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chapter6n7 (2) - Case#5 You have damaged your credit but...

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Case #5 You have damaged your credit but need a credit card for emergencies, rentals, etc. Secured card Debt payments to disposable income One is considered overindebted if the ratio is 15% or higher 1. Apply for credit 2. Lender obtains your credit history Credit report Credit bureau Credit score 3. Lender accepts or denies application Credit agreement Promissory note $1,000 Owe 18% Interest 18% Interest/12 Months = 1.5% Interest Per Month $1,000 * .02 = $20 $20 - $15 = $5 (25%) $5 PAID TOWARD PRINCIPLE In 2009 the national average APR is 18% Consumer advocates wanted the minimum payment increased so that people can more effectively get out of debt New Method of Computing: Finance Charges + 1% of Balance = Minimum Payment OR Finance Charges + $10 = Minimum Payment
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