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# Credit Research

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by

## Kiran Sharma

on 4 May 2011

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#### Transcript of Credit Research

CREDIT RESEARCH PROJECT COMPOUND INTEREST Paid on: Original Principal
(the original amount that was borrowed or deposited) Past interest "Compound Interest." zonalandeducation.com. N.p. n.d. Web. 1 May 2011. <http://zonalandeducation.com/mmts/functionInstitute/exponentialFunctions/compoundInterest.html>. Credit Cards Either make a deposit, which you invest an amount of money and receive the interest rate, or you get a loan, in which you borrow an amount of money and pay the interest rate. Formulas for Compound Interest "What is Compound Interest." about.com. N.p. n.d. Web. 1 May 2011.
<http://math.about.com/library/weekly/aa042002a.htm>. Monthly Parts to the Formula A-
P-
r-
t- amount of \$ (includes interest) after so many years the principal the yearly interest rate time; how many years/months etc
the amount has been borrowed or deposited A=P(1+r/12)^12*t Quarterly A=P(1+r/4)^4*t Annually A=P(1+r) How they work Small, plastic card that has a person's identification on it and lets the owner make purchases by charging them to their account.
It is like taking out a loan because it allows the buyer to purchase now and pay for the purchase later.
It is also like a loan because you have to pay interest or a finance charge, which is a set percentage by the credit card company.
The finance charge rate is based on the person's past credit history Advantages "How Credit Cards Work." howstuffworks.com. N.p. n.d. Web. 1May 2011. <http://money.howstuffworks.com/personal-finance/debt-management/credit-card.htm>. They are sources of identification.
If you pay your entire balance each month you pay 0% interest or no finance charges.
You can receive a grace period, which is about 25 days, where you can pay your credit card bill without the finance charges.
Most credit card companies do not make you pay a yearly fee. Disadvantages Balances from one month can carry over to the next which you have to pay interest on.
You can gather debt quickly by charging many purchases and not being able to pay it when you get your bill.
The minimum payment is misleading because if you just pay that every time your bill comes you will keep paying more and more interest, so it would take years to pay the balance off. Sforza, Teri. "Charrrrge it! Today, credit cards companies must be fair(er)." The Orange County Register 22 Feb. 2010: Web. <http://taxdollars.ocregister.com/2010/02/22/charrrrge-it-today-credit-cards-companies-forced-to-be-fairer/51981/>. Principal Rate Time The original amount that
was borrowed or deposited. The number of months/years
or other time period the loan or deposit is paid over. The interest rate that you either pay or receive
a percentage. Mortgages Types Rupa."E-learning Design Challenge Series - Designing a Game Based Course." wordpress.com. N.p. 2 May 2007. Web. 1 May 2011. <http://writersgateway.wordpress.com/2007/05/02/elearning-design-challenge-series-designing-a-game-based-course/>. House Trailer Condominium “BaltTech: Startups – Technology News: Digital Tech, innovation, Apple and Microsoft News.” baltimoresun.com. N.p. n.d. 27 April 2011. <http://weblogs.baltimoresun.com/news/technology/startups/>. Financing Options "Unemployment in My Hometow." econedlink.org. N.p. n.d. Web. 1 May 2011. <http://www.econedlink.org/lessons/index.php?lid=351&type=afterschool>. Secor, Sharon. "What are the different types of mortgage loans?" lendersmark.org. N.p. n.d. Web. 1 May 2011. <http://www.lendersmark.org/types-of-mortgages.htm>. FRM Fixed Rate Mortgage ARM Adjustable Rate Mortgages Balloon Mortgages Biweekly Mortgages Bimonthly Mortgages Online Calculators
&
Calculating Payments FHA Federal Housing Administration Daily A=P(1+r/365)^365*t Car Loans Types/Financing Options Most popular type of house loan
Stable payment that is based on the principal and interest
Buyer pays a lot less interest due to the fact that the interest rate is locked for the duration of the loan
Therefore, the interest rate does not change even when the market rates do
Buyers can choose from a 30 year or 15 year loan Interest rate changes or "adjusts" depending upon the market rates
This means the owner is subject to the market rate changes and they could be paying more interest on the loan than someone with a FRM loan Loan is ususally paid over a span of 5-7 years
Similar type of loan as the 30 year FRM loan
At the end of the loan, the owners can refinance their home or pay the balance
Refinancing can get the owner a lower interest rate if the market rates are down Owner makes payments every 2 weeks
About 26 payments in one year on the house
Shortens the length of the repayment term Saves a small amount of interest by allowing the owner to pay twice a month

