CREDIT: CREDIT: Day Day 22

Types of CreditTypes of Credit

Credit CardsCredit CardsLoansLoans

Types of Credit: LOANSTypes of Credit: LOANSLoansLoans

Let you borrow money that must be repaid with interestLet you borrow money that must be repaid with interest

Why might you take out a loan?Why might you take out a loan?

Finance a car Finance a car Pay college tuition Pay college tuition Buy or renovating a home Buy or renovating a home Debt consolidation loanDebt consolidation loan

Combines all current debts from various creditors into a Combines all current debts from various creditors into a single reduced-interest payment plan single reduced-interest payment plan

Credit line Credit line limit linked to your checking account that gives you limit linked to your checking account that gives you

bounce-proof protection in case you write a check for bounce-proof protection in case you write a check for an amount that exceeds your account balance. an amount that exceeds your account balance.

Types of Credit: LOANSTypes of Credit: LOANS Secured loansSecured loans

Guaranteed by collateral, which is an item of equal Guaranteed by collateral, which is an item of equal or greater value than the amount of the loan, such or greater value than the amount of the loan, such as a car, home or cash deposit. as a car, home or cash deposit.

Examples: car loan, mortgage (house loan)Examples: car loan, mortgage (house loan)

Unsecured loansUnsecured loans Do not require collateral and are made based on Do not require collateral and are made based on

your credit score and ability to repay. your credit score and ability to repay.

Examples: student loan, credit cardsExamples: student loan, credit cards

Types of Credit: LOANSTypes of Credit: LOANS

Installment loansInstallment loans

Payments of fixed amount at the time of your Payments of fixed amount at the time of your application and approval. application and approval.

Repaid in fixed monthly payments over a specific Repaid in fixed monthly payments over a specific period of time. period of time.

Interest charges are included in the payments. Interest charges are included in the payments. Auto loans and mortgagesAuto loans and mortgages

Types of Credit: LOANSTypes of Credit: LOANS Amortization schedule:Amortization schedule: The schedule The schedule

of payments for paying off a loan. of payments for paying off a loan.

Shows interest and principal Shows interest and principal These amounts vary with each payment These amounts vary with each payment

Amortization Calculator

Activity: Reading amortization schedules

CREDIT: The CREDIT: The Credit CardCredit Card

Types of CreditTypes of Credit

Credit cardsCredit cards are perhaps the most common type are perhaps the most common type of personal credit. of personal credit.

Allow repeated transactions up to a maximum Allow repeated transactions up to a maximum credit credit limitlimit..

Each time you charge something, you are borrowing Each time you charge something, you are borrowing the money until you pay it back. the money until you pay it back.

You can pay back the full amount when your next bill is You can pay back the full amount when your next bill is duedue

OROR You can pay the money back over timeYou can pay the money back over time

Pay interestPay interest Pay a calculated amount until the borrowed Pay a calculated amount until the borrowed

amount is repaid (amount is repaid (minimum paymentminimum payment))

How a Credit Card WorksHow a Credit Card Works

Activity: Activity: Work in groups of 3Work in groups of 3 Assign Roles: Assign Roles:

1. Consumer1. Consumer 2. Store/vendor/seller2. Store/vendor/seller 3. Credit Card Company3. Credit Card Company

Terms to know:Terms to know:

Annual percentage rateAnnual percentage rate (APR (APR) - The ) - The yearly percentage rate of the finance yearly percentage rate of the finance charge.charge.

   Introductory rateIntroductory rate - A - A temporarytemporary, lower , lower

APR that usually lasts for about six months APR that usually lasts for about six months before converting to the normal fixed or before converting to the normal fixed or variable ratevariable rate

Terms to know: Terms to know: Annual feeAnnual fee - A flat, yearly charge similar to a membership fee. - A flat, yearly charge similar to a membership fee. 

Many companies offer "no annual fee" cards today, and Many companies offer "no annual fee" cards today, and lenders who do charge annual fees are often willing to waive lenders who do charge annual fees are often willing to waive them to keep your business.them to keep your business.

Finance chargeFinance charge - The dollar amount you pay to use credit. - The dollar amount you pay to use credit.  May include other charges such as May include other charges such as cash-advance feescash-advance fees, ,

which are charged against your card when you borrow cash which are charged against your card when you borrow cash from the lender. (You generally pay higher interest on cash from the lender. (You generally pay higher interest on cash advances than on purchases -- check your latest bill to find advances than on purchases -- check your latest bill to find out what you're paying for this service!)out what you're paying for this service!)

Grace periodGrace period - A time period, usually about 25 days, during - A time period, usually about 25 days, during which you can pay your credit-card bill without paying a finance which you can pay your credit-card bill without paying a finance charge.charge.

Applies if you pay your balance in full each month. Applies if you pay your balance in full each month. Does Does notnot apply if you carry a apply if you carry a balance forwardbalance forward. . Does Does not not apply to cash advances.apply to cash advances.

The Parts of the Credit CardThe Parts of the Credit Card

The Credit Card Anatomy

Credit Cards are good!Credit Cards are good! Pros of Credit Cards

•Build your credit history•Spend someone else’s money for a short period of time•Protection for big purchases•Extended warranties•Budgeting•Bonuses

•Cash back•Airline miles•Points to make purchases

Make money on your credit card

Where credit cards can go wrong…

Make late payments Fees Interest Poor credit

Not paying the full amount Interest

When you don't pay your full balance

Choosing a Credit Card

Visa Mastercard American Express Discover Store credit cards Gas station credit cards

Credit card choices

Activity – compare credit card offers

A Credit Card Statement

How to read your credit card statement

Activity: Analyze a credit card statement

Applying for a Credit Card

The Credit Card Application

Applying for a credit card

Time at your addressTime at your bankIncome levelDebt levelAgeCredit history

Fill out an application

Just search “Credit Card Application” on any search engine!

Activity – Complete a Walmart credit card application

STATIONSSTATIONS

1.1. The Credit Card statementThe Credit Card statement1.1. With teacherWith teacher

2.2. Choosing a credit cardChoosing a credit card1.1. Compare credit card offeringsCompare credit card offerings

3.3. Apply for creditApply for credit1.1. Complete a credit card applicationComplete a credit card application

4.4. History of the credit card History of the credit card 1.1. Make a timelineMake a timeline