Understanding Loans
and Borrowing Money
UNIT SEVEN
Development of Credit
 In the Past
 Credit Today
The Vocabulary of Credit
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(1) borrower,
(2) creditor,
(3) Capital,
(4) Collateral,
(5) repossession,
(6) balance due,
(7) finance charge,
(8) minimum payment,
(9) late fee,
(10) due date,
(11) installment agreement and
(12) secured loan.
Advantages of Consumer
Credit
 Expand your purchasing
potential
 Raise your standard of living.
 Credit is also very convenient.
Disadvantages of Consumer
Credit
 Credit purchases may cost more
than cash purchases
 The larger your balance and the
longer you take to pay it off, the
greater the finance charges
Kind of Credit
 Open-Ended Credit
 Closed-End Credit
 Service Credit
Source of Credit
 Retail Stores
 Credit Card Companies
 Banks and Credit Unions
 Finance Companies
 Pawnbrokers
 Private Lenders
 Other Sources of Consumer
Credit
Credit Records
 Your Credit File
 How Information is Gathered
and Used
 Types of Information Stored
Creditworthiness
 The five Cs of Credit:
 (1) Character: Will you repay the
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debt?,
(2) Capacity: Can you repay the debt?,
(3) Capital: Is the creditor fully
protected if you fail to repay?,
(4) Conditions: What general economic
conditions can affect your repayment
of debt?,
(5) Collateral: What assets back up
your promise to pay?
Getting Started with Credit
 Begin with a Saving Account
 Open a Checking Account
 Open a Store Credit Account
 Get a Small Loan
 Apply for a Credit Card
Credit Ratings
 Different bureaus use different
rating systems, but a point
system is common.
 Another rating system, rates
consumers according to how
reliably they pay back money
borrowed or charged.
 Consumers may earn ratings
such as excellent, good, fair, or
poor.
Credit Reports
 Sections of a credit report:
 (1) Summary of Information,
 (2) Public Record Information,
 (3) Credit Information,
 (4) Account Detail,
 (5) Requests for Credit History,
 (6) Personal Information.
Credit laws
 Consumer Credit Protection Act
 Fair Credit Reporting Act
 Fair Credit Billing Act
 Equal Credit Opportunity Act
 Fair Debt Collection Practices Act
Responsibilities of Consumer
Credit
 Responsibilities to Yourself
 Responsibilities to Creditors
 Creditors' Responsibilities to
You.
Protecting Yourself From
Credit Card Fraud
 Safeguarding Your Cards
 Protecting Your Cards Online
EXTRA CREDIT ASSIGNMENT
 Define and explain:
 (1) Standard Loan Practices,
 (2) Predatory Lending Practices
and
 (3) Legal debt Collection Practices
 [2 PARAGRAPHS ON EACH TOPIC]
 YOU MUST DO INTERNET RESEARCH
AND PROVIDE YOUR SOURCES
Avoiding Unnecessary Credit
Cost
 To reduce your credit costs:
 (1)accept only the credit you need,
 (2) make more than the minimum
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payment each month,
(3) Do not increase spending when
income increases,
(4) Keep no more than two credit
cards,
(5) pay cash for small purchases,
(6) Understand the cost of credit,
(7) Shop for loans,
(8) Take advantage of rebate
programs.
Why Credit Cost Vary
 (1) Source of credit,
 (2) Amount financed and length of
time,
 (3) Ability to repay debt,
 (4) Type of credit selected,
 (5) Collateral,
 (6) Prime rate,
 (7) Economic conditions,
 (8) The business's costs of
providing credit.
Computing the Cost of Credit
 Simple Interest Formula
 Annual Percentage Rate
Formula
 Credit Card Billing Statements