The Wonderful World of The Wonderful World of CreditCredit

What is CREDIT?What is CREDIT?

All credit is a loan. You charge All credit is a loan. You charge something on a card or an account something on a card or an account with a promise to pay for it later. with a promise to pay for it later.

BUY NOW, PAY LATER!BUY NOW, PAY LATER!

The “Pluses and Minuses” of CreditThe “Pluses and Minuses” of Credit

AdvantagesAdvantages• Able to buy needed items now Able to buy needed items now • Don't have to carry cash Don't have to carry cash • Creates a record of purchases Creates a record of purchases • More convenient than writing checks More convenient than writing checks • Consolidates bills into one payment Consolidates bills into one payment DisadvantagesDisadvantages • Interest (higher cost of items) Interest (higher cost of items) • May require additional fees May require additional fees • Financial difficulties may arise if one loses track Financial difficulties may arise if one loses track

of how much has been spent each month of how much has been spent each month • Increased impulse buying may occurIncreased impulse buying may occur

Places to Obtain LoansPlaces to Obtain Loans

BanksBanks Savings and loan institutions (mostly real Savings and loan institutions (mostly real

estate)estate) Credit unionsCredit unions Finance companies Finance companies

• Higher interest, higher risk clientsHigher interest, higher risk clients Life insurance companiesLife insurance companies

• Borrow against policy collateralBorrow against policy collateral• Low ratesLow rates• Balance deducted from death benefitsBalance deducted from death benefits

Places to Obtain LoansPlaces to Obtain Loans

Credit card cash advanceCredit card cash advance• High interest! 17-24%High interest! 17-24%

PawnbrokersPawnbrokers• Turn over property to get loanTurn over property to get loan• High interestHigh interest

Credit CardsCredit Cards

Regular charge accountsRegular charge accounts• Pay balance in full each monthPay balance in full each month• American Express, Diner’s Club, dept. American Express, Diner’s Club, dept.

storesstores Revolving charge accountsRevolving charge accounts

• Interest is chargedInterest is charged• May take years to pay offMay take years to pay off

Credit CardsCredit Cards

IncentivesIncentives• MilesMiles• Free hotel staysFree hotel stays• PointsPoints• Discounts Discounts

CostsCosts• Annual feesAnnual fees• InterestInterest

Introductory rates usually only temporaryIntroductory rates usually only temporary

Credit CardsCredit Cards

Grace periodGrace period• 15-25 days 15-25 days • Time between billing and due dates Time between billing and due dates

where no interest is chargedwhere no interest is charged PenaltiesPenalties Watch for surprise charges on your Watch for surprise charges on your

statement!statement!

Credit Rights & ResponsibilitiesCredit Rights & Responsibilities

Truth in Lending Act of 1968Truth in Lending Act of 1968• Must report information the same wayMust report information the same way• Finance chargesFinance charges• Annual percentage rate (APR)Annual percentage rate (APR)

Equal Credit Opportunity Act (1975, 1977)Equal Credit Opportunity Act (1975, 1977)• Equal opportunities for credit Equal opportunities for credit • Illegal to refuse credit based on race, color, Illegal to refuse credit based on race, color,

religion, national origin, sex, marital status, or religion, national origin, sex, marital status, or ageage

Credit Rights & ResponsibilitiesCredit Rights & Responsibilities

Fair Credit Reporting Act of 1971Fair Credit Reporting Act of 1971• Organizations must identify the credit Organizations must identify the credit

bureau that supplied the information bureau that supplied the information used to make their decisionused to make their decision

• If denied, you have 30 days to request a If denied, you have 30 days to request a free copy of your filefree copy of your file

• Request a copy for a small feeRequest a copy for a small fee

If you were refused credit unfairlyIf you were refused credit unfairly

Contact the bureau the lender usedContact the bureau the lender used Write to the bureau and request a Write to the bureau and request a

copy of reportcopy of report Study for inaccuraciesStudy for inaccuracies Report errors in writingReport errors in writing If no errors, but unusual If no errors, but unusual

circumstances, can attach a 100-circumstances, can attach a 100-word explanation to your reportword explanation to your report

Credit Rights & ResponsibilitiesCredit Rights & Responsibilities

Fair Credit Billing Act (part of Truth in Fair Credit Billing Act (part of Truth in Lending Act)Lending Act)• Helps consumers correct credit card billing Helps consumers correct credit card billing

mistakesmistakes• You have the right to refuse paying for You have the right to refuse paying for

something you didn’t chargesomething you didn’t charge• You have 60 days to contact credit cardYou have 60 days to contact credit card• They have 30 days to replyThey have 30 days to reply• They have 90 days to resolveThey have 90 days to resolve• You are not charged interest during this timeYou are not charged interest during this time• Inferior products may also be disputedInferior products may also be disputed

Credit Rights & ResponsibilitiesCredit Rights & Responsibilities

Fair Debt Collections Practices Act Fair Debt Collections Practices Act (1977)(1977)• Stops debt collection agencies from Stops debt collection agencies from

using abusive practicesusing abusive practices Stops abusive or threatening phone callsStops abusive or threatening phone calls Stops deceptive means to get informationStops deceptive means to get information

• Applies to agencies that are in business Applies to agencies that are in business of collecting debtof collecting debt

Some Credit TipsSome Credit Tips

Credit is a privilege not a rightCredit is a privilege not a right Lenders are in business to make Lenders are in business to make

money—will give you lots of credit to money—will give you lots of credit to make more money!make more money!

Pay more than the minimumPay more than the minimum Avoid too many cards (flyers in mail)Avoid too many cards (flyers in mail) Pay cash when possiblePay cash when possible Save receipts for charges/verify Save receipts for charges/verify

accuracyaccuracy

Maintain a Good Credit RatingMaintain a Good Credit Rating

Acceleration clauseAcceleration clause• Payment in full is due if you miss one paymentPayment in full is due if you miss one payment

Balloon paymentBalloon payment• Final payment is larger than the regular Final payment is larger than the regular

paymentspayments BankruptcyBankruptcy

• Legal process in which people cannot pay their Legal process in which people cannot pay their debt and must surrender most of their propertydebt and must surrender most of their property

• Lost propertyLost property• Credit reporting for 10 yearsCredit reporting for 10 years