Helps those who are lower income purchase a home by giving them mortgage insurance
The buyer has to qualify for this
Helps back their loan Online Auto Loan Dealership Loan "Special Direction: Finance and Investment - The Many Types of Car Loan." sdces.com. N.p. n.d. Web. 2 May 2011. <http://www.sdces.com/index.php?categoryid=13&p2_articleid=28>. Apply online
One of most popular car loan types
Pay to the dealership directly
Designed for people with poor credit
Typically, interest rates are higher on this type of loan
College Loans Financing Options Credit Scores
anywhere from 300 to 850 "Credit Score Scale." credit-score-scale.net. N.p. n.d. Web. 2 May 2011. <http://www.credit-score-scale.net/>. Based on: Range: Past finance history
Punctuality on payments
Use of different credit types
Number of credit accounts
:( A 600 and below is
considered a poor
credit score! Types of Savings Accounts Retirement Accounts "Feeling Mortgage Pressure? Get out of PMI and Into MPI." home-buddies.com. N.p. 11 July 2008. Web. 3 May 2011. <http://home-buddies.com/mortgage-trouble-protection-getting-out-of-private-mortgage-insurance-to-mortgage-protection-insurance/>. Walsh, Tony. "He Is Just a Rat -Rat Boy Comics." secretlair.com. N.p. 9 Jan. 2007. Web. 3 May 2011. <http://www.secretlair.com/index.php?/ratboy/C156/>. "Cartoon Car Pictures - Free Pictures Online." onlinepicture.org. N.p. 27 April 2011. Web. 3 May 2011. <http://www.onlinepicture.org/tag/cartoon-car-pictures/>. "Student Loans Student Loans." estudentloans.biz. N.p. n.d. Web. 3 May 2011. <http://www.estudentloans.biz/>. Federal Perkins Loans Stafford Loans PLUS Loans "College Loan." money-zine.com. N.p. n.d. Web. 3 May 2011. <http://www.money-zine.com/Financial-Planning/College-Loan/College-Loan/>. For students who need the most financial help
Student repays the college for the loan 2 Types Subsidized Unsubsidized Based on the financial need of the student
The Federal Government defers the interest on the student's loan until they have finished college Not based on financial need
Interest on the loan starts to build after the student starts school College Loans http://www.studentloannetwork.com/student-loans/monthly-payment-calculator.php Car Loans Mortgage Loan Loans for the parents of an undergraduate student
This is a loan for the student's parents, so the student does not owe anything (the parents are obligated) Private Student Loans Student who wants to receive this loan type needs to have a co-signer
Used for tuition and additional costs for college (i.e. books, supplies, housing)
Interest rate is based on credit history Credit Ratings High Credit Score= Good Rating= Poor Rating= Low Risk Individual High Risk Individual Example: "Student Loans for College." studentloannetwork.com. Student Loan Network. n.d. Web. 3 May 2011. http://www.mortgagecalculator.org/ People can search the internet and find online calculators that can help them in deciding what type of loan they should get for college, a house, and even a car. These calculators can help the consumer see a rough estimate of what their payments would be like before they actually make their decision. GOOD SCORE
:) A score of 720 and up is the goal that the consumer wants to maintain! Mr. Henry is always late on his credit payments and has maxed out 5 of his cards! This has affected his credit score and now he has a score of 630 which is not good. Because of this low score, he has to pay high interest rates and has a bad credit history, which affects his ability to receive loans. "How to Improve Bad Credit Score." fairloanrate.com. N.p. n.d. Web. 3 May 2011. <http://www.fairloanrate.com/2010/10/21/how-to-improve-bad-credit-score/>. "Bad Credit." lendingpot.com. N.p. n.d. Web. 3 May 2011. <http://www.lendingpot.com/tag/bad-credit>. Credit Union Auto Loan http://www.onlineloancalculator.org/ Offers low interest loans to members
