A program of:
The United States Bankruptcy Court, Middle District of Florida
Tampa Division
and
The Tampa Bay Bankruptcy Bar Association
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Credit 101

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Credit- borrowing money; a loan.
Principal- amount of money you borrow.
Interest- amount you pay, in addition to repayment of principal, for
the privilege of borrowing; usually a percentage of the total principal.
Debt- something owed to another.
Collateral- things offered by the borrower to the lender to secure the
borrower’s performance in repaying a loan (e.g. car, house, boat,
etc.).
Secured Loan- a secured loan has a borrower’s pledge of
collateral; if the borrower doesn’t pay, lender can seize the
collateral, sell it and keep the money.
Unsecured Loan- a loan where no collateral is pledged.
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Credit 101 (continued)

Annual Percentage Rate (APR)- the amount of interest charged by
the credit issuer

Introductory Rate- the rate of interest charged during the
“introductory” period of a loan term (i.e.: 0% for 6 months and 17%
thereafter).

Annual Fees- the amount charged by the credit issuer for the
privilege of using the credit extended; different from, and in addition
to, interest rate.

Late Fees- the amount charged if the minimum balance is not paid
on time or within the grace period
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Credit 101 (continued)
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Grace Period- the amount of time after the payment due date to pay the minimum balance
without penalty.
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Minimum Payment- the smallest amount you may pay on the debt without penalty.
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Loan Term- the duration of the loan (e.g. 1 year, 3 years, 15 years).
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Maturity Date- the specific date the term of the loan ends (i.e. January 15, 2021).
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Default- failing to pay on time or within the grace period; failing to pay entire debt by the maturity
date.
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Debt Collection- action taken by lender after borrower default; may include sending demand
letters, telephone calls to request payment, and filing a lawsuit against the borrower.

Judgment Lien- lien in favor of lender on all of borrower’s real and personal property that may be
imposed after judgment is entered by Court.
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Commonly Available
Types of Credit

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Credit Card—short term, unsecured loan made by card issuer to card holder
for purchases of goods and services.
 Penalty for non-payment: interest, late fees, debt collection, judgment
lien.
Student Loan—long term, unsecured loan made by lender to student for
educational expenses—tuition, housing, books, food.
 Penalty for non-payment: interest, late fees, debt collection, tax return
set-off.
Auto Loan—long term loan for vehicle purchase. Almost always secured by
vehicle being purchased.
 Penalty for non-payment: interest, late fees, repossession, debt
collection, judgment lien.
Home Loan/Mortgage—long term loan for home purchase. Almost always
secured by property being purchased.
 Penalty for non-payment: interest, late fees, foreclosure, deficiency
judgment, judgment lien.
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Credit Report
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A comprehensive report detailing all credit
available to an individual—past and present—
and that individual’s repayment history for each
loan.
Who might be interested in seeing your credit
report?
 Lenders
 Employers
 YOU
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Credit Reporting Agencies
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There are 3 major credit reporting agencies that
maintain credit reports: Equifax, Experian, and
TransUnion
You may obtain a free copy of your credit report
annually from each of the major credit reporting
agencies.
Go to www.annualcreditreport.com- this is the
official site for an annual free report.
BEWARE: Credit Reports may be available
through other website, but they may not be
FREE!
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FICO Credit Scores

An engineer, Bill Fair, and a mathematician, Earl Isaac, developed a
measure of credit risk based on the contents of a person’s credit
report: they called it the “FICO Score.”
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Your FICO score is determined by past use of credit and is like your
grade point average for credit use.
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Your FICO Score is a 3-digit number between 300-850.
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850 is best = A+
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300 is worst = F
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FICO Credit Scores

Used by lenders:
 To
decide whether to make you a loan at all
 To determine the interest rate for your loan
 To increase your credit limit
 To determine treatment if you make a very late
payment
 NOTE: FICO Scores are not part of your credit report.
To obtain your scores you must pay a fee – or -- a
lender may tell you your score when applying for a
loan.
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Focus on CREDIT CARDS
WHY?
 Widely available

