Transcript File

Glencoe Personal Finance
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Chapter
Consumer Credit
8
What steps can you take now to start
building and maintaining a strong
credit rating?
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
Consumer Credit
8
There are advantages to using consumer credit if you use it
correctly. You must protect your credit and watch for the
warning signs of debt problems.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
Consumer Credit
8
credit
consumer credit
creditor
closed-end credit
open-end credit
line of credit
grace period
finance charge
net income
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annual percentage rate
(APR)
collateral
simple interest
minimum monthly payment
credit rating
cosigning
bankruptcy
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
Consumer Credit
8
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Explain the meaning of consumer credit.
Differentiate between closed-end and open-end credit.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Using Consumer Credit Wisely
Good credit means you have the ability to
borrow funds to buy things you would
otherwise have to save for.
credit
an arrangement to receive cash, goods, or
services now and pay for them in the future
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Using Consumer Credit Wisely
Consumer credit is a major force in the
American economy.
consumer credit
use of credit for personal needs
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Using Consumer Credit Wisely
What is a creditor?
creditor
an entity that lends money
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Using Consumer Credit Wisely
Using credit increases the
amount of money you can spend
now, but the cost of credit
decreases the amount of money
you will have in the future.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Factors to Consider Before Using Credit
What should you know before using credit?
Do you have the cash you need for the down payment?
Do you want to use your savings instead of credit?
Can you afford the item?
Could you use the credit in some better way?
Could you put off buying the item for a while?
What are the opportunity costs of postponing the purchase?
What are the costs of using credit?
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Factors to Consider Before Using Credit
Advantages of Credit
Disadvantages of Credit
You enjoy goods and services
now instead of later
Credit costs money
Combining several purchases
while making one monthly
payment
Failure to pay your bills can ruin a
good credit reputation
A credit card is needed for
transactions such as renting a car
Traveling with a credit card is
safer than cash
Good credit results in other
lenders viewing you as a
responsible person
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Failure to pay your bills can can
lead to a loss of income and
property
Using credit does not increase
your total purchasing power
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Types of Credit
Closed-End Credit
Open-End Credit
closed-end credit
credit as a one-time loan that is paid back over a specified period of
time in payments of equal amounts
open-end credit
credit as a loan with a certain limit on the amount of money that can
be borrowed for a variety of goods and services
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Types of Credit
What is a line of credit?
line of credit
maximum amount of money a creditor will
allow a credit user to borrow
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Sources of Consumer Credit
Loans
Credit Cards
Inexpensive Loans
Debit Cards
Medium-Priced Loans
Cobranding
Expensive- Loans
Smart Cards
Home Equity Loans
Store-Value Cards
Travel and Entertainment
(T&E) Cards
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Sources of Consumer Credit
When you have a credit card, you should
know the grace period and the finance charge.
grace period
time period during which no finance
charges will be added to an account
finance charge
total dollar amount paid to use credit
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
8
Consumer Credit
Section 1 What Is Consumer Credit?
Look at the suggestions in Figure 3 on page 460. Which of the
factors do you think might be most important in your choice of
a credit card?
Sample answer: tip number 2 is most important as it stresses
the need to compare credit cards and their terms from several
different banks before making an informed decision.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Name the five Cs of credit.
Identify factors to consider when choosing a loan or credit
card.
Explain how to build and protect your credit rating.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Can You Afford a Loan?
Add up all your basic monthly
expenses and then subtract the
total from your take-home pay.
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Consider what you might give
up to make a monthly loan
payment.
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Can You Afford a Loan?
Debt Payments-to-Income Ratio
The percentage of debt you have in
relation to your net income
net income
income received from take-home pay,
allowance, gifts, and interests
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
The Cost of Credit
When shopping for credit, you
should know the finance charges
and annual percentage rates (APR)
of the credit sources you are
considering.
annual percentage rate (APRP
cost of credit on a yearly basis,
expressed as a percentage
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
The Cost of Credit
Annual Percentage Rate Table for Monthly Payments
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
The Cost of Credit
Trade-Offs
Term Versus
Interest Costs
Lender Risk Versus
Interest Rate
Reduce Risk by
Considering:
Variable Interest Rate
Secured Loan (Requires
Collateral)
Up-Front Cash
Shorter Term
collateral
a form of security that helps guarantee that
the creditor will be repaid
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
The Cost of Credit
Calculating the Cost of Credit
Simple Interest
Cost of Open-End Credit
Simple Interest on the
Declining Balance
Cost of Credit and
Expected Inflation
Add-On Interest
The Minimum Monthly
Payment Trap
simple interest
interest computed only on the principal
minimum monthly payment
smallest amount that one can pay and remain a
borrower in good standing
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Applying for Credit
The Five Cs of Credit
Character
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Capacity
Capital
Collateral
Conditions
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Applying for Credit
Factors that Determine Credit Rating
Income
Current Debt
Information About Character
Debt Payment History
credit rating
a measure of a person’s ability and willingness
to make credit payments on time
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Applying for Credit
Two Types of Credit Reports
FICO
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Vantagescore
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Applying for Credit
Personal Credit Score
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Applying for Credit
Because of the Equal Credit Opportunity Act (ECOA),
a Creditor May Not:
Turn you down or decrease your credit because of your age
Ignore your retirement income in rating your application
Close your credit account because you have reached a certain age
Close your credit account because you have retired
Deny you credit because you receive public assistance
You have a right to know why you are refused credit.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Your Credit Report
The Three Major
Credit Bureaus
Experian
Where Do Credit Bureaus
Get Information?
