
What is credit?

Receiving funds directly or indirectly, to buy goods and services w/ promise to pay them back


Principal – Amount originally borrowed
Interest – Amount of money, borrower must pay to use someone else's money.

Everyone in the nation has a credit score based on your credit history.

Anytime you borrow money, whether from back, store, or credit card company you go into debt.


Installment Debt

Most common type of debt, paid back with equal payments over a given amount of time.

Monthly payment determined by length of contract, amount borrowed, and interest rate

The longer the life of the loan, the more you will pay back.

Largest and most common kind of ID is a mortgage

All debt is not bad; housing, student loans, car loans.

Increase in Borrowing
More and more Americans are choosing to buy durable goods on credit.

Pay Now or Pay Later
Your monthly payment is lower if you choose the 36-month loan.


Why people use Credit?

People are impatient. Feel the need to satisfy wants immediately.

Again, some responsible, some not

Spread payments out over time

Car, house, college

Build credit for future important purchases

Only works with on-time, full monthly payments


Types of Financial Institutions

Commercial Banks



Accept deposits, lend money, transfer funds among people and businesses. Typical bank; Sun Trust, Wachovia….
Typically higher interest rates and longer loan life.
Typically only do small loans

Savings and Loans



Accepts deposits and gives out loans
Typically lower interest rates
Focus mainly on large loans; (Car, House)


Types of Financial Institutions

Savings bank




Lend funds for homes, cars, loans…
Really non-existent anymore
Originally served less wealthy customers overlooked by commercial banks
Tend to have higher interest rates.

Credit Union


Offer all services only to members.
Usually forms around a given job field.

Typically lower interest rates


Types of Financial Institutions

Finance Companies


Basically store credit cards.
Take over installment debt for stores and charges higher interest rates


Credit Cards

The average American has 5 credit cards and about
$12,000 in credit card debt

“Revolving Limit” meaning as long as you are under the maximum amount you may use.

Pay a certain amount back each month, plus interest


Interest (APR/MPR) determined by amount borrowed, and credit score.
Get charged a finance charge each month based upon amount owed and APR

Example you owe $5000 on your VISA, w/24% APR



Monthly Bill ~$100.00
Finance Charge is $98.00
Next month you owe $4998.00





Link to checking account
Limit is what you have in the bank
Draws directly form your account.
No Interest, or finance charge



What does your credit rating mean?

The risk involved in lending you money
What factors determine your credit Rating?

Capacity to pay


Ability to hold a job
Current debt to income ration


Character

Educational background

Legal troubles
Collateral


Size of your personal wealth
Shows your past ability to pay or save as well as what you might be able to see off to pay back a debt


Legal right/ability for American Citizens to be forgiven for debts

For people who absolutely cant pay back debts

Usually forced to give up most possessions to pay back debtors.

Remains on your credit report and effects you for
10 years.


Difficult to reestablish credit during 1 this period.
Can only claim once every 7 years




Several types, only two really pertain to ordinary citizens.
Chapter 7


Complete liquidation of assets.



Possessions sold and profits split evenly among debtors.
Savings (Not 401k), stock are distributed among debtors
Remainder of debt forgiven by judge
In most cases allowed to keep; home, car, 401k.
Chapter 13

Restructuring of debts according to court order



Court decides how much you will pay each debtor based on regular salary
Debts repaid over 3-5 years,
Keep possessions, usually works out in your favor






Pg. 87 #2,3
Pg. 94 #5
Pg. 99 #2, 3
Pg. 105 #3
Pg. 108 Recalling Facts and Ideas #2, 3, 9, 12.