Chapter 6 Credit Use and Credit Cards.ppt

What Creditors Look For Character - do you pay bills on time? Capacity - can you repay the loan? Capital - what are your assets and net worth? Collateral - what if you don’t repay? Conditions - what economic conditions would affect your repayment of the loan? Minimum PaymentsEquals Permanent Debt Credit card issuers often require a minimum monthly repayment as low as 1/36 or 1/48 of the outstanding balance. Such a payment is mathematically guaranteed to keep the user in “perma-debt.” Bank CardCompetition Fixed or variable interest rates Introductory/teaser rate Co-branded card Rebates /cc/index.html /brm/rate/cc_home.asp Establish aCredit History Establish both checking and savings accounts Install telephone and bill to home address Request, acquire, and use an oil-company card Apply for bank credit card Ask bank for small short-term cash loan Pay off student loans Five Primary Areas of Interest in Calculating FICO Score Chapter 6: Credit Use and Credit Cards Objectives Compare and contrast installment and non-installment credit and discuss the costs of credit. Discuss reasons for and against using credit. Describe the types of charge accounts. Objectives Describe the process of opening a credit account and the procedures lenders use to evaluate credit applicants. Manage your credit card and charge accounts properly. What is Consumer Credit? Receiving products, services or cash now, and paying for them in the future. Before you use credit, think about... Could I pay cash or make a down payment? Do I want to use savings for this purchase? Does purchase fit with my goals and budget? 6-2 What is Consumer Credit? Does purchase fit with my goals and budget? Could I use the credit I’ll need another way? Can I wait to buy it? What are the opportunity costs of postponing the purchase? What are the economic psychological costs of using credit for the purchase? 6-3 (continued) Credit Use and Credit Cards 1:3 fear credit over-extension 1:2 are concerned ab