Credit Basics

_____ is when you get money, goods, or services in exchange for your promise to pay in the future - usually with interest added.

Which of these are sources of credit:

• Banks and Savings and Loans and Mortgage Companies

• Savings Accounts

• Credit card companies

• Debit Cards

• Car dealerships

Which of these are sources of alternative credit:

• Pawn Shops

• Rent to Own

• Credit card companies

• Title Loans

• Payday Loans

When you borrow, you are spending future ______.

• Income

• Expenses

• Liabilities

• Assets

Before borrowing, you should ask yourself all of these EXCEPT :

• Is the thing I am borrowing for a need or a want?

• Is it possible to wait and buy it without needing to borrow money?

• How much more (more than the purchase price) will it cost me to borrow money instead of waiting?

• What impact will borrowing have on my credit score?

• Will it impress people when they see me with this thing that I bought with borrowed money?

Before borrowing, you should ask yourself all of these EXCEPT :

• If I borrow money for this, what other thing(s) will I not be able to borrow money for?

• Will I struggle to make the payments on the loan?

• If I can't afford to pay cash now, what makes me think I can pay the price, plus interest?

• Will borrowing money for this help me save money (e.g. mortgage v. rent)?

• Will it impress people when they see me with this thing that I bought with borrowed money?

True or False. Failing to manage your credit can decrease your future quality of life and financial well-being.

• True

• False

True or False. Using credit is always a bad idea.

• True

• False

Answer explanation

When used responsibly, credit can be an effective financial tool.

True or False. A loan is a legal contract.

• True

• False

True or False. The legal documents that you "sign" when borrowing money are written to be fair to lenders and borrowers.

• True

• False

Answer explanation

The legal documents that you "sign" when borrowing money are written by the lenders' attorneys to advantage them and disadvantage you.