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Part 1: Credit
Part 1: Credit
After this lesson, you will be able to:
Observe how interest-bearing credit accounts impact a person’s ability to manage debt
Analyze the actions of someone who found themselves in problematic debt
Assess multiple strategies to reduce or eliminate debt
Compare when late payments become troublesome and the potential consequences for late payments of different types of debt
What is credit?
What is credit?
Credit is a way to buy something when you don't have the money to pay for it.
We think of credit cards as the most common way to buy things on credit. You want a hamburger, but you have no cash on you. So you use your credit card, which is like giving the restaurant an IOU. The credit card company buys the IOU from the restaurant (for a fee), and you have to pay the credit card company back for the IOU.
But credit cards aren't the only type of credit that people use.
When you buy a car or a house, you most likely don't have the money on you. So you buy it using a LOAN. A loan is an IOU that you are giving to a bank when they buy the car or house FOR YOU. Just like the credit card, you have to pay the bank back.
Both of these are handy, but both create a financial responsibility that has to be handled correctly. If you fail to pay back your debts in a timely fashion, you can lose you house or car or all of your savings.
Not everyone has the discipline to handle buying on credit.
This INFOGRAPHIC will give you a quick overview of credit basics.
You think you need a credit card? What are some things to consider when picking one?
Where can you find out about the details of your credit card? All credit cards are required, by law, to make all of the terms of their card available to customers. All of these details are summed up in a document called a Schumer Box.
Answer these questions based on the information in the Schumer Box.
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To better understand credit card debt,
Complete the Activity by playing "Cat Insanity".
Part 2: The Math Behind Credit
Part 2: The Math Behind Credit
After this lesson, you will be able to:
Observe how interest-bearing credit accounts lead to credit card debt
Understand how mathematics is used to calculate the monthly balance on a credit card
Understand how amortization is used to calculate payments for loans
Use mathematical formulas to calculate credit card balances and amortization payments.
Part 2: The Math Behind Credit
Part 2: The Math Behind Credit
Credit is about "borrowing" money from the bank to buy stuff. The bank is a business and wants to make money off of your need.
They hope you end up paying interest on your debt. How does the bank calculate the amount you pay? This information explains how it's done.
Now practice what you've learned.
Complete this Assignment.
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Part 3: Your Credit Score
Part 3: Your Credit Score
After this lesson, you will be able to:
Explain how long it takes to establish a credit score
Analyze reasons why it’s important to establish credit early in life
Identify strategies to start building credit
Compare the impact of different credit scores when taking out different types of loans
Explain different strategies for canceling credit card debt
Read this Article: Why It Is Important to Establish Credit While Young
Answer these questions about your reading.
This video gives you a roadmap to establishing credit.
Consider these questions:
How does opening a checking account with a bank help you build credit even though it doesn’t directly impact your credit score?
How does a secured credit card benefit someone new to using credit while also reducing the risk taken by the card issuer?
If someone makes you an authorized user of their credit card, what is your responsibility and how can that person's credit be impacted?
Do this activity about the impact of your credit score.
Credit card debt will not help your credit score.
If you've started out on the wrong foot and have credit card debt, you'll want to get back to being debt-free.
This video explains some simple strategies for paying off your credit card debt.
Answer these questions about the video.
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