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Chapter 6 - Borrowing on open account.docx

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McMaster University
Tony Belsito

Financial PlanningBorrowing on Open AccountChapter Why do people borrowTo pay cash for large expendituresTo meet a financial emergencyFor convenienceFor investment purposes Improper uses of credit Overspending and carrying on balances by just paying the minimum monthly paymentDONT spend on basic living expenses impulse purchases especially expensive ones nondurableshortlived goods and services Establish a CreditEstablish a stable longterm relationship with a financial institutionOpen checking and savings accounts Use creditGet one card and make small purchases Use the card periodicallyObtain a small loanMake regular payments and retire the loan in accordance with the loan agreementBuild a strong credit historyNot getting overextended Fulfilling all terms of credit obligationsConsistently paying on timeImmediately notifying creditors if unable to payBeing truthful when applying The Cs of CreditLenders often look for these to assess the willingness and ability of a borrower to repay a loan1 Character 2 Capacity 3 Collateral4 Capital 5 ConditionHow much credit can you stand Total monthly consumer credit paymentsMonthly takehome pay Monthly consumer credit payments excluding mortgage should not exceedof your monthly net income Special Credit Programs for WomenConsistently use your own legal name to build credit historyEx Mary Brown not Mrs John Brown Have information reported to credit bureau in your name as well as your husbands Consider retaining separate credit file when you marry Types of Open Account Credit Bank Credit CardsOther Credit Cards and Charge AccountsDebit CardsPrepaid CardsRevolving Credit Lines Open Account CreditCredit extended to a consumer in advance of any transactionConsumer can buyborrow up to a specified amount the credit limitUsually interest can be avoided by paying balance in full
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