My Credit What s Your Credit Score? 1

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1 My Credit What s Your Credit Score? 1 For Your Information: Your credit score is one of the most important factors in obtaining credit. A low score can cause you to be denied a credit card or a loan. Your score will also be used to determine your credit limit and the interest rate you are charged. FICO, an acronym for Fair Isaac Corporation, refers to the best-known credit score and is calculated using your credit history in conjunction with a mathematical formula developed by the Fair Isaac Corporation. FICO scores range from about 300 to 850 with a median around 725. A score above 720 is considered to be "good credit" by lenders and a score below 600 is considered to be poor. To decide whether to give you credit or not, most lenders use the FICO score created by the Fair Isaac Corporation. The FICO score is based on five factors each of which makes up a percentage of the total score: Payment history % How much you owe % The length of your credit history % New credit % Other factors such as your credit mix 10% 575 The three major credit bureaus, (Equifax, Experian and TransUnion) use the FICO score when reporting to lenders, but they have collaborated on a new credit scoring formula they call VantageScore which they hope will compete with the FICO score now used by most lenders. The new VantageScore will have the following range: = A (Best) = B = C = D = F (Worst) The factors used to determine the new score are basically the same as those used by Fair Isaac to determine their FICO Score. Remember, as a result of the FACT Act (Fair and Accurate Credit Transactions Act), you are entitled to one free copy of their credit report from each credit reporting agency each year. Use the space on the right to create a poster that illustrates the importance of a person s credit score when trying to obtain credit. Name:

2 My Credit Ask Andy 2 Andy Lendman writes a syndicated column called Ask Andy which is published daily in over 200 newspapers. In the column, he answers questions and gives advice about personal finance. Andy has a staff of three to help him with the column. As a member of his staff, you've been asked to answer the following question sent in by a reader. Dear Andy: I was just turned down for a car loan and found out that the reason was that my credit score is under 600. I know my credit history has not been good. What can I do to change this and improve my credit score? _ Letters _ Name:

3 My Credit Twentysomething Debt 3 Most of you reading this page are in your teens. But before you know it, you ll be twentysomethings facing college costs, first jobs and, if you re not prepared, a mountain of debt. On the right are some facts about the current generation of twentysomethings. Just like them, you re anxious to be on your own. But considering these facts, what do you think you need to do to better prepare yourself for financial independence when it s your turn to be a twentysomething? Some facts about twentysomethings. Nearly two-thirds carry some debt. Student-loan debt averages $14,379. Credit card debt averages $5,781. Installment debt averages $17,208. Their late payments are rising. They are more likely to be late than other Americans. Nearly half of twentysomethings have: 1. Stopped paying a debt forcing the lender to sell the debt to a collection agency. 2. Had cars repossessed. 3. Sought bankruptcy protection. 60% feel they are facing tougher financial pressures than young people in previous generations. 30% say they worry frequently about their debt. 40% are not saving regularly. 55% are not saving in an IRA or 401(k). 28% are helped by their parents to meet major expenses. A large percentage of twentysomethings are moving back home after college rather than out on their own. Name:

4 My Credit Lights, Camera, Action 4 You re one of the staff writers on the TV series On Our Own about a group of young people just out of school and living on their own. Your current assignment is to outline an upcoming episode about the characters dealing with their personal debts and credit choices. Use the storyboards below and on the following pages to outline the program. The quality of the drawing is not important. It should just give a sense of the scenes and flow of the program. 1 Script Video _ Name:

5 My Credit Lights, Camera, Action 5 2 Script Video _ 3 Script Video _ Name:

6 My Credit Lights, Camera, Action 6 4 Script Video _ 5 Script Video _ Name:

7 My Credit Lights, Camera, Action 7 6 Script Video _ 7 Script Video _ Name:

8 My Credit Do You Take Credit Cards? 8 For Your Information: Today, bank credit cards such as Visa and MasterCard are used just like cash and personal checks for making day-to-day transactions. But unlike cash and personal checks, your credit card allows you to spend money you may not have. Credit cards are actually revolving charge accounts which allow you to make purchases throughout the month and then either pay the balance in full when you receive your monthly statement or make a partial payment and pay interest on the remaining balance. For each of the following, check Yes if credit cards are commonly accepted and used in the situation. Check No if they are not commonly accepted or used. Situation 1. You're going to a restaurant for dinner with friends. Can you use a credit card to pay for the meal?... Yes No You've found a new car you want to buy. Can you use a credit card to pay for it?... You're going to the movie. Can you use a credit card to pay for your ticket?... You've stopped to fill up your car. Can you use a credit card to pay for the gas? You want to buy a new pair of athletic shoes. Can you use a credit card to pay for them? You need to pay your telephone bill. Can you use a credit card to pay for it?... You've stopped at Taco Bell for lunch. Can you use your credit card? You're going to make airline reservations over the phone. Can you charge the tickets with your credit card?... You've found a jacket you like in a mail order catalog. Can you use your credit card to pay for it?... You're going to buy a candy bar from a vending machine. Can you use your credit card? It's time to pay your rent. Can you use a credit card? You're going to buy your first house. Can you use your credit card to make the down payment?... Name:

