UNDERSTANDING

CREDIT
WHAT IS CREDIT
An arrangement that allows consumer to
buy goods or service now and pay for them
later.

When you using a credit card to charge

purchases, you must usually pay a finance
charge.
FINANCE CHARGE
 The total amount a purchaser must pay the used of credit (interest
charges & fees)

3 FACTORS AFFECT YOUR FINANCE CHARGE:

1. AMOUNT OF CREDIT CARD

-The money you charge the more interest you pay

2. ANNUAL PERCENTAGE RATE(APR)

- The higher the interest rate, the more finance charges you pay.

3. LENGTH OF REPAYMENT TIME

-The more time you take to repay, more interest you pay.
 ADVANTAGES OF USING CREDIT

 The use of goods and services as you pay for them

Ex: driving a car as you pay for it

 The opportunity to buy costly items that you might not be able to buy with cash
Ex: can you imagine paying cash for a brand new car

 A source of cash for emergency or unexpected expenses .

Ex: medical, automotive etc.

 Convenience
Ex: Don’t have carry large amounts of cash.
 DISADVANTAGE OF USING CREDIT

 The reduction of your future income

Ex: Spending future income now and living beyond your income

 Expense
Ex: using credit usually cost money

 The risk of serious consequence if you misuse credit

Ex: failure to pay debts on time, bankruptcy , repossession
damage credit score
 TYPES OF CONSUMER CREDIT

SALES CREDIT
 When you buy goods and services with a credit card or a charge account
Ex: charge accounts or credit cards

CASH CREDIT
 When you barrow money.
Ex: loans
 ESTABLISHING CREDIT
4 STEPS TO BUILDING A SOUND FINANCIAL REPUTATION

1.START WITH A JOB

-Show that you can hold a job and earn money.

2. OPEN SAVING ACCOUNT AND SAVE REGULARLY

- Saving show financial responsibility.

3. OPEN A CHECKING ACCOUNT AND MANAGE IT CAREFULLY

-Show you have experience with handling money.
CREDIT RATING
 The creditors evaluation of a person’s willingness and ability to pay debts.

REPORT
 A history or record of a person financial and credit
practices

CREDIT SCORE
Numerical expression of a person’s credit worthless
(based on credit report)

CREDIT SCORE FALL BETWEEN 300 & 850

• 620 =High risk barrower
• 620-699= ok to good
• 700= excellent
 THE 3 C’S OF CREDIT
1. CHARACTER - Responsible financial history
2. CAPACITY - Earning power and employment history
3. CAPITAL- Financial worth ( home, car, savings )
MAINTAINING A GOOD CREDIT RATING

 Only use as much credit as you can comfortably repay

 Pay bills on time

 Keep accurate records of charges, statements, and payments

 Contact credit card company immediately if you cannot pay your bill on time

 Resolve billing errors promptly

THANK YOU!:

LYNVIE B.SARILLA
BSE-3