Credit <ul><li>Definition – the ability to obtain goods or services before paying for them, based on the promise to pay la...
Advantages of Credit <ul><li>Provides a way to make big purchases. </li></ul><ul><li>Provides a way to purchase something ...
Disadvantages of Credit <ul><li>May reduce one’s ability to make future purchases – if money made is always being used to ...
Important Vocabulary <ul><li>Annual fee : A fee charged to the cardholder by the card issuer. Cardholders pay this fee in ...
Important Vocabulary (continued) <ul><li>Classic card : A credit card that usually comes with a low credit limit. Also kno...
Types of Loans <ul><li>Student/Education loans </li></ul><ul><li>Vehicle loans </li></ul><ul><li>Personal loan </li></ul><...
Student Loans <ul><li>Student/Education loans </li></ul><ul><ul><li>Tend to have very low interest rates. </li></ul></ul><...
Vehicle Loans <ul><li>Vehicle loans </li></ul><ul><ul><li>Tend to have relatively low interest rates </li></ul></ul><ul><u...
Personal Loan <ul><li>Personal loan </li></ul><ul><ul><li>Loan taken out for the expensive purchases of life </li></ul></u...
Home Loans <ul><li>Mortgage </li></ul><ul><ul><li>Loan to purchase a home </li></ul></ul><ul><ul><li>Interest rates vary w...
Credit Card or Loan? <ul><li>Credit Cards: </li></ul><ul><ul><li>Generally, have higher interest rates than loans. </li></...
Your Credit Score <ul><li>How FICO® Credit Scores Work (taken from myFICO.com): </li></ul><ul><ul><li>When you apply for c...
What’s in Your Credit Score? <ul><li>This breakdown is used to determine a person’s credit rating.  The credit bureau will...
How to Improve Your Credit Score <ul><li>Tips from MyFICO.com: </li></ul><ul><ul><li>Pay your bills on time. </li></ul></u...
How to Improve Your Credit Score <ul><ul><li>Keep balances low on credit cards.  High outstanding debt can affect a credit...
How to Improve Your Credit Score <ul><ul><li>If you have been managing credit for a short time, don't open a lot of new ac...
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Credit.ppt

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Credit.ppt

  1. 1. Credit <ul><li>Definition – the ability to obtain goods or services before paying for them, based on the promise to pay later. </li></ul><ul><li>Each time a person uses credit, he or she is borrowing money. </li></ul><ul><li>Credit can be the use of a credit card or it can be the acquisition of a loan from the bank. </li></ul><ul><li>How well a person uses credit determines how much credit they will be offered. </li></ul><ul><li>Using credit can have many advantages but it can also be very risky! </li></ul>
  2. 2. Advantages of Credit <ul><li>Provides a way to make big purchases. </li></ul><ul><li>Provides a way to purchase something now and defer payment for a while. </li></ul><ul><li>Useful in an emergency. </li></ul><ul><li>Allows consumers to take advantages of opportunities such as sales. </li></ul><ul><li>If used properly, it can help a person to establish good credit, which may save them money in the future (lower interest rates, etc.) </li></ul>
  3. 3. Disadvantages of Credit <ul><li>May reduce one’s ability to make future purchases – if money made is always being used to pay past debt, it is hard to get ahead. </li></ul><ul><li>May cause individuals to borrow more than they can afford to pay back. </li></ul><ul><li>Credit card rates are compounding interest rates (debt can add up quickly!) </li></ul><ul><li>A poor credit history can follow a person and make it more difficult to acquire future loans. </li></ul>
  4. 4. Important Vocabulary <ul><li>Annual fee : A fee charged to the cardholder by the card issuer. Cardholders pay this fee in order to obtain the credit card in question. </li></ul><ul><li>Finance charge : The amount of interest charged on the account for a particular billing cycle. </li></ul><ul><li>Minimum payment : The smallest amount of money that must be paid by the cardholder for the billing cycle. </li></ul><ul><li>Billing cycle : The days between the last statement and the current statement. </li></ul><ul><li>APR : The annual percentage rate of the finance charge. This yearly interest rate will be a fixed or variable rate. </li></ul><ul><li>Grace period : The time period during which a cardholder may pay off his or her balance without incurring a finance charge. </li></ul><ul><li>Late payment fee : A fee charged to cardholders for being delinquent with their payments. </li></ul><ul><li>Credit limit : The amount a card “holds;” in other words, what is available to be borrowed. </li></ul>
  5. 5. Important Vocabulary (continued) <ul><li>Classic card : A credit card that usually comes with a low credit limit. Also known as the basic card. </li></ul><ul><li>Gold card : A credit card that offers the cardholder more benefits and a higher credit limit (usually $2,000 to $5,000) than a classic card. </li></ul><ul><li>Platinum card : A credit card typically issued to people with higher incomes. The credit limit is usually more than $5,000. </li></ul><ul><li>Rebate card : In using a rebate card, the cardholder earns points or money which may be applied later in the purchase of certain goods and services. </li></ul><ul><li>Secured card : A credit card that is secured by the cardholder's opening of a savings account with the issuer. It is intended to help people who are looking to rebuild their credit. </li></ul><ul><li>Unsecured cards : Credit cards that are not secured by collateral. Most cards issued are unsecured. </li></ul><ul><li>Cash advance : Money the cardholder obtains, by using his or her credit card, from the card issuer. </li></ul><ul><li>Prime rate : The lending rate set by the Fed. This is usually the lowest possible interest rate and is reserved by commercial banks for their best clients. </li></ul>
