850

Credit
756 816
700

655

600

610

525

400
 What do you
know?
Can you define these terms?
•Credit
Answer this question in at
•Character
•Collateral
least 4 sentences:
•Capacity
•Interest
•Debt
•Asset
•Default
What should you use credit
to purchase?
By the end of this Essential Questions
lesson you •How do interest rates impact people’s saving and
spending choices?
should know…. •How should you personally use credit?
•How can you maintain a good credit rating?
Terms •What should you look for when evaluating a credit
Content Terms
•Credit offer?
•Character
•Collateral
•Capacity Georgia Performance Standard
•Simple interest SSEPF4 The student will evaluate the costs and benefits of using credit.
a. List factors that affect credit worthiness.
•Compound interest b. Compare interest rates on loans and credit cards from different institutions.
•Annual Percentage Rate c. Explain the difference between simple and compound interest rates.
•Credit Score
Academic Terms
•Asset
•Debt
Literacy Standards
RH.11-12.3 Analyze a complete set of ideas or sequence of events and explain
•Default how specific individuals, ideas, or events interact and develop over the course
of the text.
RH.11-12.7 Integrate and evaluate multiple sources of information presented
in different media or formats as well as in words in order to address a question
or solve a problem.
WH.11-12.1 Write arguments to support claims in an analysis of substantive
topics or text using valid reasoning and relevant and sufficient evidence.
 What is Credit anyway?
• Credit is when you borrow money to Credit- borrowing
money to make a
make a purchase. When you pay back purchase
the money you borrowed (the loan) Interest-
you pay a fee called interest. payments made in
exchange for the
• How much interest you pay and ability to borrow
money
whether or not you can get a loan is
determined by several factors.
 Factors that affect Credit
The 3 C’s
• Capacity- your capacity to pay is determined by
your job and other sources of income.
• Capacity to pay also takes into account how much
money you owe. A ratio of how much debt you
have versus how much money you make.
– They ask questions like: How much money do you make
annually or monthly? How long have you had your job?
What is your job history? How much money do you owe?
 The 3 C’s of Credit cont..
• Character- Your character is
Debt- the amount
determined by your history of of money you owe

borrowing and paying back debt.

• Lenders determine your character Credit Score- a
by checking your credit history. rating between
300 and 850 that
is an estimation of
– There are 3 credit bureaus that how worthy you
maintain everyone’s credit history and are to receive a
loan
determine your credit score.
» Equifax
» Experion
» TransUnion
 The 3 C’s of Credit cont..
Your Credit Score
• What does the score mean?
– Between 700 and 850 – Very good or excellent credit score.
– Between 680 and 699 – Good credit score.
– Between 620 and 679 – Average or OK score.
– Between 580 and 619 – Low credit score.
– Between 500 and 579 – Poor credit score.
– Between 300 and 499 – Bad credit score

• How is your credit score determined?

– The bureaus determine your score using a mathematical
formula that takes several things into account
» How long you have had credit
» How many times you have applied for credit
» Late payments
» How many accounts you have open
» Late payments and payments you have missed
» Bankruptcies and charge-offs
The 3 C’s of Credit cont..
Your Credit Score
 The 3 C’s of Credit cont..
• Collateral- This is an asset that you
asset- a valuable
own that the lender can take if you thing that you own

fail to make your payments or if

you default on the loan. default- failure to
• If you plan to make a large fulfill an obligation
or pay back a loan
purchase using credit like a house
or a car, the lender will usually use
the item you purchased as
collateral.
 So far can
you…
Define these Answer this Question?
Terms? •How can you maintain a good credit rating?
Content Terms
•Credit
•Character
•Collateral
•Capacity
•Interest
•Credit Score
We still need to…
•Evaluate the costs and benefits of using credit.
Academic Terms •Define Annual Percentage Rate (APR.)
•Asset •Compare interest rates on loans and credit cards from different institutions.
•Explain the difference between simple and compound interest rates.
•Debt
•Default
 Let’s Look Closer at Credit Basics
• You pay Interest every time • Some lenders give you an
you borrow money. Introductory Rate as an incentive
– Lenders usually give a 30 day to apply.
grace period (a short time – This is a lower interest rate that lasts
after your purchase when a limited amount of time
they do not charge interest.) • APR or Annual Percentage Rate is
• Lenders also require the interest you are charged each
various Finance Charges. year for borrowing money. There
– These appear as annual are two types of APR:
membership fees, over limit – Variable- this means that the interest
fees, cash advance fees etc. rate you pay will change based on
national economic indicators
– Fixed- this means that the interest
rate you pay will not change.
 Credit Offers
pital Credit
American Ca