9 My Credit The Daily Gazette Consumer Corner 9 For Your Information: Credit cards are wonderful financial tools that require a lot of maturity to use responsibly. Multiple credit cards, high interest rates, and making only minimum monthly payments can quickly put a person in a financial hole that is very difficult to get out of. As the consumer reporter for The Daily Gazette, you've been given the assignment of writing a helpful hints column on how to control credit card debt. Ten Helpful Hints To Control Your Cards IN DEBT? CAN'T GET OUT? DON'T WORRY CALL (800) BIG - DEBT BANKRUPTCIES IN 30 MINUTES SLICK, SLY, AND SLEAZY ATTORNEY'S AT LAW Need a loan until you get your next paycheck? Bankrupt? We Don't Care Bad Credit Rating? We Don't Care Call Payday Loans 1204 East Third Street Name:

10 My Credit Don t Be Jeff! 10 The following story is true. While it is extreme, it is not uncommon for young people using credit cards for the first time to get into financial trouble. Jeff entered college committed to using only cash, but during his first semester he applied for and received two credit cards. At first he planned to us them only for emergencies, but then started using them for things he needed, and finally for anything he wanted. He regularly used ATMs to get cash advances with his credit card. When money was tight he found himself skipping payments or using one card to pay another. He would move balances to new cards to take advantage of low introductory interest rates. By the end of his sophomore year he had 8 credit cards and the companies were raising his credit limit. During his junior year, he had to get a $10,000 debt consolidation loan from the student credit union, but it proved to be only a temporary band-aid. During his senior year he started a business with another student translating resumes for Mexican and Latin American students over the internet. The business, which they financed for $2,500 each with their credit cards, failed after six months. The two then decided to recoup their losses by investing in the stock market. They each bought $5,000 worth of stock using cash advances and each lost $3,000. To help make payments on his credit card debt for 11 bank and 5 retail credit cards, he had two parttime jobs while still attending school. Jeff graduated with a bachelors degree in finance, a $10,000 debt consolidation loan, over $20,000 in credit card debt, and over $30,000 in student loans. During an interview with a major Wall Street banking firm after graduation, he was confronted with his credit record. The interviewer said, "How can we feel comfortable about you managing large sums of our money when you have such difficulties handling your debts." He was not offered employment. "I feel like a victim, said Jeff. Giving credit cards to kids in college is like giving steroids to an athlete." In reference to the bank he said, "Can you believe it? They want an explanation about my personal finances in college and yet they lost over $120 million last year!" Who do you think is at fault - the credit card companies or Jeff? Why? Name:

11 My Credit Ask Andy 11 Andy Lendman writes a syndicated column called Ask Andy which is published daily in over 200 newspapers. In the column, he answers questions and gives advice about personal finance. Andy has a staff of three to help him with the column. As a member of his staff, you've been asked to answer the following question sent in by a reader. Dear Andy: I have seven different credit cards and owe over $30,000 on them. My credit card payments are so large each month it s becoming difficult to meet my other expenses. What can I do? _ Letters _ Name:

12 My Credit It s Your Money 12 You've been hired as one of the writers on the new PBS show It s Your Money hosted by Ben and Bonnie McIntyre. Your first assignment is to outline the script for a thirty minute show about credit cards titled A Tool or A Trap. IT S YOUR MONEY Show Title: Show Outline: WITH BEN AND BONNIE MCINTYRE Name:

13 My Credit Buyer Beware: Subprime Credit Cards 13 For Your Information: It s hard enough to control your credit with standard bank credit cards, so don t be dupped by companies that offer subprime credit cards. Subprime cards offer small credit lines and charge enormous fees up front. They make millions of dollars in fees and interest by preying on consumers with bad credit and young people with no credit history looking for a credit card. And don t confuse a subprime card with a secured credit card which is a much better alternative. Secured credit cards are guaranteed by a deposit with a lender who then offers a credit line equal to the amount deposited. If payments are made on-time for a prescribed period, you can then qualify for a traditional, unsecured card with a higher limit. Here is an example of the costs of a subprime credit card. Initial Fee: $20.00 Recurring Fee: $19 a month Available Credit: $51 Cost for 1 year: $248 APR (with fees): 486% Do you think subprime credit cards should be legal? Why or why not? A True Story 20-year-old Judy Potter was trying to build a credit history and unknowingly ended up with a subprime credit card. An unsolicited application for a First Premier card arrived in the mail. Though Judy responded only asking for more information and did not sign anything, a card arrived with a $300 credit line and a $175 fee. Judy and her mother worked for two months to cancel the card and the fees. Name:

