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Chapter 15
Credit
Factors to Consider Before Using Credit
Chapter
15
Consumer Credit
What should you know before using credit?
Do you have the cash you need for the down payment?
Do you want to use your savings instead of credit?
Can you afford the item?
Could you use the credit in some better way?
Could you put off buying the item for a while?
What are the opportunity costs of postponing the purchase?
What are the costs of using credit?
Factors to Consider Before Using Credit
Chapter
15
Consumer Credit
Advantages of Credit
You enjoy goods and services now instead of later
Combining several purchases while making one monthly payment
A credit card is needed for transactions such as renting a car
Traveling with a credit card is safer than cash
Good credit results in other lenders viewing you as a responsible person
Disadvantages of Credit
Credit costs money
Failure to pay your bills can ruin a good credit reputation
Failure to pay your bills can can lead to a loss of income and property
Using credit does not increase your total purchasing power
Sources of Consumer CreditChapter
15
Consumer Credit
Loans Credit Cards
Inexpensive LoansMedium-Priced Loans
Expensive- Loans
Home Equity Loans
Debit CardsCobrandingSmart Cards
Store-Value Cards
Travel and Entertainment (T&E) Cards
Can You Afford a Loan?Chapter
15
Consumer Credit
Add up all your basic monthly expenses and then subtract the total
from your take-home pay.
Consider what you might give up to make
a monthly loan payment.
The Cost of CreditSection 2
Chapter
15
Consumer Credit
Annual Percentage Rate Table for Monthly Payments
Daily Balance Method
• To determine the daily periodic rate on a yearly APR of 18%:
• 18% ÷ 365 days = .05%• To calculate the finance charge using a daily
periodic rate, multiply:Average Daily Balance x Daily Periodic Rate x Days in
the Cycle = Monthly Finance Charge• (For this example, $100 is the account balance)
$100 x .03288% x 31 = $1.02
Applying for CreditChapter
15
Consumer Credit
The Five Cs of Credit
Character Capacity Capital Collateral Conditions
Applying for CreditChapter
15
Consumer Credit
Two Types of Credit Reports
FICO Vantagescore
Applying for CreditChapter
15
Consumer Credit
Personal Credit Score
Applying for CreditSection 2
Chapter
15
Consumer Credit
Because of the Equal Credit Opportunity Act (ECOA),a Creditor May Not:
Turn you down or decrease your credit because of your age
Ignore your retirement income in rating your application
Close your credit account because you have reached a certain age
Close your credit account because you have retired
Deny you credit because you receive public assistance
You have a right to know why you are refused credit.
Your Credit ReportChapter
15
Consumer Credit
The Three Major Credit Bureaus
Experian
Trans Union
Equifax
Where Do Credit Bureaus Get Information?
Banks
Finance Companies
Stores
Credit Card Companies
Other Lenders
Your Credit ReportChapter
15
Consumer Credit
Contents of Your Credit FileEmployer, Position, Income
Previous Address
Previous Employer
Spouse’s Information
Homeowner or Renter Status
Checks Returned or Insufficient Funds
Your Credit ReportSection 2
Chapter
15
Consumer Credit
You and Your Credit File
There are time limits on unfavorable data.
Credit bureaus must ensure information in your credit file is correct.
You can sue a credit bureau or creditor that has caused you harm by not following rules established by the Fair Credit Reporting Act.
Your Credit ReportSection 2
Chapter
15
Consumer Credit
Billing Errors and DisputesChapter
15
Consumer Credit
If you write a letter to a creditor to dispute a charge:
The creditor must acknowledge your letter within 30 days.
If the creditor made a mistake, you do not have to pay any finance charges on the disputed amount.
If no mistake is found, the creditor must promptly send you a letter of explanation.
Billing Errors and DisputesChapter
15
Consumer Credit
For your protection:
A creditor may not threaten your credit rating.
A creditor cannot take any action against you until a complaint is settled.
You may instruct a credit card company to hold payment if you purchase a defective item.
Credit and Stolen IdentityChapter
15
Consumer Credit
If you think you are a victim of identity theft:
Contact the Credit
Bureaus
Contact the Creditors
File aPolice Report
Protecting Your Credit From Theft or Loss
Chapter
15
Consumer Credit
Avoid Having Your Credit Card Being Stolen or Lost
Always retrieve your card after a purchase.
Keep a record of your credit card numbers.
Notify the credit card company immediately if your card is lost or stolen.
Protecting Your Credit from Theft or LossChapter
15
Consumer Credit
Protecting Your Credit on the Internet
Use a secure browser.Keep records of online transactions.
Review monthly bank and credit card statements.Read privacy and security policies of Web sites.
Keep your personal information private.
Never give your password to anyone online.
Do not download files sent to you by strangers.
Complaining About Consumer CreditChapter
15
Consumer Credit
Consumer Protection Laws
Credit Card Act
Truth in Lending Act
Consumer Leasing Act
Equal Opportunity Act (ECOA)
Fair Credit Opportunity Act
Fair Credit Reporting Act
Consumer Credit Reporting Reform Act
Signs of Debt ProblemsChapter
15
Consumer Credit
Are You Experiencing Two or More of These Warning Signs?
You make only the minimum monthly payment
You struggle to make the monthly payment
The total balance increases every month
You miss payments or you are often late
You use savings to pay for necessities
You receive second or third late payment due notices
You borrow money to pay off old debts
You exceed credit limits
You have been denied credit because of bad credit
Debt Collection PracticesChapter
15
Consumer Credit
Creditors often turn over bad debts to debt collection
companies.
The Federal Trade Commission enforces the Fair Debt Collection Practices Act
(FDCPA).