Could B. You

Would you apply

for this credit American Capital Credit is pleased to
offer you access to purchasing power up
card? to $1,000! This card will allow you to
make purchases with no interest for the
first 30 days and after that you will only
pay 9.9% interest for the first 6 months!
Act now before this offer ends!
*All offers include an $75 annual fee; 30% fee on cash advances; after 6
months APR reverts to 29.9% variable rate
 Can you Identify the Basic
Features?
Find the following
information in this credit
offer
– What is the credit limit?
– How long is the grace
period?
– What is the an introductory
rate?
– What is the APR? (% and
fixed or variable)
– What are the finance
charges?
American Ca
pital Credit
Could B. You
American Capital Credit is pleased to
offer you access to purchasing power up
to $1,000! This card will allow you to
make purchases with no interest for the
first 30 days and after that you will only
pay 9.9% interest for the first 6 months!
Act now before this offer ends!
*All offers include an $75 annual fee; 30% fee on cash advances; after 6
months APR reverts to 29.9% variable rate
 Can you Identify the Basic
Features? answers
• What is the credit limit? $1000
• How long is the grace period? 30
days
• What is the an introductory rate?
9.9% APR for 6 months
• What is the APR? (% and fixed or
variable) after 6 months 29.9%
variable
• What are the finance charges?
30% fee on cash advances; $75
annual fee
Would you still apply
for this credit card?
pital Credit
American Ca
Could B. You
American Capital Credit is pleased to
offer you access to purchasing power up
to $1,000! This card will allow you to
make purchases with no interest for the
first 30 days and after that you will only
pay 9.9% interest for the first 6 months!
Act now before this offer ends!
*All offers include an $75 annual fee; 30% fee on cash advances; after 6
months APR reverts to 29.9% variable rate
 City Credit Let’s Compare Offers
Could B. You

Are you a student? Do you want to be Discount Cre

able to make financial decisions
without calling your parents? Act now,
City Credit is offering a student credit
card with a $1000 limit and a 0%
introductory rate for the first 7 months
on qualifying purchases which reverts
to a variable rate of 13.00-22.99% after
the introductory period. After a year,
when you use credit wisely we offer
APR reduction. Our card has a low
annual fee of $25 per year.
dit
Could B. You
This student card can alleviate the
pressure of expensive books and
assist you with living expenses by
giving you the purchasing power you
need. We offer a beginning limit of
$500 and a 0% APR for the first 6
months then a low variable rate of
12.00-18.99% and there is no annual
fee! Apply today!

Which offer would you apply for?

 dit
Discount Cre

City Credit
Could B. You
Could B. You

In 2 paragraphs using the basic features of credit:

Explain to the class which credit card is the
best choice for students, City or Discount
Credit.
Be sure to use details to explain why the card you chose
is better than the other
 City Credit Let’s Compare Offers
Could B. You

City Credit Summary Discount Cre

dit

•$1000 limit
Could B. You
•0% introductory rate for the first 7
months on qualifying purchases
•After 7 months APR is 13.00-22.99% Discount Credit Summary
variable rate •$500 limit
•APR reduction after a year of good •0% APR for the first 6 months
credit use •After 6 months APR is 12.00-18.99%
•$25 annual fee variable rate
•no annual fee

Which one is right for you?

 What will Credit Cost me?
IT DEPENDS ON WHAT YOU ARE BUYING AND HOW MUCH YOU BORROW.
LET’S DO A SIMPLE COMPARISON
Month Principal Interest You Owe Your monthly payment Balance
You use a credit card to buy a 60 inch flat screen TV for
1 $1,000 $99.00 $1,099.00 $150 $949.00
$1,000.00 at 9.9% interest . You pay off the loan at the
2 $949.00 $93.95 $1,042.95 $150 $892.95
end of 12 months including the principal and interest.
3 $892.95 $88.40 $981.35 $150 $831.35
4 $831.35 $82.30 $913.66 $150 $763.66
5 $763.66 $75.60 $839.26 $150 $689.26
6 $689.26 $68.24 $757.50 $150 $607.50
7 $607.50 $60.14 $667.64 $150 $517.64
8 $517.64 $51.25 $568.88 $150 $418.88
What did it cost you?
9 $418.88 $41.47 $460.35 $150 $310.35
Principal – 10 $310.35 $30.73 $341.08 $150 $191.08