14 My Credit Eric Long s Visa Card 14 Eric Long uses a Visa credit card which allows him to charge purchases throughout the world, receive cash advances at banks, make purchases by phone or on the internet and write Visa checks which when cashed are added to his account balance. His July billing statement is shown below. Use the statement to answer the questions at the bottom of the page. Transaction Date Posting Date Reference Merchant Name or Transaction Description Card Type New Purchases, Fees, Advances & Debits 07/20 07/ American Airlines V /24 07/ The Highsmith Co. Inc V /26 07/ American Airlines V Payments & Credits Previous Balance 0.00 New Purchases, Fees, Advances & Debits Finance Charge (Due to Periodic Rate) Payments & Credits New Balance Average Daily Balance Minimum Payment Due Annual Percentage Rate * % Periodic Rate 1.65% Corresponding Annual Percentage Rate 19.80% Balances to Which Applicable Purchases, Advances, Finance Charges & Fees Corresponding Finance Charge Balance 08/01 Billing Date 08/26 Payment Due Date Account Number Visa Card Billing Statement 1. What was the total cost of the items Eric charged? What was his previous balance? Did he make a credit card payment during July? What was his finance charge? By what date must he pay his new balance to avoid any finance charge next month? What was the minimum payment he had to make? What is the monthly interest rate charged by the company? What is the yearly rate charged by the company? Name:

15 My Credit August Billing Statement 15 Transaction Date Posting Date Reference Merchant Name or Transaction Description Card Type New Purchases, Fees, Advances & Debits Payments & Credits 08/ Payment - Thank You V /06 08/ Super America V / American Airlines - Credit V /08 08/ Britt Airways V /11 08/ The Greenleaf Hotel V Previous Balance New Purchases, Fees, Advances & Debits Finance Charge (Due to Periodic Rate) Payments & Credits New Balance Average Daily Balance Minimum Annual Payment Percentage Due Rate % Periodic Rate 1.65% Corresponding Annual Percentage Rate 19.80% Balances to Which Applicable Purchases, Advances, Finance Charges & Fees Corresponding Finance Charge Balance 09/01 Billing Date 09/26 Payment Due Date Account Number Visa Card Billing Statement Follow the directions given below to complete Eric Long s August billing statement. 1. NEW PURCHASES: Add the sum of the three items purchased ($25, $96, and $131.35) PAYMENTS AND CREDITS: Add the sum of the payments and credit ($100 + $248). FINANCE CHARGE (Average Daily Balance Method): (1) Multiply the account balance from 8/2 to 8/14 ($495.27) by the number of days from 8/2 to 8/14 (13 days). (2) Multiply the account balance from 8/15 to 8/16 ($395.27) by the number of days from 8/15 to 8/16 (2 days). (3) Multiply the account balance from 8/17 to 8/19 ($172.27) by the number of days from 8/17 to 8/19 (3 days). (4) Multiply the account balance from 8/20 to 9/1 ($399.62) by the number of days from 8/20 to 9/1 (13 days). (5) Add the products of your four multiplications. (6) Divide your answer by the number of days from 8/2 to 9/1 (31 days). This will give you the AVERAGE DAILY BALANCE. (7) Multiply the average daily balance by the periodic interest rate (.0165). This will be the FINANCE CHARGE. 4. NEW BALANCE: (1) Add the PREVIOUS BALANCE, the NEW PURCHASES, and the FINANCE CHARGE. (2) Subtract PAYMENTS AND CREDITS from your answer. Name:

16 My Credit September Billing Statement 16 Transaction Date Posting Date Reference Merchant Name or Transaction Description Card Type New Purchases, Fees, Advances & Debits Payments & Credits 9/17 Payment - Thank You V $ Previous Balance New Purchases, Fees, Advances & Debits Finance Charge (Due to Periodic Rate) Payments & Credits New Balance Average Daily Balance Minimum Annual Payment Percentage Due Rate $ % Periodic Rate 1.65% Corresponding Annual Percentage Rate 19.80% Balances to Which Applicable Purchases, Advances, Finance Charges & Fees Corresponding Finance Charge Balance 10/01 Billing Date 10/26 Payment Due Date Account Number Visa Card Billing Statement Complete Eric's September billing statement. You should use the same methods you were shown when completing the August statement, but with one difference. The company is not allowed to include the unpaid finance charge from the previous month in the balance when computing the new finance charge. Therefore, your first multiplication will be: $ ($ $6.89) x 15 You will not need to subtract the previous finance charge ($6.89) from your balance after the payment is made on 9/17 since the finance charge will have been paid. Name:

17 My Credit October Billing Statement 17 Transaction Date Posting Date Reference Merchant Name or Transaction Description Card Type New Purchases, Fees, Advances & Debits Payments & Credits 9/20 10/03 Super America V $ /08 Payment - Thank You $ /01 11/01 Annual Fee V $20.00 Previous Balance $ New Purchases, Fees, Advances & Debits Finance Charge (Due to Periodic Rate) Payments & Credits New Balance Average Daily Balance Minimum Annual Payment Percentage Due Rate $ % Periodic Rate 1.65% Corresponding Annual Percentage Rate 19.80% Balances to Which Applicable Purchases, Advances, Finance Charges & Fees Corresponding Finance Charge Balance 11/01 Billing Date 11/26 Payment Due Date Account Number Visa Card Billing Statement Complete Eric's October billing statement. Remember that the annual fee must be excluded from the balance. Name:

