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