Using Credit

1
Using Credit What is Credit and How Much Can I
Afford?
2
Objectives

• Identify Advantages and Disadvantages of
  Credit
• Determine How Credit is Obtained
• Identify Steps to Get Out of Debt
• Explain What is Included on a Credit Report

3
Advantages

• Interest cost may be deducted if you itemize
  deductions on your tax return.
• During inflationary times, you repay a debt with
  cheaper dollars.
• Its possible to buy some goods at a lower price
  now than in the future.

4
Advantages (Cont.)

• Credit cards are convenient to use.
• Credit cards are safer than carrying large
  amounts of cash.
• Credit allows you to buy items you need, but
  cant afford to pay for immediately.

5
Disadvantages

• May buy more than you need.
• Shop where you have credit.
• Can form credit-card habit.
• Can pay up to 20 or more for goods and services.
• Can end up paying more for items on sale than at
  regular price after interest.

6
Types of Credit

• Consumer Loans
• Credit Sales
• Credit Cards

7
Types of Credit Cards

• Bank Credit Cards
• Travel and Entertainment Cards
• Retail Store Cards
• Oil Company Cards

8
Debit Cards

• Not Credit Cards
• Acts as Checks
• Immediately deducts money from your checking or
  savings account

9
Lost or Stolen Cards

• Notify the credit card issuer immediately.
• Have information easily available and in a safe
  space.
• Card holders will be charged a maximum of 50 of
  unauthorized purchases that occur before the card
  company is notified of the loss.

10
Types of Credit

• Consumer Loans
• Credit Sales
• Credit Cards

11
Sources of Credit

• Credit Unions
• Commercial Banks
• Savings and Loan Associations
• Consumer Finance Companies
• Life Insurance Companies

12
Sources of Credit (Cont.)

• Retail Stores
• Pawnbrokers
• Friends and Relatives
• Check-Cashing Stores
• Payday Loans
• Rent-To-Own

13
Types of Credit Offered
14
Cost of Credit

• Fees
• Interest
• Annual Percentage Rate (APR) based on finance
  charges, amount borrowed and repayment schedule.
  
• Interest Rates can vary from 0 from friend to
  more than 250 per year from a rent-to-own store.

15
Interest

• Interest on a 1,000 loan
• borrowed for 1 year
• APR Total Interest Loan Total
• 9 50.00 1,050
• 18 100.00 1,100
• 27 146.00 1,146
• 250 1,700.00 2,700

16
Can I Afford It?

• Use the 15-20 Rule
• Use the Credit Signal Light Work Sheet
• Consider Realistic Needs

17
Getting Out of Debt

• Know to whom you owe and how much.
• Look for ways to increase income or decrease
  spending.
• Do not use any more credit.
• Contact your creditors if you cannot make all
  your payments.
• Contact a Credit Counseling Service if you need
  help.

18
Making Your Payments

• Take the shortest repayment period you can.
• Make the highest monthly payments you can afford.
• Make sure you have enough money to cover current
  expenses. Dont create a situation where you
  stretch yourself too thin.

19
10 Danger Signals

• Unable to save money.
• Always out of money before payday.
• New monthly credit charges are more than the
  monthly credit card payment.

20
10 Danger Signals (Cont.)

• 4. Longer time or loan needed to pay account
  balance.
• 5. Juggling payments to creditors.
• 6. Borrowing to pay fixed costs such as
  insurance.

21
10 Danger Signals (Cont.)

• 7. Credit card cash advances used to pay
  everyday expenses.
• 8. Receive creditor calls and letters.
• 9. Unsure of how much you owe.
• 10. Regularly late in paying bills.

22
Avoid Credit Card Blues

• Trouble meeting your monthly payments? Cut back
  on credit card use.
• Impulse buyer? Leave the credit card at home.
• Keep track of what you charge.
• Include the entire family.

23
What is a Credit Report?

• A report of your credit use is created by a
  credit bureau.
• The bureau gathers information from companies who
  have granted you credit.
• The bureau also gathers public records in state
  and county offices and courts.

24
What is on a Credit Report?

• Current and Previous Addresses
• Social Security Number
• Date of Birth
• Current and Previous Employers
• Public Records (bankruptcies, tax
  liens and mortgages)
• Description of Bill Paying History and Rating

25
How Your Credit Works

• Your Ability to Borrow Depends on
• Availability of Money
• Payment History
• Current Interest Rates
• Credit History (must have established a credit
  record)

26
How Your Credit Looks

• Request records at least once a year.
• Records are available free of charge at
• www.annualcreditreport.com
• Incorrect Information?
• Call or write the Credit Bureau if you have a
  dispute about your credit.

27
Credit Scores

• Payment History 35
• Amount You Owe 30
• Length of Credit History 15
• New Credit 10
• Credit Mix 10

28
Getting Your Credit Score

• To get your Credit Score, go to
• www.equifax.com or www.fairisaac.com
• Credit scores range from 375 (worst) to above 925
  (best)
• Prime borrowers have scores in the 620 - 660
  range.

29
Who Might Need Your Files?
Persons/Businesses Who

• Extend you credit.
• Consider offering you employment.
• Rent to you.
• Underwrite insurance.
• Determine eligibility for certain licenses.

30
Who Might Need Your Files?
Persons/Businesses Who

• Evaluate legitimate business needs.
• Determine child support payments.
• Provide information about current residence of
  individuals.

31
Tips for Good Credit

• Pay Your Bills on Time.
• Pay at Least the Minimum Amount.
• Keep Credit Card Balances Low.
• Establish Credit if You Have None.

32
Summary

• Identified Advantages and Disadvantages of Credit
• Determined How Credit is Obtained
• Identified Steps to Get Out of Debt
• Explained What is Included on a Credit Report