Introducing
Your new presentation assistant.
Refine, enhance, and tailor your content, source relevant images, and edit visuals quicker than ever before.
Trending searches
Consumer Credit
10
// Consumer
// Credit
Financial Literacy
What is it?
What can you do if you need something...
But don't have enough money to buy it?
Solution
As a consumer, you can make purchases using credit
AKA they offer "financing" options
Definition
Credit = ability of a consumer to obtain goods or services with a promise to repay over a specific time period
Example
Jack just moved into his new house...
and spent all of his cash to purchase it.
Continued...
Example continued...
Jack has no money left for furniture...
and decides to buy it on credit instead.
Creditworthiness
What does it mean to be credit worthy?
Definition
Creditworthiness = ability to repay
Example Continued
To buy his furniture on credit, Jack goes to the furniture store to see what their credit options are...
and begins to fill out a credit application.
Example Continued
This application will check Jack's creditworthiness before they let him purchase on credit.
This application will use the 5 C's of good credit.
The 5 C's
What are the 5 C's of good credit?
Take a guess!
Definition
The 5 C's of good credit =
5 criteria used to check if someone is creditworthy
Capacity
Capital
Collateral
Character
Conditions
Definition
First C
Character =
how long have you been employed and do you pay your bills on time?
What is Jack's character? What is Jack's payment history like?
Definition
Payment History
Payment history = indication for lenders & creditors whether an individual is a risk due to a history of late payments.
Definition
Second C
Capacity =
evaluation of your income and household expenses
Why are they going to evaluate Jack's capacity? What might they find?
Definition
Third C
Capital =
how much you own minus how much you owe
What if Jack owes more than he currently owns?
Definition
Fourth C
Collateral =
something tangible the borrower provides the lender in the event of default
Ex. a deposit, car, or home
What should Jack put down as collateral?
Definition
Deposit
Deposit = payment given as a guarantee that an obligation will be met
Definition
Fifth C
Conditions =
outside factors that may affect borrowing
Ex. the economy
What outside factors could fall in Jack's way?
Credit Types
What are the 3 types of credit?
3 Credit Types
Non-Installment
Installment
Revolving
Once Jack has passed the 5 C's, he must chose a type of credit
Definition
Installment
Installment = lender provides approval for a particular purchase & credit does not extend beyond that amount.
If more credit is needed, you must repay what you owe & then reapply.
Example Continued
Jack can get credit for all of his furniture pieces, but if he wants to add more...
He must pay off the current credit and then reapply.
Features
Must repay this credit with interest
Interest rate depends on amount borrowed, repayment period, & credit history
Can reach maximization
Definition
Maximization
Maximization = Reaching your limit of credit
Example Continued
Why is this a good option for Jack? Why may this be a bad option?
Definition
Non-Installment
Non-installment = Repay a lump sum payment, usually in a short period of time
Example Continued
Jack could choose to repay for all the furniture at once at a nearby date...
Would this be a good or bad option for Jack?
Definition
Revolving
Revolving = Customers are free to charge up to a credit limit, and when charges are paid, the amount is available to make more purchases
Features
This process is similar to a credit card:
- Customer can add purchases until they reach the credit limit
- Make payments towards the balance
- Customer must pay interest
- Make payments on time = lender may increase credit limit
- Make late payments = lender may decrease credit limit & give bad marks on credit report
Definition
Credit Report
Credit Report = Detailed report of a person's credit history, prepared by a credit bureau
Shows how risky you are to lend to
Example Continued
Should Jack use revolving credit? Why or why not?
Which should Jack choose out of the 3 credit types?
Example Continued
Once Jack makes a decision....
Jack =
debtor or borrower
Furniture Store =
creditor or lender
Other Terms
What else should you know about personal credit?
Definition
Line Of Credit
Line of credit = amount of credit extended to a borrower
Definition
Credit Score
Credit Score = 3 digit number between 300 and 850 that evaluates a person's credit history and credit worthiness
Higher score = better;
want 700 to 850
Credit Scale
General score scale
550
640
300
700
850
Okay
Good
Bad
Sub-prime
Different lenders will want different scores
Definition
FICO Score
FICO Score =
most popular type of credit score used
Created by Fair Isaac Corporation
Uses:
Payment history
Current amount of debt
Types of credit used
Length of credit history
Any new credit
Example
Activity
Vocabulary Review
https://wordwall.net/resource/243613/consumer-credit-matching