1. Understanding Credit!

2. What Is Credit? Credit: an arrangement that allows consumers to buy goods or services now and pay for them later. When you using a credit card to charge purchases, you must usually pay a finance charge.

3. Finance Charges Finance Charge: the total amount a purchaser must pay for the use of credit (interest charges & fees) 3 Factors Affect Your Finance Charge: Amount of credit used -The more you charge, the more interest you pay. Annual Percentage Rate (APR) -The higher the interest rate, the more finance charges you pay. Length of Repayment Time -The more time you take to repay, the more interest you pay.

4. Advantages Of Using Credit #1: The use of goods and services as you pay for them. Example: Driving a car as you pay for it #2: The opportunity to buy costly items that you might not be able to buy with cash. Example: Can you imagine paying cash for a brand new car? #3: A source of cash for emergency or unexpected expenses. Example: Medical, automotive, etc. #4: Convenience. Example: Don’t have to carry large amounts of cash.

5. Disadvantages Of Using Credit #1: The reduction of future income. Example: Spending future income now and living beyond your income #2: Expense. Example: Using credit usually costs money. #3: Temptation. Example: Easy to spend money you don’t/won’t have. #4: The risk of serious consequences if you misuse credit. Example: Failure to pay debts on time, bankruptcy, repossession, damaged credit score

6. Types of Consumer Credit Sales Credit: when you buy goods and services with a credit card or a charge account. Example: Charge Accounts or Credit Cards Cash Credit: when you borrow money. Example: Loans

7. Types Of Credit Cards Travel and Entertainment Cards: youmust pay entire bill each month except for travel-related expenses. No credit limit, minimum monthly payments at ≥18% APR on travel-related expenses Example: American Express Company or Retail Store Cards: permit you to charge purchases only with the merchant issuing the card. Credit limit, minimum monthly payments, APR varies Example: Macy’s Card General Purpose Cards: issued by banks and can be used at many places around the world. Credit limit, minimum monthly payments, APR/fees vary Examples: Visa and MasterCard

8. Establishing Credit 4 Steps to building a sound financial reputation: 1. Start with a job. -Show that you can hold a job and earn money 2. Open a savings account and save regularly. -Saving show financial responsibility 3. Open a checking account and manage is carefully. -Show you have experience with handling money 4. Apply for a store or gas station credit card. -Make small purchases and pay your bill

9. Credit Rating Credit Rating: the creditor’s evaluation of a person’s willingness and ability to pay debts. Credit Report: a history or record of a person’s financial and credit practices. Credit Score: numerical expression of a person’s credit worthiness (based on credit report) Credit scores fall between 300 and 850 < 620 = high risk borrowers 620 – 699 = ok to good > 700 = excellent

10. The 3 C’s Of Credit A person’s credit rating is measured by… The 3 C’s of Credit 1. Character: responsible financial history 2. Capacity: earning power & employment history 3. Capital: financial worth (home, car, savings…)

11. Maintaining A Good Credit Rating Only use as much credit as you can comfortably repay Pay bills on time Keep accurate records of charges, statements, and payments Contact credit card company immediately if you cannot pay your bill on time Resolve billing errors promptly