What do you know about credit?

Credit

“But Roger, everyone spends more that he earns. That’s what Canada is for.”

Credit Cards

■ Would you get a credit card?■ How would you use a credit

card/what would you use it for?

Credit

Buy now...

pay later!■ Impulse buying■ Instant gratification

What is Credit

■ The privilege of using someone else’s money to purchase an item or service now and then paying for it later

■ Creditor: the person or business that sells on credit or grants a loan

■ Debtor: the person or business that buys on credit or obtains a loan.

Credit

■ Advantages• saving money• credit rating• monthly

statement• instant

enjoyment• convenience• emergency

needs

■ Disadvantages• credit costs

• impulse buying• overbuying• financial

difficulties

Types of Credit

■ Credit cards■ Instalments; store credit (The Brick

“Don’t pay for a Year” Event)■ Loans

○ term (fixed set of time) – car loan/lease○ demand – requires collateral○ mortgage○ line of credit○ school loan

Student Loans-OSAP

Ontario Student Assistance Program (OSAP)

■ Government funding for college/university

■ Comes in form of a grant (don’t have to pay back) or a loan (do have to pay back)

OSAP

■ Eligibility:○ Canadian citizen○ Considers: marital status, school

attending, program, your family’s potential to contribute

■ Ave 4 year degree debt = ~$21,000■ Ave 2 year diploma debt = ~$12,000

OSAP

■ Post-graduation, you get 6 months where you don’t need to pay the loan back and are not charged interest

Average time to pay off your OSAP debt:

9.5 years

30% off Tuition

■ Ontario govnt currently running a promotion for 30% off your tuition!!!

■ Eligibility:○ Canadian citizen/resident○ Full-time student○ Left high school <4yrs○ Undergraduate degree○ Parents make less than $160K

Why Be a Lender?1. Why do banks and stores offer

credit?○ to increase sales○ to attract customers

2. How do lenders make money by offering credit?

○ potentially collect interest charges (make money)

Applying for Credit

■ Why would you apply for credit card?○ access funds in an emergency○ security when traveling○ to create a credit history○ establish a credit rating

Credit Rating

What does this mean?■ Information is collected on both individuals

and businesses for a period of seven years

■ Keep track of defaults (debt that has gone unpaid for so long that the creditors wonder if they money will ever be paid back)

■ Indicates the level of risk that a consumer, business, or government will pose if credit is granted by a business

■ Bad credit rating can get you denied for a car loan or a landlord may refuse to rent to you

Why is it important?

How Do I Establish a Credit Rating?

■ Students:1. Getting and keeping a job

2. Buying something on credit (with credit card)

and paying it off before interest is charged

(magazine)

3. Having someone, such as a family member

or close friend with a good credit rating, co-

sign a loan

Applying for Credit

■ 3 C’s of Credit○ Character○ Capacity○ Capital

Character

■ Individual financial personality○ Regular employment (how long)○ Willing to accept responsibility for

debt (pay bills on time)○ Has a bank account○ Reliable in job ○ Present address (how long)○ Good credit report

Capacity

■ Ability to repay debt on time○ Income level –steady job○ Children○ Other debts, monthly payments

■ Car loan■ Mortgage/rent■ Other credit cards■ Other household bills (Hydro, phone)

Capital/Collateral

■ Financial value or worth of the person –assets used to repay debt○ The total value of possessions e.g.,

houses, cars. savings, investments, etc. that could be sold

Credit Cards

Video: Credit Card Animation

1. With a credit card I don’t have to delay getting what I want.

2. I don’t have to ask myself the question “Do I really need or want this” or

“Do I have enough money to buy this?”

3. I can buy whatever I want when I want!

Credit Cards

■ How does interest work?■ When does it come into play?■ What is the actual cost of an

item purchased using a credit card?

Video: Credit Cards Debt Explained

Credit Card Debt

Scenario:● $2000 outstanding on credit card● 2.5% minimum payment required (or

$10.00, whichever is greater)● Option 1 – pay the minimum each month ● Option 2 – pay the minimum + $50.00● Option 3 – pay a fixed amount of $200.00

Rule of 20-10

Tells you how much credit (debt) you can afford

● Do not borrow more than 20% of your annual net income (not including your mortgage)

● Payments on these loans should not equal

more than 10% of your monthly net income