CREDIT: HELPFUL OR HURTFUL? Ch 13 Section 1

Transcription

1 CREDIT: HELPFUL OR HURTFUL? Ch 13 Section 1

2 DO NOW: T/F? 1. Using credit can lead to serious problems. 2. When you charge a purchase with a credit card, you can withhold payment if the product is defective. 3. Debit cards work the same as credit cards.

3 KEY TERMS 1. Grace period - a period of time (usually days) when interest is not charged on current credit card purchases 2. Universal default - a provision in some credit card contracts that allows the company to review its customers credit reports and charge a higher default interest rate if a customers credit score goes down for any reason 3. Bankruptcy - a legal process in which a person or business declares the inability to repay debts 4. Credit fraud - the theft and illegal use of someone else's credit information 5. Identity theft - the act of gathering enough information about a person to assume his/her identity, and then suing that identity to commit fraud or other crimes

4 CREDIT Tempting to use - "buy now, pay later" If used properly, credit can help you manager your finances If used improperly, credit can lead to serious problems EX: financial trouble, damaging your credit score, debt Knowing the advantages and disadvantages of credit will help you decide when to use it and when not to

5 ADVANTAGES OF CREDIT Have you ever borrowed money from a friend? 1. Improved standard of living 2. Convenience and Safety 3. Help in emergencies 4. Help in record keeping

6 ADVANTAGES OF CREDIT: IMPROVED STANDARD OF LIVING It could take years to save up for college, a car, or a house. Example 1: A college degree improves your earning potential, but a college education can cost $50,000 or more How many years would it take you to save that much money? With a student loan, you can get your degree now and then repay the money after graduation Example 2: Suppose you decide to buy a new car How long would it take you to save up $20,000? With credit, you can have the car immediately and enjoy using it while you are paying it off

7 ADVANTAGES OF CREDIT: CONVENIENCE & SAFETY Buying on credit is convenient, why? 1. Used to 'secure' a purchase EX 1: many care rental companies require a credit card on file to charge if you break the contract or if the car is damaged/turned in late EX 2: hotels - to make a reservation and/or bill your account for miscellaneous charges 2. Useful for almost all travel and entertainment expenses - what the first credit card was designed for You don t have to carry large sums of cash when you travel or go out 3. Buying online Safer then mailing a check - checks are a direct line to your bank account If your credit card info is stolen, you will not be liable for unauthorized charges if you report the theft promptly to your credit card company

8 ADVANTAGES OF CREDIT: HELP IN EMERGENCIES Although it is important to save for emergencies, many people do not have enough savings to take care of all unexpected expenses EX: If your car needs an emergency brake job, would you have enough to pay for it? EX: If you are seriously ill or injured and unable to work for several months, could you pay for food, housing, and other necessities? If your emergency fund is low, credit can be helpful in managing unexpected expenses

9 ADVANTAGES OF CREDIT: RECORD KEEPING Using credit can help you manage your finances EX: When you get a credit card, you get a monthly. statement Each statement lists all the purchases you made that month so it is fairly easy to keep track of where you spent your money Since the purchases are all on one statement, you only need to write one check or pay your bill online once to pay for everything Some credit card companies categorize your purchases showing how much you spent in each category this service can help you determine whether you are staying within your budget for each category Let s see my statement.

10 DO NOW What are the 4 advantages of credit?

11 DISADVANTAGES OF CREDIT 1. Interest charges and fees 2. Increased impulsive buying 3. Financial problems

12 DISADVANTAGES OF CREDIT: INTEREST CHARGES & FEES The primary disadvantage of using credit is the. cost - Grace period free period - when you pay your credit card bills in full each month/bill, you will get a day break when the company does not charge interest on your purchases However, when you do not pay your bill in full, you will be charged interest on the remaining amount which will show on your next months bill In addition, if you don t pay the full bill the following month, you will be charged interest not only on what's left of your original bill, bit also on the interest charges from last month

