Consumer Credit

credit

an arrangement to receive cash, goods or services now and pay for them in the future.

Consumer credit

the use of credit for personal needs 

Creditor

entity that lends money. A financial institution, merchant, or individual can be a creditor 

Good reason to use credit

• Buy something for less now 

• Build your credit 

• Buy something now that may not be available in the future

• Need for hotel or car reservations 

• Emergencies 

• Earn points

Bad reason to use credit 

• The cost of credit can decrease the amount of money you will have in the future 

• Build up debt in a hurry 

• Potentially hurt your credit score

Closed end credit

credit as a one-time loan that you pay back over a specified period of time in equal amounts

Open-end credit

credit as a loan with a certain limit on the amount of money you can borrow for a variety of goods and services

Line of credit

maximum amount of money a creditor will allow a credit user to borrow

Grace period

a time period which no finance charges will be added to your account (typically 14 days)

Debit card

different from a credit card - takes money directly from your savings or checking account 

Annual Percentage rate (APR)

the cost of credit on a yearly basis expressed as a percentage. 

Minimum Monthly Payment

the smallest amount you can pay and remain a borrower in good standing

The Five C’s of credit 

1. Character - will you repay your loan? Are you trustworthy and stable? Do you have personal references 

2. Capacity - can you repay the loan? What is your income vs. debt? 

3. Capital - what are your assets and net worth?

4. Collateral - what if you don't pay the loan? What assets do you have if you can't pay your bill on time?

5. Credit history - do you pay your bills on time? Have you ever filed for bankruptcy? 

credit rating

measure of a person’s ability and willingness to make credit payments on time

cosigning

you agree to be responsible for the loan payments if the other person fails to make them 

Protections

the Equal Opportunity Act states that as long as you are 18 or 21 you cannot be denied credit based on age, race, nationality, because you receive social security, you also can’t be penalized for something forever

Credit reporting

The Fair Credit Reporting Act regulates the deletion of out-of-date information and gives consumers access to their files.