Credit - Holland Public Schools

Chapter 16
Goals for Chapter 16.1
What is Credit?
Describe the history of credit in America.
 Define basic credit vocabulary.
 Discuss the advantages and disadvantages
of using credit.
History of Credit
Credit is money borrowed to buy
something now, with the agreement to pay
for it later.
 The Early Years
– General Store
– Banks usually charged between 25-50 percent
– Between 1920 and1990, credit became a way of
– No longer used just for emergencies.
– The 1970’s brought the first consumer credit
protection legislation.
– 1990’s saw a record number of people declare
bankruptcy because of overextended credit.
Credit today
– Credit is very easy to get.
– The Internet has opened new uses of credit
Credit Vocabulary
When you borrow or use credit, you are a
borrower or debtor.
 The person or company who loans money
or extends credit to you is called the
 Capital is property pledged to assure
repayment of a loan.
The interest you pay for the use of credit is
called a finance charge.
 At times, you may have to sign an
installment agreement, where you agree to
make regular payments for a set period of
Advantages of Credit
Increased purchasing power
Emergency funds
– A sudden need for cash can be solved by a line of
credit, which is a pre-established amount that can be
borrowed on demand with no collateral.
– Deferred billing is a service available to charge
customers whereby purchases are not billed to the
customer until later.
Safer than carrying large amounts of cash
Disadvantages of Credit
Higher Prices
 Finance Charges
 Tie Up Income
 Overspending
Goals for Chapter 16.2
Types and Sources of Credit
List and describe the kinds of credit
available to the American consumer.
 Describe and compare sources of credit.
Open-Ended Credit
Open-ended credit is an agreement to lend
the borrower an amount up to a stated limit
and to allow borrowing up to that limit
again, whenever the balance falls below the
In an 30-day credit agreement, a consumer
promises to pay the full balance owed each
month. (American Express Card)
 In a revolving credit agreement, a consumer
has the option each month of paying in full
or making payments at least as high as the
stated minimum. (VISA, MasterCard, etc)
Credit Card Terms
Annual percentage rate (APR) is the cost of
credit, expressed as a yearly percentage.
A free period, or grace period, allows you to avoid
the finance charge by paying your current balance
in full before the due date shown on your billing
Many credit card issuers charge an annual fee.
Transaction Fees and Late Fees
Method of Calculating the Finance Charge
Credit Card Statement
Closed-End Credit
Closed-end credit is a loan for a specific
amount that must be repaid, in full,
including all finance charges, by a stated
Service Credit
Almost everyone uses some type of service
credit, which is an agreement to have a
service performed now and pay for it later.
Sources of Credit
Retail Stores
 Banks and Credit Unions
 Finance Companies
– Usually charge higher interest rates.
– Usury laws set maximum interest rates that
may be charged for loans.
 Private Lenders