18 My Credit J.B. Thompson Revolving Charge Account Contract 18 Use the J. B. Thompson revolving charge account contract on page 10 to answer each of the following questions Complete the annual percentage rate chart on the contract. Alabama is done for you as an example. What is the highest interest rate charged by J. B. Thompson? To how many states does the highest rate apply? What is the lowest interest rate they charge? 3. If your average daily balance for the monthly billing period is $237.94, what will your finance charge be in each of the following states? The first one is done for you as an example. (Round your answers to the nearest cent.) Wisconsin $ 3.57 $ x.015 = = $3.57 Iowa Michigan Vermont Illinois 4. If your average daily balance for the monthly billing period is $2,437.65, what will your finance charge be in Kansas? (Round your answer to the nearest cent.) $ 5. What will the minimum monthly payment be for each of the following new balances? $ $ $ $ $ $ 9.47 Name:

19 My Credit J.B. Thompson Revolving Charge Account Contract 19 I agree to all the following conditions concerning my account: I will pay the entire NEW BALANCE shown on my monthly billing statement by the PAYMENT DUE DATE or I will pay the DEFERRED PAYMENT PRICE consisting of the CASH PRICE and a FINANCE CHARGE. I will pay the DEFERRED PAYMENT PRICE in monthly installments based upon the following schedule. NEW BALANCE MINIMUM PAYMENT $.01 to $ Balance $ to $ $10.00 $ to $ $15.00 $ to $ $20.00 $ to $ $25.00 $ to $ $30.00 $ to $ $35.00 $ to $ $40.00 over $ /10 of NEW BALANCE I have the right to pay more than the minimum at any time without penalty, but if I fail to make any minimum payment my entire balance will become due immediately. The FINANCE CHARGE for each billing period will be computed on the AVERAGE DAILY BALANCE METHOD. The AVERAGE DAILY BALANCE is the sum of each day's balance for the billing period (excluding unpaid finance charges) divided by the number of days in the billing period. The FINANCE CHARGE is computed by applying the appropriate periodic rate shown in the chart on the left to the AVERAGE DAILY BALANCE. J. B. Thompson retains title to merchandise purchased under this agreement until paid in full. J. B. Thompson has the right to investigate my credit records and report my performance under this agreement to proper persons and bureaus. MONTHLY ANNUAL PERIODIC PERCENTAGE STATE RATE RATE AL 1.75% to $ % on excess... AK 1.5% to $1, % on excess... CO 1.75%... CT 1.5%... GA 1.75%... IN 1.75%... IA 1.65%... KS 1.75% to $1, % on excess... ME 1.5%... MA 1.5%... MI 1.7%... MN 1.5%... NC 1.5%... OK 1.75%... PA 1.5%... RI 1.5%... VT 1.75%... WA 1.5%... WV 1.5%... WI 1.5%... WY 1.75%... All Others 1.995% % Name:

20 My Credit Rachel s Revolving Charge Account 20 In January, Rachel Owens opened a charge account at Klinefeld's Department Store. Use her January billing statement shown below to answer the questions at the bottom of the page. Transaction Date Klinefeld's Revolving Charge Account Billing Statement Reference Transaction Description New Purchases Payments & Credits 01/ Sweater Previous Balance Deduct Payments & Credits Add Finance Charge Add Purchases New Balance Minimum Payment Due Periodic Interest Rate % 01/27 Billing Date 02/22 Payment Due Date 0.00 Average Daily Balance Account Number Annual Percentage Rate To avoid additional finance charges pay the entire new balance before the payment due date What was the item Rachel charged at Klinefeld's?... What day did the transaction take place?... What was the cost of the item she purchased?... What was the previous balance on her revolving charge account?... What was her finance charge?... What is the minimum payment which she must make?... What is the monthly interest rate she is being charged?... What is the yearly interest rate she is being charged?... By what date must she make a payment? How can Rachel avoid paying finance charges on her purchase? Name:

21 My Credit Rachel s February Billing Statement 21 Use the directions at the bottom of the page to complete Rachel's February revolving charge account billing statement. Transaction Date Klinefeld's Revolving Charge Account Billing Statement Reference Transaction Description New Purchases Payments & Credits 02/ Payment -- Thank You $10.00 Previous Balance Deduct Payments & Credits Add Finance Charge Add Purchases New Balance Minimum Payment Due Periodic Interest Rate % 02/27 Billing Date 03/22 Payment Due Date Average Daily Balance Account Number Annual Percentage Rate To avoid additional finance charges pay the entire new balance before the payment due date. COMPUTING THE FINANCE CHARGE USING THE AVERAGE DAILY BALANCE: Multiply the account balance from 1/28 to 2/14 ($32.50) by the number of days from 1/28 to 2/14 (18). Multiply the account balance from 2/15 to 2/27 ($22.50) by the number of days from 2/15 to 2/27 (13). 3. Add the products of your two multiplications Divide your answer by the number of days from 1/28 to 2/27. This will give you the AVERAGE DAILY BALANCE. Multiply the average daily balance by the periodic interest rate (.0175). This will give you the FINANCE CHARGE. COMPUTING THE NEW BALANCE: 1. Subtract the $10.00 payment from the previous balance. 2. Add the finance charge to your answer. This will give you the NEW BALANCE. Name:

