CREDIT NOTES
Credit is buy now pay later. The
opportunity Cost is future income!
Credit can be a great tool and can be
necessary but can lead to financial
disaster if not used right.
Loans
• Major types of Credit: Loans
• Loans (car, house, personal etc.): loans have a set payoff date
typically. You know how much a month your payment is and when it
will payoff. These are known as installment loans.
• Banks and Credit Unions are good… Finance Companies and
Pawnshops not so much!
• Interest is the cost for borrowing. Sometimes called Finance
Charges. Look for low APR ( Annual Percentage Rates.
• Take the loan out for the shortest time period possible, it can save
you thousands of dollars.
• Beware of Cosigning.. You are just as responsible as the person you
are signing for. If they miss payments etc. it reflects poorly on your
credit and you will be expected to make the payments.
Credit Cards
• Major Credit cards: Visa, Master Card, Discover, (American
Express)
• There are hundreds of these out there. LOOK FOR LOW FIXED RATE
APR. Average is around 18-19%. Look for no annual fees. CARDS
CHARGE HIGHER INTEREST WHEN YOU TAKE A CASH ADVANCE On
LOWER ON PURCHASES. Pay entire amount off each month, on
time to avoid interest.
• RETAIL CARDS- most stores etc. have cards, Best Buy, Sam’s,
Penney’s, Kohl’s, Gas stations etc. They typically have higher
Interest rates then major cards although they come from the same
banks. Average interest is probably 22-24% or higher.
• Debit Cards are different- the money comes from your checking
account. It is not credit. No interest applies, but overdraft fees are
expensive if you use your card without sufficient funds!
KEEPING CREDIT CARD COSTS DOWN
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KEEP BALANCES LOW,
MAKE PAYMENTS ON TIME
DO NOT GO OVER THE CREDIT LIMIT.
MAKE ABOVE MINIMUM PAYMENTS OR YOU WLL
FOREVER BE PAYING INTEREST AND NEVER GET THE
BALANCES DOWN.
DO NOT GET CREDIT CARDS YOU DO NOT NEED.
SHOP FOR LOWEST INTEREST (APR)
KEEP YOUR CREDIT SCORE HIGH
Remember buying now can be fun but it takes your future
income and ability to make purchases in the future and can
increase the price of your purchases tenfold.
0% FINANCING
• The deals like 12 month free financing for purchases over a certain
amount can work to your advantage if you pay it in it’s entirety by
the end of the period.
• If not totally paid off you will pay interest on entire amount from
the day of purchase at high interest. Can be expensive so get it paid
off!
• EX: You finance a new TV over 3 years at Best Buy for 1000. At the
end of 3 years you paid off $900. You will be billed interest on the
entire amount. With Interest around 25% you could pay up to 3-400
dollars in interest.
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Credit Reports and Ratings
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CREDIT REPORTS- Based on your number of accounts, type of accounts, Where
you have accounts (finance companies etc. look bad).
Credit history- Payment history. Pay your bills on time!It shows (character). Pay
early- pay extra. Biggest part of a rating.
How much you currently owe.Keep balances down.
How much you owe vs. card limits.( are your cards all maxed out)
How many cards you have. DO not get cards you do not need.
Capacity- income vs. expenses. Do you have enough money to pay another
account after paying current expenses. You could have excellent credit but if you
have too much you can be denied.
How much credit you have applied for. All enquiries show up on the report, which
means you have been applying for a lot of credit. Hurts your score.
Income, Personal information.
Summary
• borrow only what you need, at the lowest APR
you can get, for the shortest time possible.
• The Higher your credit score, the more
options you have. You can shop around for the
lowest rates or going to a finance company, or
pawn shop out of desperation.
• Ex: 1000 loan at 24% APR is $240. of interest
in just a year. The same $1000 at 12% interest
is just $120 in interest.