 You
don’t have to be particularly credit-worthy
to get one.
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Dangerous if used improperly or abused
 Often
more available credit than a person
needs or can reasonably afford to repay.
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Good reasons to have credit cards:
Convenience: don’t have to carry lots of
cash or write checks.
 Safety: usually little or no liability if stolen.
 If used properly, will help build a good
credit rating.
 Internet purchases
 Emergency situations
 Rewards points (travel, merchandise,
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cash)

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HOWEVER:

PUTTING
SOMETHING ON A
CREDIT CARD
DOES NOT MEAN
YOU CAN AFFORD
SOMETHING THAT
YOU COULDN’T
AFFORD
OTHERWISE
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Wants vs. Needs

A need is something you
have to have--something
you can't do without.




Food
Shelter
Clothing
Transportation

A want is something you
would like to have. It is not
absolutely necessary.

Everything else
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Common Problems
Encountered by
Credit Card Users

Unable to pay the bill in full every month
 Interest
begins to accrue on unpaid amount
 If you continue using the card, you have the previous
month’s unpaid principal, plus interest, plus any new
principal, all of which has to be repaid.
 If you can’t pay all of that off in full at the end of month
2, you have even more interest accrual.
 Paying the minimum amount is a fool’s game.

Negatively impacts your credit report and your
credit score.
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What are the
consequences of bad
credit?
How will it affect you in the
future?
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If your payment record is
poor, your credit rating
will suffer.
You may be denied credit
or will be required to pay
much higher interest
rates.
You might lose a job
opportunity or be denied
an apartment lease.
You may not be able to
get student loans for
undergraduate or
graduate school.
Your insurance rates may
be higher.
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Test your financial
knowledge
True
or
False
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True or False?
You must be 18 years old or
older to obtain a credit card in
your own name.
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True

When you turn 18, you
may apply for a credit
card in your own name
and incur debt in your
name, but you will need
to prove sufficient income
or get a co-signer in order
to be approved.
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True or False?
All credit cards charge the same
annual percentage rate of
interest on the balance you owe.
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False

Different banks charge
different rates. Other
important terms vary
also, such as annual
fees, late fees, grace
period.

Check out these
website for a
comparison of terms:



www.cardtrak.com.
www.smartmoney.com
www.bankrate.com
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True or False?
After the teaser rate expires, the
Annual Percentage Rate (APR) on a
credit card can be changed at any
time by the credit card issuer.
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True
The APR on your credit card can be changed AT ANY
TIME by the credit card issuer, though the issuer is
required to give written notice in advance of the change.
Tricky & Sneaky!
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THINK LIKE A
LAWYER AND
READ THE FINE
PRINT!
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True or False?
If you pay your credit card balance in
full each month, it doesn’t matter what
rate of interest the bank charges on
your credit card.
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True
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Since you only pay
interest on the unpaid
amount each month, you
may never pay any
interest charge if you pay
the entire debt.*
Banks do not like it when
you do this !
*WARNING – question
the issuer on this point as
some credit cards accrue
interest during the month!
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The true “cost” of buying on
credit:
What if you bought ...
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A new laptop computer system:

Laptop
Printer
Wireless mouse
Wireless Router

TOTAL: $2,000



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And what if you use your credit card to buy
the laptop and you make monthly
payments of $300?
 Assume you never miss a payment and
the annual percentage rate on your card is
8%.
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What will the laptop end
up costing you?
How long will it take you to pay
for it?
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 Your
total cost
will be $2052
It will take you
SEVEN
MONTHS to pay
for it
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Now, instead of an 8% rate of interest ,
assume that, because of your poor credit
rating, you must pay interest at the rate of
24.9%.
 Also assume that you pay only the

