Credit Use and Credit Cards Credit Use and Credit Cards Steven M. HaysBKHS – Personal FinanceSteven M. HaysBKHS – Personal Finance

Setting Up a Credit History Setting Up a Credit History

All credit is an opportunity for good credit in the future (insurance rates, employment, mortgage rates, etc.)

Comparison shopAvoid carrying balancesObtain credit reportsKeep receiptsAvoid add-ons

All credit is an opportunity for good credit in the future (insurance rates, employment, mortgage rates, etc.)

Comparison shopAvoid carrying balancesObtain credit reportsKeep receiptsAvoid add-ons

How To Get a Good Reputation

How To Get a Good Reputation

Establish checking and savings

Have telephone and other bills in your name

Request and use oil company cards

Establish checking and savings

Have telephone and other bills in your name

Request and use oil company cards

Apply for a bank credit card

Get a short-term cash loan

Pay off student loans

Apply for a bank credit card

Get a short-term cash loan

Pay off student loans

Important TermsImportant Terms

Consumer credit – non-business debt for expenditures OTHER than mortgages

Installment credit – pay in equal amounts of a specified period of time

Non-installment credit Open-ended (revolving)Single payment

Consumer credit – non-business debt for expenditures OTHER than mortgages

Installment credit – pay in equal amounts of a specified period of time

Non-installment credit Open-ended (revolving)Single payment

Five C’s of Credit Five C’s of Credit

Character – reliability of payingCapital – measure of financial

worthCapacity – ability to payCollateral – property pledged

against loanConditions – general economy +/-

Character – reliability of payingCapital – measure of financial

worthCapacity – ability to payCollateral – property pledged

against loanConditions – general economy +/-

Why People Use Credit Why People Use Credit

Convenience Emergencies Identification Reservations Get products

sooner Enjoy the good

life Take advantage

of free credit

Convenience Emergencies Identification Reservations Get products

sooner Enjoy the good

life Take advantage

of free credit

Consolidate loans Protection against

rip-offs and frauds

Obtain an education

Consolidate loans Protection against

rip-offs and frauds

Obtain an education

Down Side to Using Credit Down Side to Using Credit

Interest is costly Additional fees are commonTempting to overspendPrivacy is a concern Liability for lost or stolen cardsReduces financial flexibility

Interest is costly Additional fees are commonTempting to overspendPrivacy is a concern Liability for lost or stolen cardsReduces financial flexibility

How to Get Out of Debt How to Get Out of Debt

Credit control sheet Do not add to debt amount Transfer to lowest APR (and payment

type) Get a low cost loan and use it to pay off

credit card debt Calculate amount needed to pay off debt Set up a budget Record every usage like a check

Avoid credit cards!!

Credit control sheet Do not add to debt amount Transfer to lowest APR (and payment

type) Get a low cost loan and use it to pay off

credit card debt Calculate amount needed to pay off debt Set up a budget Record every usage like a check

Avoid credit cards!!

Open-ended Credit Accounts

Open-ended Credit Accounts

Entire balance may be due each month

Minimum payment Small amount of principal Large amount of interest

Interest is the price of creditFinance charge is the total amount

charged

Entire balance may be due each month

Minimum payment Small amount of principal Large amount of interest

Interest is the price of creditFinance charge is the total amount

charged

Bank Cards Bank Cards

Visa, MasterCard, Discovery Co-branded (Bank of America and

LL Bean) Cash advance (loan from a bank) Convenience checks Prestige cards (bank and MSU and

some percentage of sales goes to MSU)

Visa, MasterCard, Discovery Co-branded (Bank of America and

LL Bean) Cash advance (loan from a bank) Convenience checks Prestige cards (bank and MSU and

some percentage of sales goes to MSU)

Other Kinds of Cards/Credit

Other Kinds of Cards/Credit

Secured – collateral cards Retail credit cards (i.e., Target) Travel and entertainment cards (Diner’s

club, American Express) Personal line of credit (a running line of

credit that you don’t need to keep reapplying for) home-equity line of credit

Service credit (utilities)

Secured – collateral cards Retail credit cards (i.e., Target) Travel and entertainment cards (Diner’s

club, American Express) Personal line of credit (a running line of

credit that you don’t need to keep reapplying for) home-equity line of credit

Service credit (utilities)

THREE (not one) Most Important Factors THREE (not one) Most Important Factors APR – Annual Percentage Rate

Usury laws (determine max. rates)Variable rates Fixed rates

Additional fees Payment calculation (grace

periods, including/excluding new purchases, two-cycle)

APR – Annual Percentage Rate Usury laws (determine max. rates)Variable rates Fixed rates

Additional fees Payment calculation (grace

periods, including/excluding new purchases, two-cycle)

Opening a Credit Account Opening a Credit Account

Credit history (you need one – never having borrowed money is not ideal)

ECOA – equal credit opportunity act

Credit investigation – credit report Credit rating – scoring (tiered

pricing or no credit at all)

Credit history (you need one – never having borrowed money is not ideal)

ECOA – equal credit opportunity act

Credit investigation – credit report Credit rating – scoring (tiered

pricing or no credit at all)

Credit ReportsCredit Reports

Extra credit if you get a copy of yours for your file drawer project

Negative information for seven years

Bankruptcy information for ten years

Extra credit if you get a copy of yours for your file drawer project

Negative information for seven years

Bankruptcy information for ten years

Avoid Making Minimum Payments

Avoid Making Minimum Payments

Banks CAREFULLY calculate the minimum payment account to extend the period of your loan for as long as possible.

It is NO deal to skip a month of payments.

Banks CAREFULLY calculate the minimum payment account to extend the period of your loan for as long as possible.

It is NO deal to skip a month of payments.

Correcting Errors Correcting Errors

Persistence is the key!Written notice to the card issuer.Provide photocopiesWithhold payments of disputed

chargesAfter dispute is settled take a look

at your credit report. IF YOU ARE NOT GETTING

SATISFACTION CONTACT YOUR STATE’S ATTORNEY GENERAL

Persistence is the key!Written notice to the card issuer.Provide photocopiesWithhold payments of disputed

chargesAfter dispute is settled take a look

at your credit report. IF YOU ARE NOT GETTING

SATISFACTION CONTACT YOUR STATE’S ATTORNEY GENERAL