Banks
Finance Companies
Trans Union
Stores
Credit Card Companies
Equifax
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Other Lenders
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Your Credit Report
Contents of Your
Credit File
Employer, Position, Income
Previous Address
Previous Employer
Spouse’s Information
Homeowner or Renter Status
Checks Returned or Insufficient Funds
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Your Credit Report
You and Your Credit File
There are time limits on unfavorable
data.
Credit bureaus must ensure
information in your credit file is
correct.
You can sue a credit bureau or
creditor that has caused you harm by
not following rules established by
the Fair Credit Reporting Act.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Your Credit Report
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 2 The Costs and Methods of Obtaining Credit
Suppose you applied for a car loan of $40,000 and were denied
for valid reasons. What would your next steps be toward getting
a car loan?
According to Figure 6 on page 471, you can ask the creditor if
you can provide additional information, apply to a different
creditor, or work toward improving your creditworthiness and
reapply. Students may also indicate that they might apply for a
smaller loan and settle for a less expensive automobile.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Protect yourself from fraud and identity theft.
Identify consumer protection laws.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Billing Errors and Disputes
If you write a letter to a creditor to dispute a charge:
The creditor must acknowledge your letter within 30 days.
If the creditor made a mistake, you do not have to pay any finance
charges on the disputed amount.
If no mistake is found, the creditor must promptly send you a letter of
explanation.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Billing Errors and Disputes
For your protection:
A creditor may not threaten your credit rating.
A creditor cannot take any action against you until a complaint is
settled.
You may instruct a credit card company to hold payment if you
purchase a defective item.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Credit and Stolen Identity
If you think you are a victim of identity theft:
Contact the
Credit Bureaus
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Contact the
Creditors
File a
Police Report
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Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Protecting Your Credit From Theft or Loss
Avoid Having Your Credit Card Being Stolen or Lost
Always retrieve your card after a purchase.
Keep a record of your credit card numbers.
Notify the credit card company immediately if your card is lost or
stolen.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Protecting Your Credit from Theft or Loss
Protecting Your Credit on the Internet
Use a secure browser.
Keep records of online transactions.
Review monthly bank and credit card statements.
Read privacy and security policies of Web sites.
Keep your personal information private.
Never give your password to anyone online.
Do not download files sent to you by strangers.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Cosigning a Loan
When Cosigning a Loan:
Be sure you can afford to pay the loan.
Consider your liability for the loan.
Understand that you could lose property.
Understand your legal rights as a cosigner.
Request that a copy of overdue-payment notices be given to you.
cosigning
agreeing to take responsibility for loan
payments if the other person fails to make them
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Complaining About Consumer Credit
Consumer Protection Laws
Credit Card Act
Truth in Lending Act
Consumer Leasing Act
Equal Opportunity Act (ECOA)
Fair Credit Opportunity Act
Fair Credit Reporting Act
Consumer Credit Reporting Reform Act
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
Complaining About Consumer Credit
In Cases of Discrimination:
Complain to the creditor.
File a complaint with the government.
If all else fails, sue the creditor.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
8
Consumer Credit
Section 3 Protecting Your Credit
The Consumer Credit Reporting Reform Act states that the
burden of proof for accurate information is on the credit bureau
rather than on you. How can this benefit you if you find
information you feel is wrong on your credit report?
Students should understand that if you dispute information on
your credit report and the credit bureau cannot prove it is
accurate, then they must remove the information from your
report. Prior to the law, the information would have remained
on the report until you could prove it was inaccurate.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 4 Managing Your Debts
Describe options for managing debt problems.
Identify signs of debt problems.
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 4 Managing Your Debts
Signs of Debt Problems
Are You Experiencing Two or More of These
Warning Signs?
You make only the minimum monthly payment
You struggle to make the monthly payment
The total balance increases every month
You miss payments or you are often late
You use savings to pay for necessities
You receive second or third late payment due notices
You borrow money to pay off old debts
You exceed credit limits
You have been denied credit because of bad credit
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Chapter
8
Consumer Credit
Section 4 Managing Your Debts
Debt Collection Practices
Creditors often turn over bad debts to debt
collection companies.
The Federal Trade Commission enforces the
Fair Debt Collection Practices Act (FDCPA).
Glencoe Personal Finance
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Chapter
8
Consumer Credit
Section 4 Managing Your Debts
Financial Counseling Services
Trouble Paying Your Bills?
Contact your creditors
Consumer Credit Counseling Service (CCCS)
Universities, credit unions, military bases
State and federal housing authorities
Banks
Reputable financial counseling services
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Chapter
8
Consumer Credit
Section 4 Managing Your Debts
Declaring Personal Bankruptcy
Chapter 7
Two Types of
Bankruptcy
Chapter 13
bankruptcy
legal process in which some or all of the assets of
a debtor are distributed among creditors because
the debtor is unable to pay his or her debts
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Chapter
Consumer Credit
8
Interest Rates
Glencoe Personal Finance
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Chapter
Consumer Credit
8
Glencoe Personal Finance
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Chapter
Consumer Credit
8
Glencoe Personal Finance
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End of
Glencoe Personal Finance
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