20.2 Using Credit Responsibly
Objectives
u  Understand whether to use cash or credit to pay
for purchases.
u  Name the two sources of consumer credit.
u  Describe how lenders decide who qualifies for
credit.
u  Explain how you can avoid credit problems.
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20.2 Using Credit Responsibly
Key Terms
u consumer loan
u consumer sales
credit
u secured loan
u unsecured loan
u creditworthy
u credit history
u credit rating
u credit scoring
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
3
Paying for Your Purchases
l Will that be cash or charge?
l Benefits and costs of paying cash
l Benefits and costs of using credit
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
Percentage Distribution of
Consumer Payments, 2000 and 2008
4
Figure 20.2
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
5
Sources of Consumer Credit
l Consumer loan—borrowing money to be
repaid in regular installments over time
l Consumer sales credit—amounts
charged to an account that involves
variable payments over time
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
6
Consumer Loans
l Secured loan—loan for which property is
pledged to back its repayment
l Unsecured loan—loan for which no
specific property is pledged by the
borrower that can be used to satisfy the
debt if payments are not made
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
7
Consumer Sales Credit
l Credit-card account
l Credit-card fees
l Interest on credit-card debt
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
8
The Three Cs of Credit
l The term creditworthy refers to the measure of
your dependability to repay a loan.
l Lenders typically consider three primary factors
when they evaluate creditworthiness.
l Character is a measure of your financial
responsibility.
l Capacity is a measure of a consumer’s ability to
repay a debt on time.
l Capital is a measure of the value of things a
consumer owns that could be sold or cashed in to
repay a loan.
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
9
Credit-Reporting Agencies
l Credit-reporting agencies, or credit
bureaus, gather, maintain, and share
financial information about almost every
adult in the United States.
l Three primary credit-reporting agencies:
l Equifax
l Experian
l TransUnion
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
10
Credit-Reporting Agencies
(continued)
l Credit history—a person’s record of
paying bills and debts over time
l Credit rating—the measure of a person’s
creditworthiness
l Credit scoring—a system that assigns a
number, or score, to each consumer
indicating whether this person is a good or
bad credit risk
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
11
Accessing Your Credit File
l Legal rights
l Online access
l Annual review
l Corrections
CONTEMPORARY ECONOMICS
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20.2 Using Credit Responsibly
SLIDE
12
Avoiding Credit Problems
l Use credit wisely
l Establish a positive credit history
l Repair a damaged credit rating
CONTEMPORARY ECONOMICS
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