Chapter 26: How to Get and Keep Credit
Credit can have a major impact on a consumer’s life.
If a consumer uses credit responsibly, it can make life easier in a number of ways
How do you prove to others that you can handle credit responsibly?
First, develop a credit history.
Most people start by getting a credit card in their own name (if they are l8 years of age or older) or getting one with an adult family member.
There are several things to consider when choosing a credit card.
The five main factors to consider are the interest rate, extra fees, whether the interest rate will change, whether a cosigner is needed, and whether there is a grace period.
To gauge the cost of credit, first look at the annual percentage rate.
The annual percentage rate (APR) determines the cost of credit on a yearly basis.
It is important to note if the interest rate will change on a credit card
Credit card companies charge different fees for different services.
Some charge an annual fee.
There is usually a fee for a cash advance.
A cash advance is a loan given in cash by a credit card company in anticipation of the borrower’s being able to repay
A cosigner is someone who agrees to be responsible for a debt if the main applicant does not repay it.
A grace period is an amount of time allowed to repay a debt without having to pay interest charges.
To secure a credit card, a consumer has to fill out an application form and submit it to the credit card company.
Before creditors give a consumer a charge or credit account, they want to make sure the consumer is worth the risk.
They consider the applicant’s capacity, character, and capital, commonly referred to as the “three Cs of credit.”
Capacity is the applicant’s ability to repay the loan.
An applicant’s character shows whether he or she has proven to be trustworthy in repaying debts.
An applicant’s capital is the amount of money the applicant has beyond his or her debts.
Creditors also consider capacity, character, and capital when determining the amount of a card holder’s credit limit.
A credit limit is the maximum amount a card holder can charge on a credit card.
Credit card companies usually send card holders a monthly statement of their charges, the balance they owe, and the minimum amount due.
Many of the principles of owning and using a credit card also apply to other types of credit.
A loan is money lent by one party to another at interest.
Similarly, a mortgage is a loan agreement secured by property
With installment loans and mortgages, the interest rate is the same for the period of the loan except when the loan has a variable rate.
A variable rate is an interest rate that fluctuates or changes over the life of the loan.
With a fixed rate, the interest rate always remains the same.
When purchasing an appliance, automobile, or home with an installment or mortgage loan, the applicant usually has to make a down payment.
A down payment is a portion of the total cost that is paid when a product or service is purchased.
The principal is the amount of borrowed money that is still owed and on which interest is based.
According to the Truth in Lending Law, the lender must provide the borrower with the APR and all the finance charges of the loan.
The finance charge is the total amount it costs the borrower to have the lender finance the loan.
It includes the interest and any other charges, such as the application fee.
When you receive an installment loan or mortgage, you must sign a written agreement to repay the loan within a certain period of time.
If the loan is backed by collateral, it is called a secured loan.
A loan that is not backed by collateral is called an unsecured loan.
To continue using credit or to get new credit, you need to maintain a good credit rating or score.
Consumers with low credit ratings are usually given higher interest rates and more restrictions
You need to know the amount of credit you can afford to have.
Experts say consumers should not use more than 20 percent of their income for credit payments.
Credit card companies can obtain a court order to take all or part of a debtor’s paycheck if he or she stops making payments.
This is called garnishment of wages.
If an item was offered as collateral and you stopped making payments for it, the creditor has the legal right to repossess or take back the item.
Credit can have a major impact on a consumer’s life.
If a consumer uses credit responsibly, it can make life easier in a number of ways
How do you prove to others that you can handle credit responsibly?
First, develop a credit history.
Most people start by getting a credit card in their own name (if they are l8 years of age or older) or getting one with an adult family member.
There are several things to consider when choosing a credit card.
The five main factors to consider are the interest rate, extra fees, whether the interest rate will change, whether a cosigner is needed, and whether there is a grace period.
To gauge the cost of credit, first look at the annual percentage rate.
The annual percentage rate (APR) determines the cost of credit on a yearly basis.
It is important to note if the interest rate will change on a credit card
Credit card companies charge different fees for different services.
Some charge an annual fee.
There is usually a fee for a cash advance.
A cash advance is a loan given in cash by a credit card company in anticipation of the borrower’s being able to repay
A cosigner is someone who agrees to be responsible for a debt if the main applicant does not repay it.
A grace period is an amount of time allowed to repay a debt without having to pay interest charges.
To secure a credit card, a consumer has to fill out an application form and submit it to the credit card company.
Before creditors give a consumer a charge or credit account, they want to make sure the consumer is worth the risk.
They consider the applicant’s capacity, character, and capital, commonly referred to as the “three Cs of credit.”
Capacity is the applicant’s ability to repay the loan.
An applicant’s character shows whether he or she has proven to be trustworthy in repaying debts.
An applicant’s capital is the amount of money the applicant has beyond his or her debts.
Creditors also consider capacity, character, and capital when determining the amount of a card holder’s credit limit.
A credit limit is the maximum amount a card holder can charge on a credit card.
Credit card companies usually send card holders a monthly statement of their charges, the balance they owe, and the minimum amount due.
Many of the principles of owning and using a credit card also apply to other types of credit.
A loan is money lent by one party to another at interest.
Similarly, a mortgage is a loan agreement secured by property
With installment loans and mortgages, the interest rate is the same for the period of the loan except when the loan has a variable rate.
A variable rate is an interest rate that fluctuates or changes over the life of the loan.
With a fixed rate, the interest rate always remains the same.
When purchasing an appliance, automobile, or home with an installment or mortgage loan, the applicant usually has to make a down payment.
A down payment is a portion of the total cost that is paid when a product or service is purchased.
The principal is the amount of borrowed money that is still owed and on which interest is based.
According to the Truth in Lending Law, the lender must provide the borrower with the APR and all the finance charges of the loan.
The finance charge is the total amount it costs the borrower to have the lender finance the loan.
It includes the interest and any other charges, such as the application fee.
When you receive an installment loan or mortgage, you must sign a written agreement to repay the loan within a certain period of time.
If the loan is backed by collateral, it is called a secured loan.
A loan that is not backed by collateral is called an unsecured loan.
To continue using credit or to get new credit, you need to maintain a good credit rating or score.
Consumers with low credit ratings are usually given higher interest rates and more restrictions
You need to know the amount of credit you can afford to have.
Experts say consumers should not use more than 20 percent of their income for credit payments.
Credit card companies can obtain a court order to take all or part of a debtor’s paycheck if he or she stops making payments.
This is called garnishment of wages.
If an item was offered as collateral and you stopped making payments for it, the creditor has the legal right to repossess or take back the item.