Interest calculated as simple interest, which saves the owner money
There is no pre-payment penalty Rule of 78s Has extra interest costs at the start of the loan
Usually offered by banks
This is a more costly loan than the other types
Has a pre-payment penalty Lazarony, Lucy. "Rule of 78 - Watch out for this auto loan trick." bankrate.com. n.d. Web. 3 May 2011. <http://www.bankrate.com/brm/news/auto/20010827a.asp>. Instant Access Savings Accounts Good for emergency funds and unexpected expenses
Can access through an ATM
Typically, these have a lower interest rate
Notice Savings Account Cannot access money immediately
May have to wait up to 3 months to receive money
Have to pay a penalty to withdraw money earlier
Regular Savings Account Person is depositing money more frequently into this type of account
Used as a device to help in building a nice savings foundation
Withdrawals per month are limited to a certain number O'Sullivan, Alan. "Savings Accounts: Account Types." thisismoney.co.uk. N.p. April 2009. Web. 3 May 2011. <http://www.thisismoney.co.uk/savings-and-banking/tips-and-guides/article.html?in_article_id=395449&in_page_id=53951&in_advicepage_id=98>. "Weekly Money Market Account - Savings Account Rates:Updated May 21, 2009." monitorbankrates.com. N.p. 21 May 2009. Web. 3 May 2011. <http://www.monitorbankrates.com/online-savings-accounts/weekly-money-market-account-savings-account-ratesupdated-may-21-2009-4494>. Picture Picture Picture Picture Picture Picture Picture Influences on a Monthly Payment Example: Sarah bought a \$500 flat screen TV in the first week of June and she chose to swipe her VISA card to pay for it. She receives her bill the last week of June and it tells her the minimum payment of \$45 for the TV is due in the first week of July. Now, Sarah has to make a decision: whether to pay the minimum of just \$45? Or the entire balance of \$500? Since Sarah is an intelligent college student, she realized that paying off her entire balance now was the better option. She had \$500 in her savings that she could spare for the expense and this way she would not pay any interest at all. "Flatscreen TV now required for survival?" nextnature.net. N.p. n.d. Web. 3 May 2011. <http://www.nextnature.net/2008/10/flatscreen-tv-now-required-for-survival/>. Picture College Loans, Car Loans, and Mortgage Loans: Increases Payment Decreases Payment Larger Principal Smaller Principal Higher Interest Rate Lower Interest Rate Shorter Loan Period Longer Loan Period Less Frequent Payments More Frequent Payments CDs
(Certificate of Deposits) Deposit money for a pre-set time period (i.e. one year, two year...)
Interest rate is locked for duration of deposit period
Typically, interest rate is higher than other types of savings accounts
There is a penalty for withdrawing money early IRAs Individual Retirement Account Designed for people who do not have another type of retirement account
Limited amount of deposits per year (i.e. maximum of \$5000 a year for people under 50)
Can receive an income tax deduction for money deposited in an IRA 401k Retirement Account Account offered by an employer
Money is invested as a group to get a better rate
Some employers offer to match the money contributed by the employee (amount limited)
IRS limits this amount annually (i.e. \$15,000 a year for those under 50)
Not taxed on until first withdrawal upon retirement Low Credit Score=
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