Objective [1]
Define consumer credit and analyze its advantages and
disadvantages.
Consumer credit is the use of credit by individuals and families
for personal needs. Among the advantages of using credit are
the ability to purchase goods when needed and pay for them
gradually, the ability to meet financial emergencies, convenience
in shopping, and establishment of a credit rating. Disadvantages
are that credit costs money, encourages overspending,
and ties up future income.Objective [2]
Differentiate among various types of credit.
Closed-end and open-end credit are two types of consumer
credit. With closed-end credit, the borrower pays back a onetime
loan in a stated period of time and with a specified number
of payments. With open-end credit, the borrower is permitted to
take loans on a continuous basis and is billed for partial payments
periodically.Objective [3]
Assess your credit capacity and build your credit rating.
Two general rules for measuring credit capacity are the debt
payments-to-income ratio and the debt-to-equity ratio. In reviewing
your creditworthiness, a creditor seeks information
from one of the three national credit bureaus or a regional credit
bureau.Objective [4]
Describe the information creditors look for when you apply
for credit.
Creditors determine creditworthiness on the basis of the five Cs:
character, capacity, capital, collateral, and conditions.Objective [5]
Identify the steps you can take to avoid and correct credit
mistakes.
If a billing error occurs on your account, notify the creditor in
writing within 60 days. If the dispute is not settled in your favor,
you can place your version of it in your credit file. You may also
withhold payment on any defective goods or services you have
purchased with a credit card as long as you have attempted to
resolve the problem with the merchant.Objective [6]
Describe the laws that protect you if you have a complaint
about consumer credit.
If you have a complaint about credit, first try to deal directly
with the creditor. If that fails, you can turn to the appropriate
consumer credit law. These laws include the Truth in Lending
Act, the Consumer Leasing Act, the Equal Credit Opportunity
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act,
and the Consumer Credit Reporting Reform Act.
