Chapter 6 - Credit Any situation in which goods, services...

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Unformatted text preview: Credit Any situation in which goods, services or money are exchanged for a promise to pay a definite sum of money at a future date, usually with an additional charge for interest Good Uses of Credit Convenience Emergencies Reservations Early consumption of expensive items Good Uses of Credit To take advantage of free credit To consolidate bills For fraud protection To obtain an education Downsides to Credit Reduces financial flexibility It is tempting to overspend Interest is costly Inappropriate Uses of Credit Cards Purchase routine living expenses Purchase goods and services with short life span Purchase goods that should be financed at lower installment rates How Identity Theft Occurs: Getting Your Information Stolen wallets and purses Records stolen from your inside home Stolen mail or trash Information you willingly share Business record theft Fraudulent access to your credit report How Identity Theft Occurs: Using Your Information Access to your bank accounts Access to your credit cards Establishing phone or wireless service Buying cars and getting loans Opening new bank accounts and credit cards Giving your name during an arrest Order copies of your credit reports regularly Place passwords on accounts when possible Select appropriate passwords Secure personal information in your home Secure personal information at work Don't give out information over phone or internet unless you make the contact Minimizing Identity Theft Risk Minimizing Identity Theft Risk Guard your mail and trash Don't carry your social security card Remove your social security number from your driver's license Don't put extra information on your checks Carry only the credit/debit cards you need Be wary of promotional scams Minimizing Identity Theft Risk Pay attention to bank statements and credit card bills Safeguard your computer Be sure the "lock" icon shows on your web browser status bar when providing financial information Be alert to "phishing" scams The Victim's First 3 Steps Contact the fraud departments of each of the three major credit bureaus Close existing accounts and get new account numbers File a police report The Victim's Next Steps Contact the Federal Trade Commission's Identity Theft Hotline at 1-877-IDTHEFT (4384338) Complete an Identity Theft Affidavit which can be obtained at www.consumer.gov/idtheft Organize your case Organizing Your Case Follow up in writing with all the contacts made by phone or in person using certified mail (return receipt requested) Send copies of the police report and identity theft affidavit Keep copies of all correspondence Organizing Your Case Write down the name of anyone you talk to, what he or she told you and the date of the conversation Keep the originals of your supporting documentation such as police reports Set up a filing system for this event Keep all old files even if you believe your case is closed Annual Percentage Rate Expresses the cost of credit on a yearly basis Simplifies comparing different loan options On small loans the maximum rates are very high Setting Your Debt Limit Debt Payments-to-Disposable Income Method Ratio of Debt-to-Equity Method Continuous Debt Method Guide for Dual-Earner Households Managing Student Loan Debt Choose the most advantageous repayment pattern allowed Pay electronically Make all payments on time Consolidate your student loans The Credit Approval Process Credit Application Credit Investigation Credit Underwriting Your Credit Reputation Building credit history Managing your credit bureau file www.annualcreditreport.com Five C's of Credit Character Capital Capacity Collateral Conditions Credit Scoring 35% Payment History 30% Amounts Owed 15% Length of Credit History 10% Types of Credit Used 10% Taking on More Debt Sources of Consumer Loans Depository institutions Sales finance companies Consumer finance companies Brokerage accounts Life insurance companies Friends and relatives Signs of Overindebtedness Exceeding debt limits Not knowing how much you owe Out of money regularly Paying only minimums Requesting new cards or limit increases Paying late or skipping payments Using debt consolidation Adding on to existing loans Garnishment Foreclosure/repossession What If You Become Overextended Determine how much is owed and to whom Develop a budget focused on debt reduction and stick to it Contact creditors and seek extension of repayment periods Take on no new credit Refinance if better rate is available Seek good help Avoid bad help Pay off smallest balances first Bankruptcy Chapter 13 - Regular Income Plan - Wage Earner Plan Chapter 7 - Straight Bankruptcy Immediate Liquidation Plan ...
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This note was uploaded on 04/10/2008 for the course CSM 204 taught by Professor Carolinefulmer during the Spring '08 term at Alabama.

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