22 My Credit Rachel s March Billing Statement 22 Use the directions at the bottom of the page to complete Rachel's March revolving charge account billing statement. Transaction Date Klinefeld's Revolving Charge Account Billing Statement Reference Transaction Description New Purchases Payments & Credits 03/ Payment -- Thank You $ / Television Previous Balance Deduct Payments & Credits Add Finance Charge Add Purchases New Balance Minimum Payment Due Periodic Interest Rate % 03/27 Billing Date 04/22 Payment Due Date Average Daily Balance Account Number Annual Percentage Rate To avoid additional finance charges pay the entire new balance before the payment due date. COMPUTING THE FINANCE CHARGE USING THE AVERAGE DAILY BALANCE: Compute the average daily balance and finance charge using the same method described for the February billing statement, but with two important changes Since both a payment and a charge were made during the billing period you will have three multiplications rather than two because she will have three different balances. You must exclude the unpaid finance charge when computing the average daily balance. Therefore, your first balance must be $22.50 not $ Your second balance will be $13.00 and your third $ COMPUTING THE NEW BALANCE: 1. Subtract the $10.00 payment from the previous balance. 2. Add the finance charge and the purchase to your answer. This will give you the NEW BALANCE. Name:

23 My Credit Rachel s April Billing Statement 23 Use what you have learned from computing the financial information on Rachel's January, February, and March billing statements to complete her April statement. Transaction Date Klinefeld's Revolving Charge Account Billing Statement Reference Transaction Description New Purchases Payments & Credits 04/ Blouse / Payment -- Thank You / Shoes Previous Balance Deduct Payments & Add Finance Charge Add Purchases New Balance Minimum Payment Periodic Interest Annual Percentage Credits Due Rate Rate % 04/27 Billing Date 05/22 Payment Due Date Average Daily Balance Account Number To avoid additional finance charges pay the entire new balance before the payment due date. Show Your Work Below. Name:

24 My Credit Bob s Motorcycle 24 Whether you take out a loan to pay for an item or simply charge it, you are borrowing money. The interest you are charged is the cost of using some else s money. Read the following situation and mark Yes or No based on whether you think the credit source could be used and explain what you think is good and/or bad about the source. Bob has a part-time job after school and on weekends. He s found a used motorcycle to drive to school and to work that costs $3,995 and he wants to borrow the money to buy it. Loan Source 1: His family ( ) Yes ( ) No Loan Source 2: His bank (credit union, savings and loan) ( ) Yes ( ) No Loan Source 3: A finance company (small loan company) ( ) Yes ( ) No Loan Source 4: The dealer who sells him the motorcycle ( ) Yes ( ) No Loan Source 5: A credit card ( ) Yes ( ) No Name:

25 My Credit Yuanita s Laptop 25 Whether you take out a loan to pay for an item or simply charge it, you are borrowing money. The interest you are charged is the cost of using some else s money. Read the following situation and mark Yes or No based on whether you think the credit source could be used and explain what you think is good and/or bad about the source. Yuanita is a sophomore at State University. She wants to borrow $2,000 to buy a new laptop computer. Loan Source 1: Her family ( ) Yes ( ) No Loan Source 2: Her bank (credit union, savings and loan) ( ) Yes ( ) No Loan Source 3: A finance company (small loan company) ( ) Yes ( ) No Loan Source 4: The retailer who sells her the computer ( ) Yes ( ) No Loan Source 5: A credit card ( ) Yes ( ) No Name:

26 My Credit Gary and Linda s First House 26 Whether you take out a loan to pay for an item or simply charge it, you are borrowing money. The interest you are charged is the cost of using some else s money. Read the following situation and mark Yes or No based on whether you think the credit source could be used and explain what you think is good and/or bad about the source. Gary and Linda Haverland have been living in an apartment since they were married two years ago. Now they would like to borrow the money to buy their first home. Loan Source 1: Their family ( ) Yes ( ) No Loan Source 2: Their bank (credit union, savings and loan) ( ) Yes ( ) No Loan Source 3: A finance company (small loan company) ( ) Yes ( ) No Loan Source 4: The realtor who sells them the home ( ) Yes ( ) No Loan Source 5: A mortgage company ( ) Yes ( ) No Name:

27 My Credit Donna s New Car 27 Donna Hart has graduated from South Suburban Community College with an associates degree in business and has taken a full-time hob with a commercial real estate firm. The office where she is working is about twenty miles from her apartment. Since gas at times has cost as much as $3.29 a gallon, she has decided to trade in her old car for a new small hybrid. She's going to finance the car at her bank with a $15,500 car loan. The loan officer explained that she could take up to 72 months to repay the loan and that the finance charge would be based on an interest rate of.75% a month on the unpaid balance. Complete the following chart to see what her total of payments and finance charge will be if she takes 3, 4, 5 or 6 years to repay the loan. Monthly Total of Finance Term of The Loan Payments Payments Charge 36 Months... $ Months Months Months Total of Payments equals the monthly payment multiplied by the number of payments. The finance Charge equals the total of payments minus the amount financed. The Annual Percentage Rate is the monthly rate times 12. Complete Donna's loan disclosure statement below for a 5 year car loan. AMOUNT FINANCED The amount of credit provided to me FINANCE CHARGE The dollar cost of the credit TOTAL OF PAYMENTS The amount paid when I have made all payments ANNUAL % RATE The cost of my credit as a yearly rate _ MY PAYMENT SCHEDULE WILL BE Number of Payments _ Amount of Payments When Payments Are Due Monthly Commencing July 18th Are there any other ways that Donna could have financed her new car? Name:

