INTRODUCTION. Write this in your notes. In your own words. 1. What promises do consumers make every ?me they use their credit cards? What is Credit? Chapter 25 What do you already know? 1. What is credit? 2. How are you aﬀected by credit? 3. List several forms of credit. Chapter 25 Sec?on 1 CREDIT ESSENTIALS Credit • An agreement to get money, goods, or services now in exchange for a promise to pay in the future. • Delaying the payment for an item. Creditor • The one who lends money or provides credit. • Examples: person, ﬁnancial ins?tu?on Debtor • The one who borrows money or uses credit. • Credit is based on the conﬁdence that the debtor can and will make the payments (trust). Interest • The fee charged by creditors for using their money. • The amount of interest is based on three factors. 1. Interest rate – percentage of the total amount borrowed. 2. Length of the loan – the longer you take to pay oﬀ a loan, the more interest. 3. Amount of the loan – the larger the amount, the more interest. Consumer Credit • Type of credit used by people for personal reasons. • Examples: Vaca?ons, restaurants, student loan Commercial Credit • Credit used by a business. • When businesses borrow, they pass along the cost of the interest to consumers – Charging higher prices for their products. • Why might a business need to use credit? What could be some pros and cons of using credit? Why would consumers use a credit card instead of cash? Credit Advantages Convenient Emergency situa?ons Online shopping Credit ra?ng – a measure of a person's ability and willingness to pay debts. • Keep track of spending • Contributes to the growth of our economy. • • • • Disadvantages • • • • Easy to misuse Items cost more (interest) Bills tend to pile up Lower credit ra?ng – Half of all people with credit problems are between the ages of 18-­‐32! Research and ﬁnd the following: 1. What is the range for a FICO credit score? 2. How do I maintain a ‘good’ credit ra?ng? 3. If I have a ‘poor’ credit ra?ng, how do I improve the score? 4. Two examples of consumer credit and two examples of commercial credit.