1 personal finance 7.02: understand ways to protect personal credit

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  • Personal Finance7.02: Understand ways to protect personal credit.

  • ActivityShow the video clip Amateur Rock Star by Scott Blair from this link: http://www.whatsmyscore.org/contest/videos.php. Discussion:How can having a bad credit score negatively affect a person?If bills are not paid, what items may be repossessed?What is the impact when seeking credit in the future?What is the overall message of this video clip? Main Idea: Individuals should check their credit report, know their scores, and not spend beyond their financial limits.

  • ActivityDisplay Appendix 7.03A, Use of Credit---Agree or Disagree. Have students record in their notes whether they agree or disagree with each data statement about use of credit by college/university undergraduates.

  • Journal EntryWhat do you think Credit is?

  • Credit Overview

  • What Is Credit?Obtaining goods and services with a promise to pay for them from future incomeA temporary money substitute since it allows a person to buy today and pay tomorrowCan be a valuable resource when used wiselyCredit involves two parties, a lender and a borrowerLender (creditor, credit-provider, source of credit)One who provides money for purchases based on a persons promise to repayLender expects borrower to pay extra, known as interest, for the use of the moneyBorrower (debtor)---One who received credit from a lender

  • Types of Consumer Credit

    Sales Credit Regular charge accountInstallment accountRevolving credit account

    Cash Credit---Secured and Unsecured Company or retail store credit cardsTravel and entertainment credit cardsGeneral-purpose credit cards

  • Solve Credit Problems

    Actively deal with the problemStop using credit; focus on repaymentSee a credit counselorDevelop a spending plan with living expenses and a plan for repaymentAsk creditors to adjust credit terms

  • Establish Credit

    The importance of credit ratings

    Credit ratings are based on the three CsCharacterCapacityCapitalWays to establish creditOpen/manage checking/saving accountsPay utility bills in your nameObtain a credit card from a local storeGet help from a cosignerObtain a secured credit card

  • Maintain Good Credit

    Evaluate when you really need creditShop for the right type of credit for each purchaseShop for the best credit termsKnow how you will pay backUse only the amount of credit you can repayMeet terms of credit agreementsKeep accurate recordsConsult creditors immediately if you cannot pay on timeResolve billing errors promptly

    Credit Card

    Understanding Your Credit CardCredit UnitTake Charge of Your Finances

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    CreditWhen goods, services or money is received in exchange for a promise to pay a definite sum of money at a future dateThe price of money- when referring to credit, interest is the charge for borrowing moneyCREDIT-INTEREST-

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Lender and BorrowerLENDER-The person or organization who has the resources to provide the individual with a loanBORROWER-The person or organization that is receiving the money from the lender

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Closed-end vs. Open-end Credit

    CharacteristicsClosed-end creditOpen-end (revolving) creditDefinitionA one-time loanCredit extended in advancePurpose of loanSpecified in applicationMay be used for a variety of purposes

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Closed-end vs. Open-end Credit

    CharacteristicsClosed-end creditOpen-end creditPaymentsSpecified number of equal paymentsVaries- can be paid in one payment or a series of equal or unequal paymentsLoan AmountAgreed upon during the application processMay be increased for responsible consumersExamplesMortgage, automobile, education loansCredit cards

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Credit CardWhat is a credit card?Pre-approved credit which can be used for the purchase of goods and services now and payment of them laterA credit cards credit limit varies based upon an individuals perceived creditworthinessCredit limit is the maximum dollar amount loaned Creditworthiness is an individuals ability and willingness to pay the money back

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Credit Card InterestInterest is charged each month the balance is not paid in fullThe cost of credit expressed as a yearly interest rate

    Rate at which interest is charged is referred to as:

    Annual Percentage Rate (APR)

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Minimum PaymentsRequired to make at least a minimum payment each monthUsually only a small percentage (2.5-5%) of the total balance dueCardholders who only make the minimum payment:Make slow progress paying off card balancePay substantially more than what was initially charged to the card

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Minimum Payments

    Amount charged to credit card in one purchaseAPRMinimum paymentTime to pay off the credit cardTotal amount paid in interestTotal amount paid$2,00018%$50.0062 months$1,077.25$3,077.25$50012%$25.0023 months $60.67$560.67

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Advantages to using Credit CardsConvenient payment toolUseful for emergenciesOften required to hold a reservationAble to purchase big ticket items and spread out paymentsProtection against fraudOpportunity to establish a positive credit historyOnline shopping is safer than using a debit card because of the Fair Credit Billing Act protectionPossibility of receiving bonuses, such as frequent flyer miles or cash rebates

    Advantages

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Disadvantages to using Credit CardsInterest can be costly when a balance is revolved

    Additional penalty fees may applyTempting to overspendRisk of identity theftResponsible for lost/stolen cardsApplying for multiple accounts can lower your credit score

    Disadvantages

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Debit CardsWhat is a debit card?A plastic card which looks like a credit card, but is electronically connected to the cardholders bank accountMoney is immediately withdrawn from the cardholders checking account

    Credit Card Family Economics & Financial Education Updated March 2010 Credit Unit Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona

    Credit Card1.4.1.G1

    Credit HistoryCredit ReportA record of a consumers credit history that includes information about credit card use as well as the use of other types of credit, such as auto loans, student loans and mortgage loansA number that summarizes an individuals credit record and history. It is a numeric grade of a consumers financial reliabilityCredit ScoreCredit cards can have a positive or negative impact on an individuals credit history

    Credit Card Family Economi