Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter

15

Consumer Credit

What steps can you take now to start building and maintaining a strong credit rating?

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

There are advantages to using consumer credit if you use it correctly. You must protect your credit and watch for the warning signs of debt problems.

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

credit

consumer credit

creditor

closed-end credit

open-end credit

line of credit

grace period

finance charge

net income

annual percentage rate (APR)

collateral

simple interest

minimum monthly payment

credit rating

cosigning

bankruptcy

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Section 1 What Is Consumer Credit?

Explain the meaning of consumer credit.

Differentiate between closed-end and open-end credit.

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Using Consumer Credit Wisely

Section 1 What Is Consumer Credit?

Chapter

15

Consumer Credit

Using credit increases the

amount of money you can spend

now, but the cost of credit

decreases the amount of money

you will have in the future.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Factors to Consider Before Using Credit

Section 1 What Is Consumer 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?

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Factors to Consider Before Using Credit

Section 1 What Is Consumer Credit?

Chapter

15

Consumer Credit

Advantages of CreditYou 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

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Sources of Consumer Credit

Section 1 What Is Consumer Credit?

Chapter

15

Consumer Credit

Loans Credit Cards

Inexpensive Loans

Medium-Priced Loans

Expensive- Loans

Home Equity Loans

Debit Cards

Cobranding

Smart Cards

Store-Value Cards

Travel and Entertainment (T&E) Cards

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Look at the suggestions in Figure 3 on page 460. Which of the factors do you think might be most important in your choice of a credit card?

Sample answer: tip number 2 is most important as it stresses the need to compare credit cards and their terms from several different banks before making an informed decision.

Section 1 What Is Consumer Credit?

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Name the five Cs of credit.

Identify factors to consider when choosing a loan or credit card.

Explain how to build and protect your credit rating.

Section 2 The Costs and Methods of Obtaining Credit

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Can You Afford a Loan?

Section 2 The Costs and Methods of Obtaining Credit

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.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Cost of Credit

Section 2 The Costs and Methods of Obtaining Credit

Chapter

15

Consumer Credit

Annual Percentage Rate Table for Monthly Payments

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Applying for Credit

Section 2 The Costs and Methods of Obtaining Credit

Chapter

15

Consumer Credit

The Five Cs of Credit

Character Capacity Capital Collateral Conditions

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Applying for Credit

Section 2 The Costs and Methods of Obtaining Credit

Chapter

15

Consumer Credit

Two Types of Credit Reports

FICO Vantagescore

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Applying for Credit

Section 2 The Costs and Methods of Obtaining Credit

Chapter

15

Consumer Credit

Personal Credit Score

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Applying for Credit

Section 2 The Costs and Methods of Obtaining Credit

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.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Your Credit Report

Section 2 The Costs and Methods of Obtaining Credit

Chapter

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

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Your Credit Report

Section 2 The Costs and Methods of Obtaining Credit

Chapter

15

Consumer Credit

Contents of Your Credit File

Employer, Position, Income

Previous Address

Previous Employer

Spouse’s Information

Homeowner or Renter Status

Checks Returned or Insufficient Funds

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Your Credit Report

Section 2 The Costs and Methods of Obtaining Credit

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.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Your Credit Report

Section 2 The Costs and Methods of Obtaining Credit

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Suppose you applied for a car loan of $40,000 and were denied for valid reasons. What would your next steps be toward getting a car loan?

According to Figure 6 on page 471, you can ask the creditor if you can provide additional information, apply to a different creditor, or work toward improving your creditworthiness and reapply. Students may also indicate that they might apply for a smaller loan and settle for a less expensive automobile.

Section 2 The Costs and Methods of Obtaining Credit

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Protect yourself from fraud and identity theft.

Identify consumer protection laws.

Section 3 Protecting Your Credit

Chapter

15

Consumer Credit

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Billing Errors and Disputes

Section 3 Protecting Your Credit

Chapter

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.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Billing Errors and Disputes

Section 3 Protecting Your Credit

Chapter

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.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Credit and Stolen Identity

Section 3 Protecting Your Credit

Chapter

15

Consumer Credit

If you think you are a victim of identity theft:

Contact the Credit Bureaus

Contact the Creditors

File aPolice Report

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Protecting Your Credit From Theft or Loss

Section 3 Protecting Your Credit

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.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Protecting Your Credit from Theft or Loss

Section 3 Protecting Your Credit

Chapter

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.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Complaining About Consumer Credit

Section 3 Protecting Your Credit

Chapter

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

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Complaining About Consumer Credit

Section 3 Protecting Your Credit

Chapter

15

Consumer Credit

In Cases of Discrimination:

Complain to the creditor.

File a complaint with the government.

If all else fails, sue the creditor.

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

The Consumer Credit Reporting Reform Act states that the burden of proof for accurate information is on the credit bureau rather than on you. How can this benefit you if you find information you feel is wrong on your credit report?

Students should understand that if you dispute information on your credit report and the credit bureau cannot prove it is accurate, then they must remove the information from your report. Prior to the law, the information would have remained on the report until you could prove it was inaccurate.

Section 3 Protecting Your Credit

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Describe options for managing debt problems.

Identify signs of debt problems.

Section 4 Managing Your Debts

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Signs of Debt Problems

Section 4 Managing Your Debts

Chapter

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

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Debt Collection Practices

Section 4 Managing Your Debts

Chapter

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).

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Financial Counseling Services

Section 4 Managing Your Debts

Chapter

15

Consumer Credit

Trouble Paying Your Bills?

Contact your creditors

Consumer Credit Counseling Service (CCCS)

Universities, credit unions, military bases

State and federal housing authorities

Banks

Reputable financial counseling services

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Interest Rates

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter

15

Consumer Credit

Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.

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