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Credit
Management
Unit 4
Credit in America
Chapter 16
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FUN FACTS
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In 2006, the credit card industry took in $55 billion in credit
card fees and $90 billion in finance charges. Makes you want
to pay your credit card bills on time.10% - Credit Cards
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U.S. consumers racked up an estimated $51 billion worth of
fast food on their personal credit and debit cards. That is
equal to 10.2 Billion Big Mac meals, 3 billion pounds of fries
and 1.7 billion gallons of coke.Owes about $230
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U.S. Visa cardholders alone conduct more than $1 trillion in
annual volume. Average Family: $9,000
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Average Household Credit Card Debt is $8,400.00
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Certain terms are commonly used to describe
credit, its availability and its cost.
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Borrower: or debtor: When you borrow money or used credit
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Creditor: The person or company who loans money or
extends credit to you
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Capital: is property you possess(bank accounts, investments,
other assets)
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Collateral: is property pledged to assure repayment of a
loan.
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Line of Credit: Pre-established amount that can be
borrowed without collateral
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Once you have completed the credit purchase, you owe
money to the creditor.
Principal: amount borrowed
Balanced due: is the amount borrowed plus interest for the time
you have the loan
Finance Charge: total dollar amount of interest and fees you pay
for the use of credit.
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FINANCE CHARGES
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Minimum payment: the least amount you may pay that month under
your credit agreement.
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Due Date: credit payments are due on a specific date or you will be
charged a late fee
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Late fee: charged to a balance if you do not pay within a certain time
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Secured loan: you agree to repay entire debt or goods will be returned
at end of a time
+ Advantages of Credit
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Able to buy needed items now
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Don’t have to carry cash
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Creates a record of purchases
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More convenient than writing checks
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Consolidates bills into one payment
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Disadvantages of Credit
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Interest (higher cost of items)
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May require additional fees
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Financial difficulties may arise if one loses track of how much
has been spent each month
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Increased impulse buying may occur
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Kinds of Credit
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Open-Ended Credit
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Can be used over and over again pending customer agreement
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Open 30-Day accounts
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Travel-entertainment cards (American Express and Diner’s
Club)
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Widely Accepted nationwide and overseas
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Have high or no credit limits
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Provides instant purchasing power
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Kinds of Credit
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Revolving Credit Accounts
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All purpose credit card: Visa, MasterCard, and Discover
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Widely accepted nationwide and overseas
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Provide instant purchasing power
Retail store cards: department stores and gas companies
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Only accepted at participating stores
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Provide instant purchasing power
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Applying for a Credit Card
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Costs:
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Annual Percentage Rate (APR)
Grace period (free period)
Annual Fees
Transaction Fees
Balancing computation method for the finance charge
Features:
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Credit limit
How widely the card is accepted
What services and features are available
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Kinds of Credit
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Open-Ended
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Closed-Ended Credit
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A loan for a specific amount of time that must be repaid, in full,
including all finance charges, by a stated due date.
Very expensive items: cars, furniture, and major appliances.
Statement includes: Amount loaned, finance charges, payment
amount.
Collateral
Service Credit
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Have a service performed now and pay for it later
Examples: Phone, utilities, doctors, and lawyers
Terms are set by individual businesses
Usually paid in full with no finance charges or a budget plan
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Sources of Credit
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Retail Store
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Credit Card Companies
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Banks and Credit Unions
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Finance Companies
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Pawnbrokers
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Private Lenders
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Other Sources of Consumer Credit
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Credit Cards Do’s and Don’ts
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Shop around
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Read and understand the contract
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Look at various sources.
Read the contract carefully
Don’t rush into signing anything
Once a contract is signed, get a copy of it.
Know the penalties for missed payments
Know your cost
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Figure out the total price when paying with credit.
Make the largest payments possible
Know the penalties for missed payments
Buy on installment credit only after you have evaluated all other possibilities.
Don’t be misled into thinking small payments will be easy.
Credit Rating and Report
Credit Score Rating
720 – 850
Excellent
680 – 720
Good
640 – 680
Fair
350 – 640
Poor
000 – 349
No Credit
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How a Credit Score is Calculated
This central site allows you to request a FREE credit report, once every 12
months from each of the nationwide consumer credit reporting
companies. Equifax, Experian, and TransUnion.
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How is My Credit Score Affected?
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Credit Rating and Report
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Summary of Information
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Public Record Information
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Credit Information
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Account Detail
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Requests for Credit History
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Personal Information
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Consumer Protection
 Truth
in Lending Act (1968)
Ensures consumers are fully informed about cost and conditions of borrowing.
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Fair Credit Reporting Act (1970)
Protects the privacy and accuracy of information in a credit check.
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Equal Opportunity Act (1974)
Prohibits discrimination in giving credit on the basis of sex, race, color, religion,
national origin, marital status, age, or receipt of public assistance.
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Fair Credit Billing Act (1974)
Sets up a procedure for the quick correction of mistakes that appear on consumer
credit accounts.
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Fair Debt Collection Practices Act (1977)
Prevents
abuse by professional debt collectors, and applies to anyone employed to
collect debts owed to others; does not apply to banks or other businesses collecting
their own accounts.
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CARD ACT
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On Feb. 22, 2010, the Credit Card Accountability
Responsibility and Disclosure Act (CARD Act) took effect.
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It is a comprehensive credit card reform legislation that aims
to establish fair practices relating to the extension of credit
under an open end consumer credit plan.
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New rules credit card companies must follow to ensure
CONSUMER PROTECTION.
Provisions include: Interest rates, due dates, misleading
terms, set limits, minimum payment explanation