13 DISADVANTAGES OF CREDIT: INTEREST CHARGES & FEES CONT'D Universal default - some companies use this - gives credit card companies permission to change the terms of your agreement and charge higher default rate under certain circumstances Allows the company to review your credit report regularly - if your credit score goes down for any reason, your interest rate goes up The following could increase the rate of your credit card: 1. Late payments 2. Going over the limit on your credit card 3. Carrying too much debt 4. Too many credit inquiries

14 DISADVANTAGES OF CREDIT: INCREASED IMPULSE BUYING Credit purchases are very easy. Why? Buying things you cant really afford EX: You see something you would like, but you know you don t have the cash for it. However, you don t mind paying a little interest if you cant pay it off when your bill is due. Buying items you don t really need EX: You may buy items you don t really need, or shouldn t have bought. You may realize later it was just a passing impulse. You might regret making the purchase, but depending on what it was, it may be too late/impossible to return it

15 DISADVANTAGES OF CREDIT: FINANCIAL PROBLEMS A lot of people don t know how to set up a spending plan - a. budget Some don t know how to set one up, others are not willing to follow it If/when people run out of cash, they starting charging everything they buy and become overextended with credit debt This can lead to repossession of your car, foreclosure on your house, or even bankruptcy What does is mean to be overextended on credit? to extend, reach, or expand beyond a proper, safe, or reasonable point to obligate (oneself) to more activities, work, etc., than one has time for or can accomplish well

16 DO NOW! 1. Another word for a spending plan is a? budget 2. What does it mean to be overextend on credit? when you credits are more than you can afford 3. When you don t pay your credit card bill in full, you may be charged interest? / fees

17 CREDIT FRAUD - the theft and illegal use of someone else's. credit information Usually involves purchasing goods and charging them to someone else Credit thieves can get your credit information by using: 1. lost or stolen credit cards 2. stealing from your mailbox 3. going through your trash 4. making a fake phone solicitation 5. even by looking over your shoulder

18 IDENTITY THEFT an example of. credit fraud identity occurs when someone gathers enough personal and financial information about you to assume your which they use to commit fraud or other crimes

19 SAFEGUARDING YOUR INFORMATION What can you do to protect yourself? 1. Be careful giving out personal information 2. Don t give out your Social Security Number (SSN) unless absolutely necessary 3. Carefully examine all bills that come in the mail some may be fake 4. Use a shredder to cut up all your personal documents 5. Never let anyone look over your shoulder while at an ATM, credit, or debit card 6. Check your credit card statements for any unfamiliar purchases 7. Avoid scam s/phone calls asking for personal information

20 MONITORING YOUR CREDIT HISTORY Another way to protect yourself against identity theft - monitor your credit history Look for: Inquiries from companies you did not contact Accounts you did not open Debts on your account that you cant explain Make sure your personal information is correct

21 REPORTING FRAUD If you find fraudulent or inaccurate information, get it removed asap Under the Fair Credit Reporting Act (FCRA) - both you and the business that sent incorrect information to the credit bureau are responsible for correcting it Contact both the credit bureau and the information provider in writing The information provider is required by law to investigate your complaint and report its findings to the credit bureau If your credit information was indeed inaccurate, the provider/business must notify all nationwide credit bureaus to correct your file

22 STEPS TO REPORT FRAUD 1. Notify the Authorities Contact 1 of the 3 national credit bureaus (Equifax, Experian, TransUnion) Once you tell 1, they will notify the other 2 Ask for a fraud alert and security freeze be put on your credit file - locks access to your credit report and credit score until your unfreeze it 2. Notify Your Creditors Notify potential fraud accounts immediately by phone or writing (EX: calling credit card company) 3. Other Precautions Notify other potential fraud activity EX: Post office, DMV, Cell phone carrier Do not pay any bill that is a result of fraud

23 DONE! End of Ch 13 Section 1