  6. 6. Types of Loans <ul><li>Student/Education loans </li></ul><ul><li>Vehicle loans </li></ul><ul><li>Personal loan </li></ul><ul><li>Mortgage </li></ul>
  7. 7. Student Loans <ul><li>Student/Education loans </li></ul><ul><ul><li>Tend to have very low interest rates. </li></ul></ul><ul><ul><li>Repayment usually starts after the person has graduated or completed the education/training. </li></ul></ul>
  8. 8. Vehicle Loans <ul><li>Vehicle loans </li></ul><ul><ul><li>Tend to have relatively low interest rates </li></ul></ul><ul><ul><li>A down payment on the car is usually expected. </li></ul></ul>
  9. 9. Personal Loan <ul><li>Personal loan </li></ul><ul><ul><li>Loan taken out for the expensive purchases of life </li></ul></ul><ul><ul><ul><li>Home improvements </li></ul></ul></ul><ul><ul><ul><li>Weddings </li></ul></ul></ul><ul><ul><ul><li>Vacations </li></ul></ul></ul>
  10. 10. Home Loans <ul><li>Mortgage </li></ul><ul><ul><li>Loan to purchase a home </li></ul></ul><ul><ul><li>Interest rates vary with the state of the overall economy. </li></ul></ul><ul><ul><li>There are many options, including fixed-rate mortgages, variable rate mortgages, and interest-first mortgages. </li></ul></ul>
  11. 11. Credit Card or Loan? <ul><li>Credit Cards: </li></ul><ul><ul><li>Generally, have higher interest rates than loans. </li></ul></ul><ul><ul><li>Provide immediate access to funds. </li></ul></ul><ul><ul><li>Generally, easier to get than loans if you have a bad credit history. </li></ul></ul><ul><li>Loans: </li></ul><ul><ul><li>Take time to set up. </li></ul></ul><ul><ul><li>Generally, have lower interest rates than credit. </li></ul></ul><ul><ul><li>More difficult to get if you have a poor credit history. </li></ul></ul>
  12. 12. Your Credit Score <ul><li>How FICO® Credit Scores Work (taken from myFICO.com): </li></ul><ul><ul><li>When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want to know what risk they’d take by loaning money to you. </li></ul></ul><ul><ul><li>A financial company created called Fair Isaac created a mathematical way to assess how risky it is for a lending institution to lend money to any given person. </li></ul></ul><ul><ul><li>FICO® scores are the credit scores most lenders use to determine your credit risk. </li></ul></ul><ul><ul><li>You have three FICO® scores, one for each of the three credit bureaus – Experian, TransUnion, and Equifax. Each credit score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well. </li></ul></ul><ul><ul><li>Your 3 FICO® credit scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time. </li></ul></ul><ul><ul><li>Taking steps to improve your FICO® scores can help you qualify for better rates from lenders. </li></ul></ul>
  13. 13. What’s in Your Credit Score? <ul><li>This breakdown is used to determine a person’s credit rating. The credit bureau will mathematically figure out the risk and assign a number between 300 (lowest) and 850 (highest). The better your credit rating, the more likely you are to receive a loan and the better the interest rate you will receive! </li></ul>
  14. 14. How to Improve Your Credit Score <ul><li>Tips from MyFICO.com: </li></ul><ul><ul><li>Pay your bills on time. </li></ul></ul><ul><ul><li>If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your credit score. </li></ul></ul><ul><ul><li>Be aware that things that affect your credit negatively stay on your report for seven years. </li></ul></ul><ul><ul><li>If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won't improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time. </li></ul></ul>
  15. 15. How to Improve Your Credit Score <ul><ul><li>Keep balances low on credit cards. High outstanding debt can affect a credit score. </li></ul></ul><ul><ul><li>Pay off debt rather than moving it around. In fact, owing the same amount but having fewer open accounts may lower your score. </li></ul></ul><ul><ul><li>Don't close unused credit cards as a short-term strategy to raise your score. Note that closing an account doesn't make it go away. A closed account will still show up on your credit report, and may be considered by the score. </li></ul></ul><ul><ul><li>Don't open a number of new credit cards that you don't need, just to increase your available credit. </li></ul></ul>
  16. 16. How to Improve Your Credit Score <ul><ul><li>If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. </li></ul></ul><ul><ul><li>Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your credit score in the long term. </li></ul></ul><ul><ul><li>Apply for and open new credit accounts only as needed. </li></ul></ul><ul><ul><li>Have credit cards - but manage them responsibly. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly. </li></ul></ul>
  17. 17. Some Holiday Fun…
  18. 18. Some Holiday Fun…
  19. 19. Some Holiday Fun…
  20. 20. Some Holiday Fun…
  21. 21. And My Favorite…
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