CREDIT Personal Finance

Advantages of Credit Improved Standard of Living:

Credit lets you purchase items now, instead of having to wait until you have enough cash to pay for them.

Remember credit is all money lent to you. Convenience & Safety Help in Emergencies:

Auto Repairs or Injuries Easier to keep track of expenses

Disadvantages of Credit Interest charges and fees:

If you do not pay your bill in full each month, you will be charged interest.

Some credit cards are allowed to change interest rates without your prior knowledge.

Increased Impulse Buying Danger of Financial Problems Credit Fraud & Identity Theft

Types Of Credit Service Credit:

Each month you use utilities and do not pay for the services until the following month, this is a form of credit

Installment Credit: Repaid in equal amounts over a set period of

time. Student loans, car payments, mortgage payments

Credit Cards: Buy now and pay for it later

Credit Terms Grace Period: time in which no interest is

charged to your principal. Bankruptcy: legal process in which a debtor

declares the inability to repay debts over a reasonable period of time.

Credit Fraud: theft and illegal use of someone’s credit information.

Annual Percentage Rate (APR): amount of interest expressed as a yearly rate.

Revolving Account: An account you do not have to pay in full each month.

Types of Credit Cards Charge Cards

Pay all charges in full every month by the due date; cannot carry a balance No balance = no interest

Secured Credit Cards Guaranteed by money deposited in an account; credit limit usually equals

the amount of the deposit Can be used by people with credit problems to reestablish good credit

Prepaid Cards (stored value cards) These are used by

retailers as gift cards travelers as a safe way to get funds on the road parents who want to give their kids the convenience of a credit card

without the risk

What to Look For Credit Terms

Look for a box with: interest rates, grace period, annual fee

This box is: required by law and often headed with the words

“Rates and Fees” or “summary of terms” Consumers don’t know when they apply

what credit line they will receive Many offers state “up to” a certain amount (for example:

“up to” $25,000) Key words — “up to” company can and often will give

consumer a lower credit limit

Cardholder Agreements Sent with every new card Legal contract between consumer and the

card issuer By using the card, consumer agrees to honor

the terms and conditions in the agreement Card terms and conditions are subject to

change at any time Change notices are usually sent by mail, along with the

monthly statement Consumers should review everything sent by issuer, even if it

looks like junk mail

Tips for Using Credit Sign your cards as soon as you get them. Carry only one or two cards with you at one

time. Photocopy both sides of your cards and keep

the copies in a safe place. Keep an eye on your card during transactions

and put it in your wallet immediately. Do not let anyone borrow your card. Cut up expired cards Keep receipts

Obtaining Credit Understanding costs:

The principal is how much money you borrow. The longer you spread out your payments, the

more you pay in the end. An increase of 2% points in your interest rate can

cost you hundreds of thousands of dollars. Finance charges: annual fees, origination fees,

etc.

Credit contracts: If you sign these contracts you are agreeing to

everything in it says, whether or not you read it.

Qualifying for Credit To obtain a loan or a credit card, you usually

have to fill out an application. Credit card companies want to know how much of

a risk you are. You might be asked to pledge something you

own as collateral. The company providing the credit will then

request a credit report on you. The government requires companies to provide

you with your credit report at least once a year. AnnualCreditReport.com is the only authorized

site.

Using Credit Wisely Pay your bills on time and use automatic

bill pay if available. Use only free, low interest credit cards

(no annual fee, bonus points, etc.) Always pay more than the minimum.

Example: If you owe $4500 on your credit card and only made the minimum payment each month, it would take you 44 years to pay off the debt and cost you nearly $17000 in interest!

Bankruptcy Chapter 13:

Allows people with a steady income to keep property. They are allowed to use future income to pay off all or

part of their debt in 3 to 5 years. After 5 years most of your debts are discharged.

Chapter 7: Requires giving up all assets that are not exempt. This means giving up your house or business. Most debts are discharged within a few months.

Both types of personal bankruptcy have to be declared in federal bankruptcy court and can be a costly process in and of itself.