MINIMUM MONTHLY PAYMENT of
$45 per month (2.25% of the balance).
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How long will it take you to
pay for the computer?
How much will you end up
paying for the laptop?
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 It
will take you
nearly 125
MONTHS!
 Over TEN
YEARS!
 TOTAL
PAYMENT:
$5,595.84
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 Your
choices:
 Pay $2,000 cash
now
 Pay $2,052 over
seven months
 Pay $5,595 over
ten years
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What If You Save That Money…
If you save or invest $50 per month for 10 years:
5%
10%
15%
=
=
=
$7,764.11
$10,242.25
$13,760.85
And what if you could make what the credit card companies
charge?
24.9%
=
$25,922.45
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That’s how credit card
companies earn approximately
$30 BILLION a year in profit.
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True or False?
You pay no interest on a debit
card purchase.
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True
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A debit card works
just like a check.
You can only spend
what you have.
Your ATM card
is probably a
debit card.
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True or False?
There is a credit report for
everyone over the age of 18.
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False

There is a credit
report only for those
who have
established a credit
history.

Having no credit
history can also have
adverse
consequences.
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True or False?
If you are late making a few
payments on your credit card,
the interest rate you pay may
increase sharply.
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True

For example, on one
Platinum VISA card,
the rate jumps from
4.9% to 24% if you
pay late or miss even
one payment. Late
charges also accrue.
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True or False?
If you miss just one or two
payments on your credit card, it
won’t hurt your credit rating.
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False
 That
negative
information can
legally remain on
your report for up
to 7 years.
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True or False?
If you apply for a car loan, the
lender will probably review your
credit report.
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True

People who lend you
money will almost always
review your credit report.
If your credit is poor, your
interest rate will be
higher, and you may not
be able to get a loan at
all.

Remember: You may
receive free copies of
your credit report each
year.
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True or False?
When you apply for a job, your
prospective employer may
review your credit report.
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True
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A prospective employer
can review your credit
report if you give written
authorization.
More employers are
asking to see credit
reports.
What happens if you
refuse to let employers
see report?
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True or False?
Bouncing just one check won’t
cause you credit problems.
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False

If you bounce a
check, your bank may
put your name in
ChexSystems. You
could be “blacklisted”
by financial
institutions for up to 5
years - this means
you cannot use a
checking account.
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True or False?
The average college student
owes several thousand dollars
in credit card debt today.
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True
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Credit card debt is rising
rapidly among young
adults.
This is in addition to
student loan debt.
Don’t fall into the trap of
spending money you
don’t have.
Doing so may result in
you having to file
bankruptcy.
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Tips for Using Credit Responsibly

Before you make a purchase on credit,
determine:
 How
much the purchase will really cost you
 Whether you can actually afford the purchase
 If it is better to wait and pay in cash
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Tips: How to Establish Good Credit
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Using a checking account or debit card.
Pay bills in full and on time
Do not open any credit cards you don’t need.
Do not have a balance on your credit card
exceeding more than 20-30% of your credit limit.
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Tips for choosing a Credit
Card
Annual Fee
Interest Rate




Introductory
Balances v. Cash Advances
Fixed v. Variable
Default Interest
Grace Period
Method of Computation
Rewards
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Make a Budget
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INCOME
Total Monthly Wages:
$1,600
Less taxes and other
deductions: $400
NET MONTHLY PAY:
$1,200
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EXPENSES/SAVINGS
Rent: $500
Utilities: $30
Food: $200
Clothing: $100
Laundry: $20
Recreation: $50
Transportation: $100
Savings: $200
TOTAL EXPENSES:
$1,200
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Rules to Remember for Building
Good Credit:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Have a budget and stick to it.
Don’t have more than 1 credit card.
Shop around and get the best deal for everything,
including credit cards themselves.
If you can eat it, drink it, or it costs less than $10, don’t
charge it.
Use a debit card, check, or cash whenever possible.
Pay off all balances in full every month.
Never make just a minimum payment.
Know the difference: Needs v. Wants
Check your credit report yearly and correct errors.
Find out what your credit score is.
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www.careprogram.us
THE
END
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