28 My Credit Long Term Car Loans 28 As new cars become more expensive, lenders are offering buyers longer term loans (up to seven years and more).the chart below lists eight car loan categories and the percentage of borrowers that used each category from November, 2007 through January, Term Percentage of Borrowers Term Percentage of Borrowers 24 to 29.9 months 0.7% 36 to 41.9 months 6.9% 48 to 53.9 months 5.3% 60 to 65.9 months 38.6% 66 to 71.9 months 3.2% 72 to 77.9 months 40.1% 84 to 89.9 months 4.1% 96 + months 0.1% What do you think are the advantages of longer term car loans? What do you think are the disadvantages of longer term car loans? Listed below are the monthly payments on a $20,000, new car loan at 5% and 10% interest with loan terms of 2 to 9 years. Calculate the total of payments for each. The first one is done for you as an example. $ x 24 = $21, % Loan 10% Loan Monthly Total of Monthly Total of Years Payment Payments Payment Payments 2 $ $ 21, Name:

29 My Credit The Chapman s First Home 29 Ralph and Anne Chapman have lived in an apartment for several years. They have found a small house that needs some work, but that they can afford at a cost $80,000. They left work early on Thursday afternoon and went to the First Federal Savings and Loan Association to discuss financing the house. The loan officer explained that there were a number of home loan options with various down payments, terms, and fixed or variable rates. He also explained that there would be approximately $1,200 in closing costs they would have to pay. Ralph and Anne decide that they could afford to make a 10% down payment and finance the remainder with a 25 year fixed rate mortgage. Follow the directions given below to complete the home loan disclosure statement on page 22 and see just how much it will cost them to finance the house. AMOUNT FINANCED: Multiply the price of the home ($80,000) by the down payment (.10). Subtract your answer from the price of the home. This is the amount they must finance. MONTHLY PAYMENTS: Their monthly payments can be found on the chart on the right. The section of the chart which is used will depend on the interest rate being charged. (Your teacher will determine which interest rate you are to use.) Under the column headed AMOUNT, find the amount financed. The monthly payment is found in the column which represents the interest rate you are using. NUMBER OF PAYMENTS : Multiply the number of years in the loan (25) by the number of months in a year (12). AMOUNT ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 12,000 14,000 16,000 18,000 20,000 25,000 30,000 35,000 40,000 50,000 6% % % % TOTAL OF PAYMENTS: Multiply the number of payments by the monthly payment. FINANCE CHARGE: Subtract the amount financed from the total of payments. Name:

30 My Credit The Chapman s First Home 30 Home Loan Disclosure Statement LENDER First Federal Savings and Loan Association BORROWER Ralph and Anne chapman ADDRESS 2304 Knoll Lane, Apt. 4B Annual % Rate The cost of your credit as a yearly rate Finance Charge The dollar amount the credit will cost you Amount Financed The amount of credit provided to you or on your behalf Total Of Payments The amount you will pay after making all payments YOUR PAYMENT SCHEDULE WILL BE Number of Payments Amount of Payments When Payments are Due Monthly Commencing 4/15 INSURANCE: SECURITY: PREPAYMENT: You may obtain your property insurance from anyone you wish. You are giving a security interest in the property purchased. There is no penalty for early payment. SHOW YOUR WORK BELOW Name:

31 My Credit The Chapman s First Home 31 The Chapman's monthly payments will be amortized. This means that the interest which they owe will be taken out of the monthly payment first and the remainder will then be applied against the amount they borrowed (the principal or balance of the loan). Use the following directions to amortize the first four monthly payments. FIRST MONTHLY PAYMENT: TOTAL MONTHLY PAYMENT: Enter the monthly payment which you found on the payment chart when completing the disclosure statement. INTEREST PAYMENT: Multiply the amount borrowed (balance) by the monthly interest rate which you used when completing the disclosure statement: (1/2% =.0050, 3/4% =.0075, 1% =.01, 1-1/4% =.0125) PRINCIPAL PAYMENT: Subtract the interest payment from the total monthly payment. NEW BALANCE: Subtract the principal payment from the old balance. SECOND, THIRD, AND FOURTH MONTHLY PAYMENTS: Follow the same directions you used for the first month, but when computing the interest payment remember to use the new balance at the end of the previous month. PAYMENT MONTHLY INTEREST PRINCIPAL NEW DATE PAYMENT PAYMENT PAYMENT BALANCE 1st Month $_ $_ $_ $ 2nd Month $_ $_ $_ $ 3rd Month $_ $_ $_ $ 4th Month $_ $_ $_ $ SHOW YOUR WORK BELOW Name:

