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SCJNY BUS 219 - Introduction to Consumer Credit

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PowerPoint PresentationWhat is Consumer Credit?Use and Misuse of CreditAdvantages of CreditSlide 5Disadvantages of Consumer CreditHow to Protect Yourself From Identity TheftTypes of CreditCredit CardsProtecting Yourself Against Credit Card FraudWhen You Make Purchases OnlineMeasuring Your Credit CapacityGeneral Rules of Credit CapacitySlide 14Cosigning a LoanSlide 16Build and Maintain Your Credit RatingFair Credit Reporting ActWhat If You are Denied Credit? Exhibit 6-6What Creditors Look For: 5 CsAvoiding and Correcting Credit MistakesSlide 22What if Your Identity is Stolen?Complaining About Consumer CreditTruth In Lending RightsFair Debt Collection Practices ActProtection Under Other Consumer Credit LawsClass ActivityLoan AssignmentCredit Card ActivityChapter 6Introduction to Consumer CreditIntroduction to Consumer CreditMcGraw-Hill/IrwinCopyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.What is Consumer Credit?•Credit is an arrangement to receive cash, goods or services now, and pay for them in the future. •Consumer credit is the use of credit for personal needs, except a home mortgage, by individuals and families.•Three ways consumers can finance purchases.Draw on their savings.Use present earnings.Borrow against expected future income.•Trade-offs with each alternative.•Consumer credit: Major economic force. 6-2Use and Misuse of Credit•Before you use credit for a major purchase, ask yourself some questions.Do I have the cash for the down payment? Do I want to use my savings for this purchase?Does this purchase fit my budget?Could I use the credit I’ll need in some better way?Can I postpone this purchase?What are the opportunity costs of postponing this purchase?What are the dollar and psychological costs of using credit for this purchase?6-3Advantages of Credit•Current use of goods and services.•Permits purchase even when funds are low.•A cushion for financial emergencies.•Advance notice of sales.•Easier to return merchandise.•Convenient when shopping.•One monthly payment.•Safer than cash.6-4Advantages of Credit•Needed for hotel, car reservations and shopping online.•To take advantage of float time/grace period.•May get rebates, airline miles, or other bonuses.•Indicates financial stability.6-5(continued)Disadvantages of Consumer Credit•Temptation to overspend.•Can create long-term financial problems, slow progress toward financial goals. •Potential loss of merchandisedue to late or non-payment. •Ties up future income.•Credit costs money - more costly than paying with cash.6-6How to Protect Yourself From Identity Theft•Provide SSN only when necessary.•Remove your name from junk mail, telemarketing lists.•Protect yourself by shredding old credit slips, account statements, and credit offers you receive in the mail. •Stop preapproved credit card offers by calling 1-888-567-8688.6-7Types of Credit6-8•Closed-End Credit.One-time loans for a specific purpose that you pay back in a specified period of time, and in payments of equal amounts.•Mortgage, automobile, and installment loans for furniture, appliances and electronics.•Open-End Credit.Use as needed until reaching line of credit max. •Credit cards, departments store cards, bank credit cards, incidental credit.You pay interest and finance charges if you do not pay the bill in full when due.Credit Cards•Eight out of ten U.S. households carry one or more credit cards.•One-third are convenience users- pay balances in full each month.•Two-thirds are borrowers, carrying a balance over, paying finance charges.•Some use cards for cash advances - expensive.•Co-branding - linking a credit card with a business offering rebates on products and services.•Smart cards have an imbedded computer chip.•Debit cards: similar impact as writing a check.6-9Protecting Yourself Against Credit Card Fraud•Sign new cards when they arrive.•Treat cards like money - keep them secure.•Shred anything with your account number on it.•Don’t give your number over the phone unless you initiate the call, and don’t put it on postcards.•Get card & receipt after every transaction: compare receipts to bills when they arrive, checking for errors.•Notify the card issuer if you don’t get your billing statement, or if your card is lost or stolen. If stolen call 1-888-EXPERIAN.•Check credit report. 6-10When You Make Purchases Online•Use a secure browser. •Keep records of online transactions.•Review monthly statements-can do so online.•Read policies of the websites you visit concerning refunds, site security, and privacy.•Keep personal information private unless you know who is gathering it and why.•Shop at businesses you know and trust.•Never give out your password to anyone online.•Don’t download files sent by strangers.6-11Measuring Your Credit Capacity•Before you take out a loan, ask yourself:Can you afford the loan?What do you plan to give up in order to make the payment?6-12General Rules of Credit Capacity *Not including house payment which is a long-term liabilityDebt Payments-to-Income Ratio monthly payments*net monthly income6-13Consumer credit payments should not exceed a max of 20% of your net income.General Rules of Credit CapacityDebt To Equity Ratiototal liabilities net worth*=Should be < 1*Excluding home value6-14(Continued)Cosigning a Loan•The creditor will give you a notice that tells you…You are being asked to guarantee the debt, so consider if you can afford it if the borrower defaults.If the borrow does not pay you may have to pay up to the full amount and also any late or collection fees.If a payment is missed the creditor can collect the debt from you without first trying to get it from the borrower. 6-15Cosigning a Loan•If you do cosign, consider...Can you afford to pay the loan? If not, your credit rating could be damaged.Liability for this debt may prevent you from getting other credit that you want.If you put up collateral, you could lose it if the loan goes into default.Check your state’s law to learn about cosigner’s rights.Request that a copy of overdue payment notices be sent to you.6-16(continued)Build and Maintain Your Credit Rating•Limit your borrowing to your capacity to repay.•Live up to the terms of contracts.•Check to see what is in your credit report.Credit bureaus collect information.Experian, Trans


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SCJNY BUS 219 - Introduction to Consumer Credit

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