Business and Personal Finance © 2007

Chapter 6: Consumer Credit

Chapter Summaries

• Consumer credit is the use of credit for personal needs. Credit is an arrangement to receive cash, goods, or services now and to pay for them later.
• Closed-end credit is credit as a one-time loan that you pay back over a specified period of time in payments of equal amounts. Open-end credit is credit as a loan with a limit on the amount of money that you borrow for goods and services.
• The five C's of credit include character, capacity, capital, collateral, and credit history. Creditors use the five C's to determine who will receive credit.
• When choosing a loan or credit card, consider factors such as length of the loan, amount of monthly payments, and interest rate.
• To build and protect good credit, pay your bills and loans promptly and manage your personal finances carefully. Also, correct mistakes related to your credit bills and credit reports. Dispute billing errors in writing and pay amounts that are not in question.
• If your credit or identity has been stolen, contact all your credit card companies; close and open new bank accounts; and change all PINs. Notify law enforcement agencies and credit bureaus. If purchasing online, never share your PINs, Social Security numbers, or passwords.
• Manage debt problems by contacting creditors and/or debt counseling services. Bankruptcy is a last resort.