Types of Credit
How many types of credit did we cover in class?
What does it mean to have good credit?
What will happen to your credit score if you frequently make late payments?
Your credit score will decrease.
Sarah gets her first credit card. She has a $1,000 credit limit and spends $200 each month. She pays the entire balance on time. What will happen to her Credit Score?
Her Credit Score will go up/increase.
Jasmine gets her first credit card with a $1,000 credit limit. She uses the card to purchase $300 worth of clothes and school supplies. Is Jasmine using revolving credit or an Installment loan?
Revolving Credit
What is Revolving Credit?
Allows you to borrow money up to a set spending limit. (Credit Card)
Does your salary affect your credit score?
No! Salary and credit score are not directly related. Salary isn't one of the ways that your credit score is calculated.
How long does a late payment stay on your credit history?
7 years
A friend tells you, "The best way to build credit is to get as many credit cards as possible." Is this accurate information?
No! Opening multiple lines of credit at one time could be a red flag to lenders! This could lead to you having a lot of unnecessary debt.
Make on-time student loan payments, while also making credit card minimum payments, for entire year. What happens to your credit score?
It will increase.
What is Service Credit?
A contract established between you and a service provider. (electric bill, phone plan)
Why is it important to build a good credit history?
A good credit score is important because it proves you are a responsible borrower, which helps you qualify for loans, lower interest rates, and better housing oppurtunities
Why might a person with a good credit history have an easier time getting approved for a loan?
You max out your credit card to pay for Spring break. What will happen to your credit score?
Jack takes out a loan to purchase a $550,000 house. What type of credit will Jack now be utilizing?
Installment Credit/Installment Loan. A large sum of money given all at one time.
What is Installment Credit?
Issued as a loan for a specific purchase. Will be payed back in steady increments over time. (Mortgages)
What will cost you more money? A loan with an interest rate of 4.3% and a term length of 24 months? Or a loan with an interest rate of 4.3% and a term length of 20 months?
The loan with the longer term length (24 months)
What are two things that are used to calculate your credit score? (there are 5 total I just need 2)
Amounts Owed
New Credit
Payment History
Length of Credit History
Credit Mix
You receive a large tax refund and deposit it into your savings account. What happens to your credit score?
Your credit score won't change.
You purchase a $500 television using a credit card. If you only make the minimum payments, will the television ultimately cost you more or less than $500?
More, because interest may be charged on the unpaid balance.
What is the main difference between an Installment Loan and a Line of Credit?
Installment Loan = large sum of money given to be spent at one time (mortgage)
Line of Credit = money that can be borrowed repeatedly (HELOC)
What is one way someone can build their credit?
The amount charged by a lender for borrowing money. Additional percentage that you will have to pay back on top of what you already owe.
Marcus has a credit card but only makes the minimum payment each month. What are some potential problems with this strategy?
He will end up paying more money overall due to having a longer term length.
You graduate from college and get a full-time job. You are now making a large salary. What will happen to your credit score?
Nothing. Salary isn't directly related to your credit score.