You and Your Credit

You and Your Credit
UNIT VII – Personal Financial Literacy
Common Forms of Credit
Commercial BankSavings & LoanCredit UnionConsumer Finance Company
Commercial BankSavings & LoanCredit UnionConsumer Finance Company
Homes can increase in valueInterest rates are relatively lowInterest paid is tax-deductible
Long-term commitmentInvolves extensive credit checks
Cars make it easier to work and earn an income
Cars lose value quickly
Commercial BankSavings & LoanCredit UnionConsumer Finance Company
Commercial BankSavings & LoanCredit UnionDepartment Stores
Allow individuals to purchase an item they want immediately
Higher interest ratesSome borrow more than their income should allow
Convenient to use and help in emergenciesProvide a record of charges
Higher interest ratesSome spend more than income allows
Commercial BankSavings & LoanCredit Union
A college education is usually a good investment
Students sometimes borrow more than is necessaryCan be difficult to repay
Maintaining Good Credit
Your ability to get a loan depends on your credit report.Credit Report – record of an individual’s personal credit historyUsed as an indicator to determine if an applicant is reliable to pay the loan backThey tell in detail – how much a person has borrowed, from whom, and if bills have been paid on time
Credit Bureaus
Compile credit reportsGet information about consumers fromStoresCredit Card CompaniesBanksMortgage CompaniesMedical ProvidersCredit Application
3 Cs of Credit
Lenders look for certain qualities in loan applicants
Steady job?Salary?Reliable income?Sources of income?Other loans?Current debt?Alimony or child support?
Used credit before?Pay bills on time?Good credit report?Character references?Length at present address?Length at current job?
Checking account?Savings account?Stocks or bonds?Anything of value?Own home?Own car?Own boat?
Why you should care…
Good credit scores allow you to receive loans more easily and at better ratesPoor credit scores can make it difficult to receive a loan, find a place to live, and even get a jobBy law you are entitled to one free credit score report each year to check its accuracy – mistakes can happen
Score Calculation
Payment history (35%)Amounts owed (30%)Length of credit history (15%)Types of credit (10%)New credit and inquiries (10%)
How to Keep a Good Credit Score
Pay bills on timeDon’t borrow more than you can handleBorrow only what you needKnow how much you owe at all timesContact lenders with payment problems
Develop good spending habitsReport lost/stolen cards immediatelyNever give credit card info over the phone/internet unless you initiate the callOpen a checking and savings accountDo not apply for too many credit cards
Credit Cards: Friend or Foe
73% of U.S. families have at least one credit card46% of families have credit debtAverage amount owed is $7300Total credit debt of U.S. households is almost $866 BILLION!
Not All Credit Cards are Created Equally
Credit limit, APR (annual percentage rate), annual fees, and grace periods vary from card to cardThe better your credit score the better your rates will be