generally, easier to get than loans if you have a
  bad credit history.
• Loans
• Take time to set up.
• Generally, have lower interest rates than credit.
• More difficult to get if you have a poor credit
  history.

12
Your Credit Score

• How FICO Credit Scores Work (taken from
  myFICO.com)
• When you apply for credit whether for a credit
  card, a car loan, or a mortgage lenders want to
  know what risk theyd take by loaning money to
  you.
• A financial company created called Fair Isaac
  created a mathematical way to assess how risky it
  is for a lending institution to lend money to any
  given person.
• FICO scores are the credit scores most lenders
  use to determine your credit risk.
• You have three FICO scores, one for each of the
  three credit bureaus Experian, TransUnion, and
  Equifax. Each credit score is based on
  information the credit bureau keeps on file about
  you. As this information changes, your credit
  scores tend to change as well.
• Your 3 FICO credit scores affect both how much
  and what loan terms (interest rate, etc.) lenders
  will offer you at any given time.
• Taking steps to improve your FICO scores can
  help you qualify for better rates from lenders.

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Whats in Your Credit Score?

• This breakdown is used to determine a persons
  credit rating. The credit bureau will
  mathematically figure out the risk and assign a
  number between 300 (lowest) and 850 (highest).
  The better your credit rating, the more likely
  you are to receive a loan and the better the
  interest rate you will receive!

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How to Improve Your Credit Score

• Tips from MyFICO.com
• Pay your bills on time.
• If you have missed payments, get current and stay
  current. The longer you pay your bills on time,
  the better your credit score.
• Be aware that things that affect your credit
  negatively stay on your report for seven years.
• If you are having trouble making ends meet,
  contact your creditors or see a legitimate credit
  counselor. This won't improve your credit score
  immediately, but if you can begin to manage your
  credit and pay on time, your score will get
  better over time.

15
How to Improve Your Credit Score

• Keep balances low on credit cards. High
  outstanding debt can affect a credit score.
• Pay off debt rather than moving it around. In
  fact, owing the same amount but having fewer open
  accounts may lower your score.
• Don't close unused credit cards as a short-term
  strategy to raise your score. Note that closing
  an account doesn't make it go away. A closed
  account will still show up on your credit report,
  and may be considered by the score.
• Don't open a number of new credit cards that you
  don't need, just to increase your available
  credit.

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How to Improve Your Credit Score

• If you have been managing credit for a short
  time, don't open a lot of new accounts too
  rapidly.
• Re-establish your credit history if you have had
  problems. Opening new accounts responsibly and
  paying them off on time will raise your credit
  score in the long term.
• Apply for and open new credit accounts only as
  needed.
• Have credit cards - but manage them responsibly.
  Someone with no credit cards, for example, tends
  to be higher risk than someone who has managed
  credit cards responsibly.

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Some Holiday Fun
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Some Holiday Fun
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Some Holiday Fun
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Some Holiday Fun
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And My Favorite