Math, Banking, and Credit Unit Marketing I. Banking Terms to Know Endorse – To sign the back of a check Three types of Endorsements Blank – Signature.

Math, Banking, and Math, Banking, and Credit UnitCredit UnitMarketing IMarketing I

Banking Terms to KnowBanking Terms to Know Endorse – To sign the back of a checkEndorse – To sign the back of a check

Three types of EndorsementsThree types of EndorsementsBlank – Signature onlyBlank – Signature onlyRestrictive – “For Deposit Only”, Restrictive – “For Deposit Only”,

then Signaturethen SignatureFull or Special – “Pay to the order of Full or Special – “Pay to the order of

……”, then Signature……”, then Signature

Signature CardSignature Card – Card filled out when – Card filled out when opening an account so the bank can opening an account so the bank can identify your signatureidentify your signature

DepositDeposit – To put money into an account – To put money into an account Withdrawal Withdrawal – To take money out of an – To take money out of an

account (check, debit card, etc)account (check, debit card, etc) Debit CardDebit Card – works same as writing a – works same as writing a

check. Different from a credit card b/c check. Different from a credit card b/c the money comes right out of your the money comes right out of your checking acct. instead of being chargedchecking acct. instead of being charged

Check RegisterCheck Register – a booklet, stub or – a booklet, stub or carbon copy of a check. Used to keep carbon copy of a check. Used to keep track of all transactions in an account. track of all transactions in an account. VERY IMPORTANT to be kept accurate VERY IMPORTANT to be kept accurate and up to date.and up to date.

Bank StatementBank Statement – Monthly report of your – Monthly report of your checking account from the bank. May checking account from the bank. May contain images of cancelled checks.contain images of cancelled checks.

ReconcileReconcile – Comparing your bank – Comparing your bank statement to your check registerstatement to your check register

Cancelled checkCancelled check – a check that you – a check that you have written that has cleared the bank (it have written that has cleared the bank (it has been paid by the bank) has been paid by the bank)

Overdraft Overdraft (Bounced check) – writing a (Bounced check) – writing a check for more money than is in the check for more money than is in the account.account.

Overdraft protectionOverdraft protection – Arrangement for – Arrangement for the overdraft amount to come out of the overdraft amount to come out of another account (Like savings) or be another account (Like savings) or be charged to your credit card.charged to your credit card.

Outstanding Check – A check you have Outstanding Check – A check you have written but has not yet been paid by the written but has not yet been paid by the bank (Doesn’t appear on your statement)bank (Doesn’t appear on your statement)

Outstanding Deposit – Deposit you have Outstanding Deposit – Deposit you have made but doesn’t appear on your made but doesn’t appear on your statementstatement

Parts of a checkParts of a check

Reconciling a Reconciling a Bank StatementBank Statement Getting the balance in the check register and the Getting the balance in the check register and the

balance on the bank statement to agree.balance on the bank statement to agree. ProcessProcess

Compare C.R. and B.S., make note of any outstanding Compare C.R. and B.S., make note of any outstanding checks or deposits on the worksheet on the back of the checks or deposits on the worksheet on the back of the bank statement.bank statement.

Subtract any service charges, etc that may have been Subtract any service charges, etc that may have been taken out of your account from your check register.taken out of your account from your check register.

Complete worksheet on back of your statementComplete worksheet on back of your statement Statement Balance + Outstanding Deposits – Outstanding Checks Statement Balance + Outstanding Deposits – Outstanding Checks

= Balance in Check Register= Balance in Check Register

Credit – Buy Now Pay LaterCredit – Buy Now Pay Later

Commercial CreditCommercial Credit – Credit for – Credit for businesses businesses

Personal CreditPersonal Credit (Consumer Credit) (Consumer Credit) – Credit for personal spending– Credit for personal spending

Laws Dealing with CreditLaws Dealing with Credit Equal Credit Opportunity Act (ECOA) Equal Credit Opportunity Act (ECOA)

1975,1977 – Protects against credit 1975,1977 – Protects against credit discriminationdiscrimination

Truth in Lending 1968 –Truth in Lending 1968 –Requires Requires creditors to disclose the finance charges creditors to disclose the finance charges and APR to applicantsand APR to applicants

Fair Credit Reporting Act 1970 – Fair Credit Reporting Act 1970 – Gives consumers specific rights in Gives consumers specific rights in dealing with credit reporting agencies.dealing with credit reporting agencies.

State Laws – State Laws – vary by statevary by state

Types of CreditTypes of Credit1.1. Revolving Credit AccountsRevolving Credit Accounts – –

Consumers pay what they want toward Consumers pay what they want toward the balance. Interest may be charged the balance. Interest may be charged to the balance at the end of the monthto the balance at the end of the month

2.2. Installment Credit AccountsInstallment Credit Accounts – The – The total amount of the loan is broken down total amount of the loan is broken down into payments including interest. into payments including interest. Monthly installments are made until the Monthly installments are made until the loan is paidloan is paid

3.3. Regular Credit AccountsRegular Credit Accounts – (Open – (Open Accounts) – Allow customers to buy Accounts) – Allow customers to buy any time during a set period and pay any time during a set period and pay the entire amount due.the entire amount due.

4.4. Budget Credit AccountsBudget Credit Accounts – short term – short term credit – ex. 90 days same as cashcredit – ex. 90 days same as cash

5.5. Bank Credit CardsBank Credit Cards – May be used at – May be used at a variety of businesses, retailer sends a variety of businesses, retailer sends the bank the charge slip for payment. the bank the charge slip for payment. The bank charges the business a fee The bank charges the business a fee for the service. Bank bills the for the service. Bank bills the customer. Ex. Mastercard, Visacustomer. Ex. Mastercard, Visa

6.6. Travel and Entertainment CardsTravel and Entertainment Cards – – used at restaurants, clubs, hotels, used at restaurants, clubs, hotels, etc. For travelers who don’t want to etc. For travelers who don’t want to carry large amt. of cash. These carry large amt. of cash. These charge an annual fee. The balance charge an annual fee. The balance must be paid at the end of the month. must be paid at the end of the month. Ex. American Express, Diners ClubEx. American Express, Diners Club

8.8. Secured LoansSecured Loans – The borrower – The borrower pledges some valuable possession pledges some valuable possession as collateral. If the loan isn’t repaid as collateral. If the loan isn’t repaid the item belongs to the lenderthe item belongs to the lender

9.9. Unsecured LoansUnsecured Loans – Signature – Signature Loan – higher risk loan so interest Loan – higher risk loan so interest rate could be higher, offered to rate could be higher, offered to those with excellent credit ratings. those with excellent credit ratings. No collateralNo collateral

Sources of CreditSources of Credit

Commercial BanksCommercial Banks Savings and Loan AssociationsSavings and Loan Associations Credit Unions Credit Unions Sales Finance CompaniesSales Finance Companies Other businesses (Manufacturers, Other businesses (Manufacturers,

wholesalers, retailers, etc)wholesalers, retailers, etc)

Costs of CreditCosts of Credit1.1. Annual FeesAnnual Fees – a fee just to have the – a fee just to have the

cardcard

2.2. Finance ChargesFinance Charges – interest charged on – interest charged on unpaid balanceunpaid balance

3.3. Higher PricesHigher Prices – businesses must cover – businesses must cover the expense of offering credit and protect the expense of offering credit and protect itself against those who do not repay.itself against those who do not repay.

4.4. Interest RatesInterest Rates – Fee the lender charges – Fee the lender charges for the use of the money.for the use of the money.

Benefits to Businesses Benefits to Businesses who offer Creditwho offer Credit

CompetitiveCompetitive Gain new customers Gain new customers Encourage customers to buyEncourage customers to buy Foster customer loyaltyFoster customer loyalty Marketing information toolMarketing information tool

Benefits of Obtaining Benefits of Obtaining CreditCredit

Purchase expensive itemsPurchase expensive items ConvenienceConvenience Emergency itemsEmergency items Maintain stock levelsMaintain stock levels Buy time until there is available cashBuy time until there is available cash Credit ratingCredit rating Save money (in some instancesSave money (in some instances))

Credit ReportsCredit Reports National Credit BureausNational Credit Bureaus

ExperianExperian EquifaxEquifax Trans UnionTrans Union

A credit report is now free, but to get your A credit report is now free, but to get your credit score there is a charge.credit score there is a charge.

Credit report can be checked by anyone Credit report can be checked by anyone with whom you are trying to obtain credit, with whom you are trying to obtain credit, prospective employers, landlords, prospective employers, landlords, insurance agentsinsurance agents

6 C’s of Credit6 C’s of Credit Lenders look at these things to see if you Lenders look at these things to see if you

qualify for credit - Are you a good risk?qualify for credit - Are you a good risk? CharacterCharacter (Your reputation for (Your reputation for

repaying)repaying) CapacityCapacity (Do you have the ability to (Do you have the ability to

repay?)repay?) CapitalCapital (What assets or financial (What assets or financial

resources do you have. Ex. Property, resources do you have. Ex. Property, savings, etc)savings, etc)

Collateral Collateral (Something of value that you (Something of value that you agree that the bank will take if you do agree that the bank will take if you do not pay the loan)not pay the loan)

Coverage Coverage (Do you have enough (Do you have enough insurance to cover the loan if something insurance to cover the loan if something should happen to you)should happen to you)

Circumstances Circumstances (How much money are (How much money are you requesting? What will it be used for? you requesting? What will it be used for? and For how long will it be needed?" and For how long will it be needed?"

Warning Signs of Warning Signs of Financial DifficultiesFinancial Difficulties

Not knowing how much you oweNot knowing how much you owe Often paying bills lateOften paying bills late Obtaining a new loan to pay old loansObtaining a new loan to pay old loans Paying only the minimum paymentPaying only the minimum payment Spending more than 20% on loans and credit Spending more than 20% on loans and credit

card paymentscard payments Job loss would cause immediate financial Job loss would cause immediate financial

problemsproblems Spending more than you earnSpending more than you earn Using savings to pay day to day expensesUsing savings to pay day to day expenses