Credit Bell Ringer Is a credit card good or bad?

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Credit Bell Ringer Is a credit card good or bad?




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Presentations text content in Credit Bell Ringer Is a credit card good or bad?

Slide1

Credit

Slide2

Bell Ringer

Is a credit card good or bad?

What would be considered good credit?

On average how many credit cards does the average household have?

How do credit cards make money?

Slide3

Video

Who are credit card companies best and worst customers?

Should people use credit cards as an emergency fund? Why or why not.

0% interest

Late fees

Slide4

Chapter 4 - Credit

Slide5

Credit and Installment Debt Terms

Credit

- is receiving funds either directly or indirectly to buy goods and services today with the promise to pay for them in the future

Principal

- The amount that was originally borrowed

Interest

- the amount that the borrower must pay for the use of someone else’s funds

.

Slide6

Credit and Installment Debt Terms

Installment Debt

- One of the most common types of debt, this loan requires equal payments over time

Period - the term used for the length of time of the loan

Durable Goods

- goods that last longer than 3 years and are often purchased using credit

What are some examples of durable goods?

Slide7

Consumer Installment Debt in U.S.

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Slide8

Consumer Installment Debt in U.S

Slide9

Types of Credit

Characteristics

Close-end Credit

Open-end credit (revolving credit)

Definition

A one-time loan

Credit is extended in advance

Purpose of the loan

Specified in application

May be used for a variety of purposes

Payments

Specified number of equal payments

Vary depending upon amount charged

Loan amount

Agreed upon during the application process

May be increased for responsible consumers

Examples

Mortgage, Automobile Loan

Credit Card

Slide10

Mortgages

Mortgage

- installment debt on real property such as houses, buildings or land.

Largest form of installment debt in the country

Slide11

Pay Now or Pay Later!

$1,000 Installment Loan at 9% Interest

Term of Loan

24 Month

36 Months

Monthly Payments

$45.69

$31.80

Total Interest

$96.56

$144.80

Total Payments

$1096.56

$1,144.80

Slide12

Why People Use Credit - Advantages

“Buy now, pay later”

Using credit allows the borrower to enjoy consumption now rather than later

Items that are too expensive would often take too long to save for

Builds/establishes your credit history & credit score

Convenient

Useful for emergencies

Often required to hold a reservation

Easy form of debt consolidation

Protection against rip-offs and fraud

Slide13

Credit - Disadvantages

Missed payments hurt your score

Opening too many cards hurts your score

Late Fees, Finance charges

Going over credit limit

Interest is costly

Tempting to overspend

Privacy is an increasing concern

Personally responsible for lost/stolen cards

Identity theft easier

Can lose financial freedom from overspending

Slide14

Checklist for Buying on Credit

The following questions should help you in determining whether to use credit or not.

Do I really

require

this item? Can I

postpone

purchasing this item until later?

If I pay cash, what

will I be giving up

that I could buy with these funds?

If I borrow or use credit, will the

satisfaction

I get from the item I buy be greater than the interest I must pay?

Have I done

comparison

shopping for credit?

Can I

afford

to use credit now?

Slide15

Credit scores

A FICO (Fair Isaac Company) score is an evaluation of a person’s ability to repay debt

It is a number between 300 and 850

A higher number is a better credit score

Indicator of a person’s ability to pay back a loan

A lower score may increase the interest rates a consumer pays or they may not receive credit

The creditor has a greater risk that the individual may not pay back the money they loaned

Slide16

Credit Scores

Credit cards may influence each component of how an individual’s credit score is calculated

Slide17

Credit scores

Low credit scores will cost individuals more money long-term.

This table is based upon a thirty-year fixed mortgage rate on a $300,000 loan.

FICO Score

Interest Rate

Monthly Payment

30 Year Amount

760

5.9%

$1,787

$643,320

650

7.2%

$2,047

$736,920

590

9.3%

$2,500

$900,000

Slide18

Credit Scores, cont.

Check your credit score & credit report once a year – but not more than once in 12 months!

If your credit is checked more than once every 12 mos, each inquiry after that starts to hurt your score

3 credit reporting agencies are:

Equifax, Experian, and TransUnion


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