Credit
Lending Institutions
Banks
 Mortgage Companies
 Finance Companies
 Credit Unions
 Insurance Companies
 Brokerage Companies
 U. S. Government
 Check Advance Companies

Consumer Credit
Credit—someone will lend you
money and give you time to pay it
back
 Interest—money paid for the use of
borrowing the money
 Credit Card—plastic card identifying
the holder as a participant in a
credit plan

Consumer Credit
Credit Limit--the maximum amount
you may charge
 Grace Period--a period of time after
the due date not subject to late
charges
 Late Charge--payment for not
paying the balance owed before the
due date

Credit Card Tidbits
average customer takes more than
15 months to pay for the charges
 Sixty (60%) percent of all families
make credit card purchases
 Worldwide, more than 90 million
MasterCard, 41 million Discover, and
142 million Visa cards are issued

Fair Credit and Charge Card
Disclosure Act in 1988
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4.
Annual Percentage Rate (APR)
How monthly fees are calculated
Cost of all fees such as
membership, transaction, cash
advance and others
Grace period
Benefits of using Credit
Earlier Consumption; use of goods
while paying for them
 Convenience
 Use for emergencies
 Establishment of a good credit
history
 Consolidation of debts
 Identification

Costs of using Credit
Costs more if unpaid balance is not
paid monthly
 Ties up future income
 Tempts one to overspend
 Reduces comparison shopping if you
only shop in stores extending credit
 Decreases future buying power

Five C’s of Credit
Capacity—Your ability to pay back a
loan
 Collateral—Your assets used as a
guide to determine your ability to
repay the debt
 Character—Your reputation as a
reliable and trustworthy person

Five C’s….continued
Capital – the money you personally
have invested in the business or
value of items you own.
 Conditions – purpose of the loan,
along with local economic climate
and conditions.

Types of Credit
Consumer – real estate loans,
installment loans, term loans, credit
cards.
 Commercial – real estate loans to
purchase a business, operating line
of credit, business loan
 Government – Bonds issued by the
federal or state government to
generate income—interest paid to
investors.

Types of Credit Cards
Travel and Entertainment Cards
 Bank Cards
 Company and Retail Store Cards

Travel and Entertainment
Cards
Travel and entertainment cards such as
American Express or Diners Club. They
have no predetermined spending limits
and must be paid in full each month.
Bank Cards
MasterCard, Visa, Discover, Optima, GM and
Ford cards which are sponsored by individual
banks. The bank defines spending limit
sometimes called credit lines and each offers
different terms and conditions. Banks offer a
choice of payment methods, either pay the
balance in full with no interest or pay a
minimum part or some part of the balance with
a finance charge.
Company/Retail Store
Cards
Sears
 J.C. Penney
 Shell or Mobil

Terms

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
Annual Rate--A flat, yearly charge similar
to a membership fee, usually $25 to $50.
Annual Percentage Rate (APR)--measure
of the cost of credit expressed as a yearly
rate
Finance Charge--The dollar amount you
pay to use credit, includes interest costs
and all charges associated with the
transaction.
Grace Period--number of days you have
before a credit card company starts
charging interest on new purchases
Evaluating Credit
Look at Interest Rate
 Finance Charge Calculations
 All fees on card
 Credit Limit
 Can card be used in variety of places
 Annual Fees
 Review Contract

Questions to Ask When
Selecting a Credit Card
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What credit limit do you set for each card each
month?
Where will you use your card?
Which type of credit card(s) is appropriate?
Will you pay off the balance each month?
Will you carry a balance?
Is there a grace period?
Credit User Responsibilities
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Assess your financial situation and determine
how much you can repay monthly.
Understand the contract's costs and conditions
so that you know the total cost of credit
purchases.
Keep copies of credit transactions and compare
with your monthly statement.
Remove carbons from credit card receipts and
destroy them.
Credit User Responsibilities
(Con’t)
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Do not give your credit card numbers to anyone
you do not know and trust.
Pay your bill on time.
Inform the creditor of any billing errors promptly.
Notify the creditor if you cannot make your
payments.
Make a list of all credit card account numbers
and the issuer's telephone number to use if
your card(s) are lost or stolen.