Learning Activity 5 5 1 Good Credit Credit History Advantage Credit Cards Late Fee Impulse Buying High Interest Rates Human Factor Payments Schedule The Essentials of Bad Credit Credit ID: 712652
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IDENTIFY THE ESSENTIALS OF CREDIT
Learning Activity 5
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Good Credit
Credit History
AdvantageCredit Cards
Late Fee
Impulse Buying
High Interest Rates
Human Factor
Payments Schedule
The Essentials of
Bad Credit
Credit
Disadvantage
Loans
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TYPES OF CREDIT
Credit CardsShort Term LoansLong Term Loans
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CREDIT CARD FACTS
Cards Cause a 32% Increase in Spending
Average Household Balance Is $5,700Average Indebted Household Is $7,743Average APR Is 15.00% PercentTotal Consumer Debt Is $3.3 Trillion
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CREDIT EXAMPLE
Amount Charged $ 5,000Interest Rate 18%Monthly Payments: 2% of BalanceTime To Pay Off Debt:
46 YEARS!!!Total Interest $ 13,931Total Paid $ 18,931
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SHORT-TERM LOANS
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Advantages
Better Interest Rate
Less Total Interest Paid
Costs To Finance $12,500 at 6% APR
Disadvantage
Higher Monthly Payment
Term of Loan
Monthly Payment
Total Interest Paid
3 years
$380.35
$1,192.60Slide7
LONG-TERM LOANS
AdvantageLower Monthly PaymentsDisadvantages
More Total Interest PaidCosts To Finance $12,500 at 6% APR5-
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Term of Loan
Monthly Payment
Total Interest Paid
5 years
$241.71
$2,202.60Slide8
HOW CREDIT
WORTHY ARE YOU?
Character Capacity
C
ollateral
“CREDITWORTHINESS"
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CHARACTER
Credit HistoryBankcardsDepartment Store CardsAuto Loans
StabilityAgeBank Account History
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CAPACITY
IncomePotential CreditNumber of CardsCredit Limits
Total Debt Level
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COLLATERAL
HomeCarOther
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THE
ABC’s OF APPROPRIATE CREDIT USE
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Purchase
A
ssets
“
B
ig Ticket” Items
For
ConvenienceSlide13
INAPPROPRIATE USES OF CREDIT
Cheap FurnitureClothing
Sports EquipmentEntertainmentDaily Living ExpensesPayments May Outlast Item(s)
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MOTIVATIONS TO ABUSE CREDIT
Impulse Buying Spending for Status
Retaliatory Spending Spending to Feel Good
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DEBT WARNING SIGNS
Excessive Credit Card DebtFalling Behind on PaymentsUsing Credit for Basic NeedsLack of Savings Being At or Near Card Limits
Needing Income from a Second Job5-
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CONSEQUENCES OF DELINQUENT ACOUNTS
Credit Scores Will Decrease
Loan DefaultDifficulty Obtaining New CreditGarnishment of WagesWithholding of Tax Returns
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INDICATIONS OF SERIOUS CREDIT PROBLEMS
Skipping or Rotating Bill Payments
Using Credit to Pay CreditDebt Consolidation LoansBeing Denied CreditDishonesty With Family
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CREDIT BUREAUS
EquifaxExperian
Trans Union
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REPORT COMPONENTS
Personal/Employment InformationCredit HistoryPublic RecordsInquiries
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CREDIT SCORING SYSTEM
Tool to determine creditworthinessPoints are awarded for each factor that predicts reliability for debt repaymentTotal number of points (credit score) helps predict how creditworthy you are
Credit scores between 300 and 850Called FICO and BEACON Scores
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WHAT IS A GOOD CREDIT SCORE?
No official guidelines, however roughly:751+
Excellent credit score. You should qualify for the best interest rate and loan terms. 720 – 750 Good credit score. There won’t be any problem in getting a loan at a good interest rate. 641 – 719 Average credit score. You may qualify for the loan but not at a good interest rate. 581 – 640 Poor credit score.
You will have a tough time getting a loan or a credit card.
below
580
Bad credit score.
It’s doubtful that you will qualify for a loan or a credit card.
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HOW CREDIT REPORTS ARE USED
Potential Employers
Potential CreditorsSubjective EvaluationCredit ScoringAdverse InformationInsurance Agents
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ENSURING ACCURATE REPORTS
Get Copies of Your Credit ReportsDispute Incorrect InformationAdd Your Version (if necessary)
20 percent of all credit reports contain inaccurate information5-
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CONSUMER CREDIT PROTECTION LAWS
Federal Truth In Lending Act Fair Credit Billing Act Fair Credit Reporting Act Fair Debt Collection Practices Act
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CONSUMER CREDIT PROTECTION LAWS (Cont.)
Equal Credit Opportunity Act
Fair Credit and Charge Card Disclosure ActCredit Card ActState Laws
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DEALING WITH CREDITORS
Stay In Contact Current mailing address & phoneBe Honest
Life is unpredictableHave a PlanPay your just debts
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SITUATIONS TO AVOID
Credit ClinicsDebt Consolidation LoansSpending Behavior Must ChangeBankruptcy
Long-term effects (7-10 yrs)Last resort
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HOW TO ESTABLISH CREDIT
Check your credit reportGet your first credit reference – a secured credit card/line of credit/loan – but watch the interest rate
Use it, but don’t abuse itAfter 6 months, get more credit and round out referencesMonitor credit report
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HOW TO IMPROVE YOUR CREDIT
Get copies of your credit reports
Pay your bills on timeUnderstand how your credit score is determinedLearn the legal steps to take to improve your credit reportBeware of credit-repair scams
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SOURCES OF ASSISTANCE
Chain of CommandPersonnel Action Center (PAC)Army Community Service (ACS) Legal Office
Financial InstitutionsArmy Emergency Relief (AER)Consumer Financial Protection Bureau
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CHECK ON LEARNING
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True or False: A
credit repair company can erase a poor credit history.
FALSECHECK ON LEARNING
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Name Five Warning Signs of Financial Trouble.
1. Debt Consolidation Loans2. Using Credit for Basic Needs3. Falling Behind on Payments At or Near Credit Limits5. Lack of Savings
CHECK ON LEARNING
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CHECK ON LEARNING
True or False: You
will have lower monthly payments with a long term loan. TRUE
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True or False: If
someone uses your lost or stolen credit card, you are liable for no more than $50.
TRUE
CHECK ON LEARNING
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True or False: If
you pay a bill late, your creditor can report this information to a credit bureau.
TRUECHECK ON LEARNING
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Under the Truth in Lending Act, what is one thing a lender MUST disclose to you when you apply for a loan?
a. Annual Percentage Rate b. Warranty information c. Payment start date d. Lender’s name and address a. Annual Percentage Rate
CHECK ON LEARNING
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SUMMARY
DON’T ALLOW THIS TO BE YOU!
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