32 My Credit Home Sweet Home 32 Vern and Valerie Van Horn have applied for a $144,000 home loan on a $160,000 house. They are using their savings and a $10,000 loan from their parents for the $16,000 down payment. Their monthly payments will be $1,275 including real estate taxes and homeowner s insurance. Vern Van Horn - Age 27 - Sales Representative Valerie Van Horn - Age 25 - Elementary Teacher Richard Van Horn - Age 3 Combined Yearly Income... $68,000 Current Car Loans (2)... $22,700 Monthly Payments... $ 787 School Loans... $ 9,250 Monthly Payments... $ 410 Personal Loans... $ 5,600 Monthly Payments... $ 345 Credit Card Debt... $ 3,239 Current Savings... $ 6,142 Current Investments... $ 0 Do you think they can afford to buy this home? Why or why not. Name:

33 My Credit Before You Sign On The Dotted Line 33 As an employee of the Office of Consumer Affairs, you've been asked to write a four page brochure explaining how to shop smart for credit. Complete pages 2 and 3 of the brochure by writing ten things to do before you sign the contract. BEFORE YOU SIGN ON THE DOTTED LINE FEEL RIPPED OFF? CALL THE OFFICE OF CONSUMER AFFAIRS OUR NUMBER IS (800) GET - HELP 2 3 Name:

34 My Credit Ask Andy 34 Andy Lendman writes a syndicated column called Ask Andy which is published daily in over 200 newspapers. In the column, he answers questions and gives advice about personal finance. Andy has a staff of three to help him with the column. As a member of his staff, you've been asked to answer the following question sent in by a reader. Dear Andy: I have seen advertisements about debt consolidation loans that let me take several loans and combine them into one loan with a smaller total monthly payment. Can you explain to me what is good and bad about a debt consolidation loan? Letters Name:

35 My Credit Ten Loan Tips 35 As the consumer reporter for The Daily Gazette, you've been given the assignment of writing a helpful hints column on how to shop smart for a loan. Ten Loan Tips WHO SAID WE JUST GIVE HOME LOANS? SEE US FOR: NEW CAR LOANS USED CAR LOANS PERSONAL LOANS 1ST FEDERAL SAVINGS AND LOAN ASSOCIATION 435 WEST WILMONT AVENUE CALL 354-LOAN If You Need A Car We'll Give You Credit Bankrupt? We Don't Care Been Repossessed? We Don't Care Bad Credit Score? We Don't Care Fred's Friendly Finance Company 1204 East Third Street Name:

36 My Credit Buyer Beware: Payday Loans 36 For Your Information: Payday loans are short-term cash loans based on the borrower's personal check held for future deposit or electronic access to the borrower's bank account. Borrowers write a personal check for the amount borrowed plus the finance charge and receive cash. In some cases, borrowers sign over electronic access to their bank accounts to receive and repay payday loans. Lenders hold the checks until the next payday when loans and the finance charge must be paid in one lump sum. To pay a loan, borrowers can redeem the check for cash, allow the check to be deposited at the bank, or just pay the finance charge to roll the loan over for another pay period. Payday loans range in size from $100 to $1,000, depending on state legal maximums. The average loan term is about two-weeks. Loans cost on average 470% annual interest (APR). The finance charge ranges from $15 to $30 to borrow $100. For two-week loans, these finance charges result in interest rates from 390 to 780% APR. Shorter term loans have even higher APRs. Payday loan companies go by a variety of names such as The Cash Store, Check Into Cash, EZ Money, Title Cash, and Advance Cash just to name a few, and they can legally charge interest rates as high as 780% a year. A True Story Bob Mathews made less than $8.00 an hour. He was struggling to keep up with his bills so after seeing a TV ad for payday loans he tried one. He wrote a $300 check to the lender dated for cashing two weeks later and walked out with $255. Bigger trouble began when he needed money to keep the check from bouncing. Over the next two years, he repeatedly took out new $300 loans, paying $1,245 in fees for the privilege. The annual interest rate translated to 390%. What advice would you give Bob to break his debt cycle? Name:

37 My Credit Retail Installment Contracts 37 Retailers who sell high cost durable goods such as cars, appliances, furniture and electronics use retail installment contracts to offer credit to their customers. It is a way to buy on credit without using a credit card or going to a financial institution for a loan. A retail installment contract is very similar to a loan contract except instead of borrowing money you are promising to pay for a product over time with interest. If you want to use a retail installment contract, the retailer will determine if you are a good credit risk by getting a credit report from a credit bureau and checking your credit score. If you credit score is acceptable, the retailer will compete the contract and have your sign it. Most retailers sell the contracts their customers sign to financial institutions. This allows the retailer to get paid for the merchandise sold and the financial institution functions as the ultimate lender. Design a poster that illustrates the process that takes place when a person buys a product with a retail installment contract. Name:

