1. What factors influence your credit score? 2. What are the advantages and disadvantages of credit? 3. As a borrower how are you legally protected? 4. How do the C’s of credit effect your ability to get a loan? (Credit , open/revolving credit, closed-end/installment credit, cosign, capacity, character, collateral, conditions, loan term, grace period, APR, finance charges, annual fee, credit limit, credit report, credit score, credit bureaus, FICO score, Bankruptcy, chapter 7 & 13, ID theft, Truth in Lending Act)
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1. What factors influence your credit score? 2. What …. What factors influence your credit score? 2. What are the advantages and disadvantages of credit? 3. As a borrower how are
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1. What factors influence your credit score?
2. What are the advantages and disadvantages of credit?
3. As a borrower how are you legally protected?
4. How do the C’s of credit effect your ability to get a loan?
Use the following links to answer the questions on the worksheet “Credit card statement. & report” Example Number 1 http://www.japersonalfinance.com/gsjapf/activities/page3.jsp?key=Activity4Page3 Example Number 2 http://www.aie.org/Managing-your-money/Credit-cards/reading-a-credit-card-statement.cfm
• Transactions taking you over credit limit will be denied unless opt-in
• Late payment fees limited to under $25 (unless 2nd time in 6 months)
• No inactivity fees
• If under 21 must show ability to pay or have cosigner
• Credit card companies cannot solicit within 1,000 ft of college campus
• Statements must include length of time it would take to pay of balance
if paying min. amount.
New Regulations
The C’s of Credit: Capacity- Ability to Repay the Debt?
Current income vs. expenses/debt- Cash flow
Collateral- Assets of value to secure a loan
Savings, car, home
Character- Previous record of credit use
Credit score & previous credit history
Past default or bankruptcies?
Conditions- Principal & Interest
How much are you borrowing, for what, & at
what interest rate
Capital- Assets-Liabilities
Net worth
Installment Credit (Close-end credit)
Term: Length of time you will repay a loan (Loan)
Debt: The entire amount of money you owe to lenders
APR: (Annual Percentage Rate)
Origination Fee: Cost to set up a loan
*The quicker you pay it off the higher the monthly payments, but the less overall you will pay. Car http://www.bankrate.com/calculators/auto/early-payment-payoff-calculator.aspx
Use the following links to answer the questions on the worksheet “Credit card statement & report.” Example Number 3 https://www.citicards.com/cards/wv/html/cm/know-the-rules/your-credit-history/how-to-read-your-credit-report.html
750-850 Lenders rest easier when they extend credit to people in this category. They see you as a moderate to low risk and are more likely to give you a competitive interest rate on the loans they provide.
620-720 In this range, lenders still consider you a fair to good risk, but interest rates on loans provided will probably be higher. You should work to improve your score by paying your bills on time and reducing your outstanding debt.
350-619 Lenders may be very wary about extending loans or credit to you if you fall into this high-risk range, so improving your score should be a priority.
Teens – Lesson 7 - Slide 7-D
Payday Loan
User writes a check to lender for amount + fee
Payday loans usually for between $50 and $1000
Fees between $10 and $30 per $100 borrowed
Fees translate to an APR of 391% - 443%4
Short-term loans for small amounts. Use for emergencies only
• 10 years ago almost non-existent
• In 2005 loans equaled $40 Billion and $6 Billion in fees
• Today there are more payday loan stores than McDonalds and Burger King restaurants in California5
How to get out of debt….
Spend less than you earn!
Stick to budget
Pay all loans- even if it is minimum
Prioritize- highest interest rate first
Look for ways to cut costs
Truth-in-Lending Act
1) Lenders must disclose all costs of credit
2) Limits liability of credit card holder to $50 for unauthorized use
Fair Debt Collection Practices Act
Lenders may not add extra costs or harass consumers
Equal Credit Opportunity Act
Cannot be discriminated against based on age, sex, race, religion
Fair Credit Reporting Act
Have a right to know why you were denied credit
Handling Credit Problems
Consumer Credit Counselor
Nonprofit organization that provides debt counseling services for families and individuals with serious financial problems.
Debt Repayment Plan
Reorganizes debt and sometimes includes renegotiating terms
Creditors will often accept such arrangements for partial payment, rather than not be repaid.
Results of Overuse
1. Garnishment of Wages: Money deducted from wages for money owed.
2. Repossession: Loss of property from failure to repay loan.
3. Bankruptcy: Legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts. (legal process of getting out of debt)
Chapter 7: allows to erase debt, must be unemployed or low income. Must seek counseling. Keeps only exempt property
Chapter 13: allows pay back of debt with more time, court oversees repayment plan.
Top Questions To Ask Before Signing on Dotted Line……
Liability depends upon how quickly the loss is reported. Within two days is a maximum of $50.00. Within sixty days is a maximum of $500.00. After sixty days a person may be liable for
everything. To report a loss call the financial institution and follow up in
writing. Get new bank numbers, personal identification numbers, and