Types of Credit - Intro to Credit Notes

Intro to Credit

Bellringer

  • Reflect on a time where you borrowed from or lent money to someone.

    • Who did the loan involve?

    • What was the agreement for repayment?

    • Did the agreement work out the way you anticipated?

    • Were both people happy at the end?

EdPuzzle: Loan Basics

  • Casual lending or borrowing from friends may occur.

  • Formal loan arrangements from financial institutions involve more terms.

Types of Credit

Installment vs. Revolving
Installment

  • Finances a specific purchase for a specific amount of time.

  • Regular monthly payments are made.

  • Payments are applied to interest first, then to the principal.

Revolving

  • Open line of credit used for any purchase as long as it’s under the limit.

  • Payment amounts vary monthly based on the debt size.

Secured vs. Unsecured
Secured

  • Debt is tied to a specific asset that can be used as collateral.

  • The asset can be repossessed for nonpayment.

Unsecured

  • Debt is NOT tied to a specific asset.

  • There is no collateral that can be repossessed for nonpayment.

Variable vs. Fixed-Rate
Variable

  • Interest rate can change during the length of the loan.

  • Based on prime or an index rate.

Fixed

  • Interest rate remains constant throughout the length of the loan.

Infographic: What’s My Net Worth

  • Wealth isn't just about owning a lot of stuff.

  • Net worth calculation:
    Net Worth = Total Assets - Total Liabilities

Assets

  • Value of your home

  • Value of vehicles

  • Checking and savings accounts

  • Cash

  • CDs

  • Retirement accounts

Liabilities

  • Balance on mortgage or car loans

  • Credit card debt

  • Student loan balance

  • Any other debt you may owe

Questions: What’s My Net Worth

  1. A neighbor always has brand new items. What would you need to know to tell if they are wealthy?

    • The other side of their balance sheet (e.g., their liabilities/debt).

  2. Sanya's net worth is 12,000, and her goal is to have a net worth of at least 100,000 before she turns 35.

    • Explain one way that using credit could help Sanya achieve her goal.

      • Getting a college education (student loans) has proven to increase pay over your lifetime of earning.

    • Explain one way that using credit could hurt Sanya’s progress.

      • By not borrowing responsibly or taking on too much debt.

Assignments

  • Read "The Psychology of Money" Chapters 10 & 11 ("Save Money" & "Reasonable > Rational")

  • Corresponding Assignment: TPOM Chapters 10 & 11 Question - Due 3/21/25

  • Quiz Bowl V 2025 Quiz Bowl Questions.pdf