38 My Credit Stanley Woofer s Stereo 38 For Your Information: Retailers who sell high cost durable goods such as cars, appliances, furniture and electronics use retail installment contracts to offer credit to their customers. It is a way to buy on credit without using a credit card or going to a financial institution for a loan. A retail installment contract is very similar to a loan contract except instead of borrowing money you are promising to pay for a product over time with interest. If you want to use a retail installment contract, the retailer will determine if you are a good credit risk by getting a credit report from a credit bureau and checking your credit score. If you credit score is acceptable, the retailer will compete the contract and have your sign it. Most retailers sell the contracts their customers sign to financial institutions. This allows the retailer to get paid for the merchandise sold and the financial institution functions as the ultimate lender. 1. Stanley Woofer is buying a new entertainment center on credit from Electronics City using a retail installment contract. The price of the system is $1, plus 6.25% sales tax. What is the cash price? $ 2. Stanley is going to make a 10% down payment and pay the remainder in 12 monthly installments. How much is his down payment? $ 3. Stanley s monthly payments will be $ based on a monthly interest rate of 1% a month on the unpaid balance.. Complete the loan disclosure statement on the following page from his retail installment contract. 4. If Stanley makes a payment that is more than 10 days late, how much is the late charge? $ 5. What do you think Stanley should consider before signing the retail installment contract? 6. What can happen to Stanley if he fails to make his payments? Name:

39 My Credit Stanley Woofer s Stereo 39 (DISCLOSURE REQUIRED BY THE FEDERALTRUTH-IN-LENDING LAW) AMOUNT FINANCED The amount of credit provided to me FINANCE CHARGE The dollar cost of the credit TOTAL OF PAYMENTS The amount paid when I have made all payments ANNUAL % RATE The cost of my credit as a yearly rate MY PAYMENT SCHEDULE WILL BE Number of Payments Amount of Payments When Payments Are Due _Monthly Commencing March 12th Total Sale Price The total cost of my purchase on credit including the down payment of $. $ LATE CHARGE: I have the right to receive at this time an itemization of the Amount Financed YES - I want an itemization X _ NO - I do not want an itemization I will be charged 5% of the amount of a payment that is late by more than 10 days after it is due, up to $ SECURITY: I am giving a security interest in: [X] The goods or property being purchased. [ ] Other goods or property I can see my contract documents for any additional information about no-payment, default, any required repayment before the schedule date, and prepayment refunds and penalties. Show Your Work below: Name:

40 My Credit Rent-To-Own 40 Rent-to-own stores offer furniture, appliances, and electronics. These stores advertise low monthly rental payments that can be applied to the purchase of the item if you wish. This is nothing more than a retail installment contract. Write an argument for or against using rent-to-own stores. Rent To Own! Don't Rent To Own! Name:

41 My Credit Assessment - True or False 1 Decide if each statement is True or False Credit cards are revolving charge accounts... You may charge as much as you wish with your credit card... A credit bureau can give you a loan... The longer the term of a loan, the greater the interest paid... If the previous balance on a credit card billing statement is $0.00, the finance charge must also be $ The principal of a loan is the amount borrowed If the previous balance on a credit card billing statement is $200.00, then there must be a finance charge on the statement... If you fail to make your payments, the property purchased can be repossessed... A credit score of 600 or more is considered good credit... Retail installment contracts are used by financial institutions to make loans.. You can get cash using your credit card... A credit on a billing statement would be a subtraction from your new balance... If you use a credit card, you must pay monthly finance charges... The average daily balance is a method of computing credit card finance charges.. Your credit score is calculated by the lender giving you the loan... The shorter the term of a loan, the larger the monthly payments... Finance charges are additions to your credit card new balance... Payments are subtractions from your credit card new balance... Everyone has a legal right to a credit card... You should compare APRs when shopping for a loan or a credit card Name:

42 My Credit Assessment - Math Problems 2 Solve each of the following problems. 1. The annual percentage rate on your credit card is 19.2%. What is the monthly interest rate? The average daily balance on your monthly billing statement is $ The annual percentage rate is 19.8%. What is your finance charge?.... $_ 3. The previous balance on your billing statement is $100. On June 20th your $50 payment was posted. You made no new purchases during the billing period. The billing date on the statement is 07/01. What is the average daily balance? $_ 4. Your billing statement shows the following information: 1. A previous balance of $ A purchase of $ A purchase of $ A payment of $ A credit of $ A purchase of $ A cash advance of $ A finance charge of $7.89 What is your new balance? $_ Name:

43 My Credit Assessment - Math Problems 3 Solve each of the following problems. 1. You've found a new computer you would like to buy that costs $1,600 including sales tax. You're going to borrow the money from your credit union and repay it in 12 installments of $ based on an interest rate of 1.25% a month on the unpaid balance. Compute each of the following: $ x 12 = $1, Total of Payments $1, $1,600 - $ Finance Charge $ $ 1.25% x 12 = 15.0% Annual % Rate % 2. You are going to borrow $15,500 to buy a car. If you repay the loan in 4 years, your monthly payments will be $ If you repay the loan in 5 years, your monthly payments will be $ How much larger will the finance charge be for the 5 year loan than the 4 year loan? $ $ x 48 = $18, $ x 60 = $19, $19, $18, = $ You've taken out a home loan for $91,000. Your monthly payment is $ and the finance charge is based on an interest rate of 1% a month on the unpaid balance. Amortize the first three months of the loan. PAYMENT MONTHLY INTEREST PRINCIPAL NEW DATE PAYMENT PAYMENT PAYMENT BALANCE 1st Month $ $_ $_ $_ 2nd Month $ $_ $_ $_ 3rd Month $ $_ $_ $_ Name: