Why do we use credit?
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Convenience
Safety
Establish credit rating
Emergencies
Debt consolidation
Meet today’s needs
Permits buying when the price is right
Use goods/services while paying for them
Disadvantages of Credit
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Ties up future income
Tempts overspending
Costs money
Reduces ultimate buying power
Creates a false sense of security
Goods may be lost
Credit Capacity
Amount you can afford to pay each
month on credit purchases.
Evaluate your assets (what you own)
and debts (what you owe)
Types of credit cards
• Limited purpose credit cards (higher interest):
Retail stores, ex. JC Penney, Sears
• National credit cards
Bank credit cards, ex. Visa/Mastercard
Travel & entertainment charge cards,
ex. American Express
Considerations:
• Annual fees
• Interest rate
• Additional perks
– insurance, discounts, cash back bucks
• Cash advance
• Hidden fees
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transaction fees
cash advance fees
over credit limit fee
late fee
CAUTION: Words to watch for!
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“No payment for 6 months”
“Low introductory offer - 4.9%”
“No fees”
“Balance transfers”
Tips to lower costs
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Switch to a lower rate card
Switch to a card with no annual fee
Take advantage of your grace period
Ask for lower interest rate
Pay more than the minimum balance
If paying interest, mail check as soon as
you receive your statement
• Use savings to pay credit card bills to
eliminate paying interest
Credit Problem Signs
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Not knowing how much you owe
Making minimum payments
Making cash advances to pay bills
Working 2nd job to keep up with
spending
• Being consistently late with bill
payments
• Being denied credit
Consumer Credit Legislation
• Truth in Lending
– establishes a maximum limit of $50 on liability
for the unauthorized use of each of such cards;
that is, the owner of a lost or stolen card that
has been used illegally by another person
cannot be made liable for more than $50 of
illegal purchases
– right of rescission (cooling-off period): gives
the consumer 3 business days to rescind a
credit transaction
Consumer Credit Legislation
• Equal Credit Opportunity
– Unable to discriminate
Can deny you credit based on your credit
history
Consumer Credit Legislation
• Fair Credit Billing Act
– Able to withhold payment until the dispute over
a faulty product that you purchased with your
credit card is resolved. (purchase must be
more than $50 and must have taken place
within your state or 100 miles from your home).
Consumer Credit Legislation
• Fair Credit Reporting Act
– If you are denied credit, the company that
turned you down must give you the name and
address of the credit -investigating agency that
was used.
Consumer Credit Legislation
• Fair Debt Collection Practices
– Regulates debt collection practice procedures