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Transcript of Aquiring Credit
Any additional fee added to the original amount of a loan can be called a finance charge. Annual Percentage Rate, or APR, is a measure of how much interest will be on an annual basis without taking into account compound interest. Annual Percentage Yield, or APY, is the same interest rate measure, but accounts for compound interest - a better measure of how much you will actually pay in interest. Banks and credit card issuers often express credit card interest rates in APR, in order to better hide just how much interest would cost. Annual Fee- Any fee that is charged on an annual (yearly) basis. One of the most common occurrences of an annual fee is the fee that is charged by some credit card companies to their credit card holders, simply for having the credit card. This fee is charged regardless of anything else (the amount or value of purchases with the credit card, for example).
Acquiring credit means you can use someone else's money for a certain period of time to expand your immediate purchasing power. Being aware of the types of consumer credit and the ways in which you are protected by law will help you get the most out of your money. Advantages and Disadvantages of Credit * Credit is handy and convenient.
* You can meet temporary emergencies and difficulties.
* You do not have to carry large sums of money.
* You can use an item while you are paying for it.
* You may get better service on credit merchandise.
* You can take advantage of sales.
* You can establish a credit history.
* Credit is a type of forced savings. * Credit almost always costs money.
* You may overspend.
* You may be discouraged from comparison shopping.
* Credit contracts are difficult to understand.
* Overuse leads to a poor credit rating.
* Your future income is tied up The finance charge is the amount of money you pay for the use of credit. When lenders state the finance charge, they must include the interest charge and other fees that are part of the credit transaction. For example, they would have to include the loan origination fee, processing fees, premiums on credit life insurance, and any other fee that is a required part of the credit offer. A credit rating is a simple number which many lenders use to determine whether or not they will give a loan or line of credit to an individual. One's credit rating is impacted by a number of factors, some of which are controllable, others of which are not. In the U.S., when a customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau. The credit bureau matches the name, address and other identifying information on the credit applicant with information retained by the bureau in its files.That's why it's very important for creditors, lenders and others to provide accurate data to credit bureaus.
This information is used by lenders such as credit card companies to determine an individual's credit worthiness; that is, determining an individual's willingness to repay a debt. The willingness to repay a debt is indicated by how timely past payments have been made to other lenders. Lenders like to see consumer debt obligations paid on a monthly basis.
Consumer credit includes all forms of credit except household mortgages. Two kinds of consumer credit are sales credit, granted with the purchase of merchandise or services, and cash credit, the loan of money.
KINDS OF CREDIT Each kind of sales credit has unique features and can be obtained from businesses such as department stores, specialty stores, furniture or appliance dealers, pharmacies, florists, automobile dealers, contractors and repair persons. Sales credit includes 30-day accounts, revolving charge accounts, and installment plans.
The 30-day account does not incur a finance charge when paid within the time limit. You will be billed monthly for all the money you owe for items charged on a 30-day account. A revolving charge account, however, requires your signature on one credit contract (agreement). This contract covers all the goods and services you will buy on your account. Most lenders set a limit to the amount that you can charge. You must pay the full monthly bill or a portion of the balance. A finance charge is due if the balance is not paid in full. Installment credit requires a signed separate contract each time you make a purchase. The amount you owe is divided into a given number of monthly payments called installments. The installments include the cost of credit. Usually a downpayment is required. If you can afford a large downpayment your monthly bills will be smaller.
Cash credit is used most often either to obtain goods and services that are expensive or to meet emergencies. This type of credit may be obtained from commercial banks, savings and loan associations, credit unions, consumer finance or loan companies, or the company that issued your life insurance policy. (Note: a life insurance company may lend up to 95 percent of the policy's cash value at a low interest rate.) Three basic kinds of cash credit are available: single payment loans, installment loans and checking account credit plans. QUALIFYING FOR CREDIT
You must show potential creditors that you are credit worthy to qualify for credit. While lenders use various criteria to judge credit qualifications, ability to repay debt and willingness to do so are the primary considerations. Characteristics usually examined include income, which measures ability to repay debt, and credit history, which indicates willingness to repay.
Your credit history is a record of contracted debt such as charge accounts, installment loans and mortgage payments. Lenders believe that the way debt has been handled in the past is an indication of how credit obligations will be met in the future. While many consumers prefer to operate using cash transactions, they should realize they will lack a credit history.
Establishing a credit history takes time. Unfortunately when credit is needed, it usually is needed right away. To be prepared for a situation such as a financial emergency when you need credit, take steps to build a credit history now. You need to establish your credit identity regardless of sex or marital status.
Lenders will look at other factors when determining whether you qualify for credit. Owning versus renting your home, the number of years you have been at your residence, and how long you have been employed at your job are viewed as measures of your stability. Outstanding debt also is considered.
REMEMBER........ Credit Capacity is the amount of money that a person or organization can borrow and be expected to repay