original amount of 11 $191.08 $18.92 $210.00 $150 $60.00

money borrowed 12 $60.00 $5.94 $65.93 $65.93 $0.00

Total Amounts Paid $715.93 $1,716
 Answer the following questions
regarding this spreadsheet
Month Principal Interest You Owe Your monthly payment Balance

1 $1,000 $99.00 $1,099.00 $150 $949.00

2 $949.00 $93.95 $1,042.95 $150 $892.95

3 $892.95 $88.40 $981.35 $150 $831.35

4 $831.35 $82.30 $913.66 $150 $763.66

5 $763.66 $75.60 $839.26 $150 $689.26

6 $689.26 $68.24 $757.50 $150 $607.50

7 $607.50 $60.14 $667.64 $150 $517.64

8 $517.64 $51.25 $568.88 $150 $418.88

9 $418.88 $41.47 $460.35 $150 $310.35

10 $310.35 $30.73 $341.08 $150 $191.08

11 $191.08 $18.92 $210.00 $150 $60.00

12 $60.00 $5.94 $65.93 $65.93 $0.00

Total Amounts Paid $715.93 $1,716

How long did it take you to pay off the loan?

How much did you pay in interest?
Between the 1st and 2nd month, how much of your
payment went to the principal? Between the 10th and 11th?
So what did it cost you? (think opportunity cost)
Answer the following questions regarding
this spreadsheet…answers
Month Principal Interest You Owe Your monthly payment Balance

1 $1,000 $99.00 $1,099.00 $150 $949.00

2 $949.00 $93.95 $1,042.95 $150 $892.95

3 $892.95 $88.40 $981.35 $150 $831.35

4 $831.35 $82.30 $913.66 $150 $763.66

5 $763.66 $75.60 $839.26 $150 $689.26

6 $689.26 $68.24 $757.50 $150 $607.50

7 $607.50 $60.14 $667.64 $150 $517.64

8 $517.64 $51.25 $568.88 $150 $418.88

9 $418.88 $41.47 $460.35 $150 $310.35

10 $310.35 $30.73 $341.08 $150 $191.08

11 $191.08 $18.92 $210.00 $150 $60.00

12 $60.00 $5.94 $65.93 $65.93 $0.00

Total Amounts Paid $715.93 $1,716

How long did it take you to pay off the loan? 12 months
How much did you pay in interest? $715.93
Between the 1st and 2nd month, how much of your payment went to the
principal? $51.00
Between the 10th and 11th? $119.27
So what did it cost you? (think opportunity cost)
 What will Credit Cost me?
You get a bank loan to buy a new
car for $15,000.00 at 9.9%
interest . You pay off the loan at
the end of 48 months or 4 years.
Principal=$15,000
Loan Term=48 months
Interest Rate=9.9%
Monthly Payments=$379.72
•Total amount paid=
$18,226.56
•Total Interest=$3,226.56
 Sometimes using credit is
unavoidable, sometimes you would
rather pay the interest to have the
good or service now.

Brainstorm:
How can you reduce the amount you pay in
interest, even if you cannot find a better
credit offer?
 Possible Answers
1. Make a down payment, or save part of the cost so you borrow less.
2. Make extra payments or add additional money to each month’s
payment.

Consider the TV Purchase. Look what happens Consider the Car Purchase. Look what happens when
when you add only an extra $10 a month. you add only an extra $20.28 a month.

