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Credit

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... three credit bureaus Experian, TransUnion, and Equifax. ... A closed account will still show up on your credit report, and may be considered by the score. ... – PowerPoint PPT presentation

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Title: 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.

5
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.

6
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

10
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.

11
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.

13
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!

14
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.

16
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.

17
Some Holiday Fun
18
Some Holiday Fun
19
Some Holiday Fun
20
Some Holiday Fun
21
And My Favorite
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