COMMERCE 4FP3 Lecture Notes - Lecture 5: Credit Bureau, Phishing, Credit History
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15 Jul 2018
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Chapters 5-6: Credit
Goals:
- Provide background on credit
- Describe the roles of credit bureaus
- Describe the characteristics of credit products
- Explain how to manage debt
Choosing a source of credit:
- Credit: is money granted by a creditor or a lender to borrow for a future repayment
- Obtaining and using credit wisely is key
- Credit allows individuals to make large purchases (ex. Home, car, education) when they
do not have sufficient cash immediately available
- Credit can have a high cost and borrowing too much can cause future problems
Types of Credit:
- Installment Credit
- Revolving/Open Credit
- Loans
- Closed Credit
Consumer Credit:
- Has doubled in the last decade
- With credit, the borrowing is renting the money for a fee
- Fees include repayment fees and interest
Consumer Loans:
- A loan is provided for a specific purchase with interest charged on the amount borrowed
- (Ex. car loan)
- Blended payments: repaying on a regular basis, encompasses a portion towards interest
and a portion towards principle
- Revolving credit: credit provided up to a specified amount, based on income, debt level,
and credit history. Interest is charged each month, only on the outstanding balance
- (ex. Credit card)
- Can pay off at any time, usually a minimum payment required each month
Advantages of Using Credit:
- Establishing a good credit history (credit score), increasing capacity to get credit in the
future, eliminates the need to carry cash like with online shopping, you can also get travel
points, insurance etc.
Disadvantage of Using Credit:
- Often leads to spending beyond their means, impulse purchases and you don’t feel the
financial burden
- You can damage your credit rating by not making the minimum payments
- Large credit payments hinders your ability to save
Credit History:
- This represents the history you have with credit such as credit cards, line of payment,
personal loans and leases
- A favourable creditable rating is achieved by paying your monthly payments regularly
Credit Insurance:
- You can insure your credit card balance under certain circumstances: accidents, sickness
and unemployment
- The payment period is limited to a short term, usually three months
Credit Bureaus:
- Provide reports that document a person credit history within a specific country
- The primary credit bureau in Canada is Equifax
- Your credit report contains:
- Your personal information
- Consumer statement
- Summary of your accounts