Original payments $150mo for 12 months. Original Payments $379.72 for 48 months
Total interest= $715.93 Total Interest Paid=$3,226.50
Total cost=$1,716 Total Cost=$18,226.50

New payments $160mo for 11 months. New Payments $400.00 for 46 months
Total interest=$635.68 Total Interest Paid=$3,020.92
Total Cost=$1,636 Total Cost=$18,020.92
 There are different types of
interest!
Simple interest- interest paid based Which type of interest would
on the amount of money you
you like if you are borrowing
borrowed.
money?
Compound Interest- interest paid
based on the amount of money your Which type of interest would
borrowed plus the amount of
interest you still owe or have earned.
you like if you are saving
money?
Would you use credit to…
• Buy gas and food?
• Buy household appliances?
• Pay for college?
• Buy an Xbox?
• Buy something because it is on sale?
• Pay for a vacation?
• Buy something that would take you 3
months to save for?
Discuss as a class
So what should you use credit for?
There is no hard and fast answer to this questions.
But here are some helpful tips:
•Buying Durable Goods ensures that your purchase outlasts
your payment plan
•Emergencies
•Things you need/want now that are difficult to save up for
•Large Purchases like a house or a car
•If you need something but do not have the cash to buy it
•Things that will help you make money
(suit for an interview, college costs, capital goods etc)

As a general rule: Use it, don’t abuse it.

In your own words tell me…

What are the costs and benefits of using

credit? (answer with a minimum of 5 sentences
using at least 6 facts)
You made it to the Answer these Questions?
end of this lesson!! •How do interest rates impact people’s saving
Can you…. and spending choices?
•How should you personally use credit?
Define these Terms?
Content Terms •How can you maintain a good credit rating?
•Credit
•Character
•What should you look for when evaluating a
•Collateral credit offer?
•Capacity
•Simple interest
•Compound interest

Sample
•Annual Percentage Rate
•Credit Score
Academic Terms

Questions
•Asset
•Debt
•Default
 Try these Questions
1. Loans extended for longer periods
2. Eric received a $2,000 bonus from
of time often involve higher interest
his employer. He deposited the entire
rates in order to
amount in a one-year certificate of
A. compensate the lender for deposit with a simple interest rate of
greater risk 5%. When the CD matured, how much
B. compensate the buyer for interest had Eric earned?
using savings to make a A. $10
purchase
B. $20
C. encourage consumers to buy
C. $50
durable goods for extended
periods of time D. $100
D. encourage savings
 Tom’s Credit Report
Tom makes all of his payments on time
Tom still owes $2, 500 on his car
Tom has 4 credit cards
All of Tom’s credit cards have large balances
Tom’s salary is $80,000 a year

4. Tom’s recent credit application was rejected.  Based on

his credit report, what is the MOST LIKELY reason his
application was declined?
A      he still owes money for his car.
B      he only makes $80,000 a year.
Use the information to answer the following question. C      his payment history is questionable
Gloria recently graduated from college and has accepted a job as an D      he has large balances on his credit cards
accountant at a firm located in an Atlanta suburb. A summary of Gloria’s
financial situation for a single month is shown below. After considerable
thought, Gloria decided to purchase a new refrigerator on an installment
credit plan. Under the conditions of the installment loan, Gloria will repay the
loan in twelve monthly payments of $150 each, starting in May.

3. Which of the following statements BEST describes Gloria’s current financial

situation?
A Gloria can afford to make the additional $150 monthly payments without
changing her current income or expenses.
B Gloria’s variable expenses will increase by $150 per month over the next
twelve months.
C Gloria will have to increase her income or reduce her flexible expenses in
order to pay all of her bills in May.
D Gloria’s income and current expenses do not allow her to purchase the
refrigerator at this time.
 Check your answers
1. A (this is a question from the released EOCT)
2. D (this is a question from the released EOCT)
3. C (this is a question from the released EOCT)
4. D
Additional Resources
You can get 1 free credit report each year
from these 3 credit bureaus.
•Experian
– http://www.experian.com/
•TransUnion
– http://www.transunion.com/
•Equifax
– http://www.equifax.com/home/en_us
Additional Resources
• Economics GPS Frameworks: Unit 6- “Let’s make It Personal”
– https://www.georgiastandards.org/Frameworks/GSO
%20Frameworks/Economics%20Unit%206.pdf
• Georgia Department of Education’s Economics/Business/Free Enterprise
EOC Assessment Guide
– http://www.gadoe.org/Curriculum-Instruction-and-Assessment/
Assessment/Documents/Milestones/Assessment%20Guides/GM
%20Economics%20EOC%20Assessment%20Guide%20081715.pdf
• Georgia Department of Education Released EOCT’s and answer keys
– http://www.doe.k12.ga.us/Curriculum-Instruction-and-
Assessment/Assessment/Pages/EOCT-Released-Tests.aspx