Book Opener

What Is Credit?l How to distinguishbetween the differenttypes of creditl How to explain theTruth and Lending Actl How to describesecured loansl How to guard againstcredit card problemsKnowing the laws thatapply and the difficultiesthat can arise in usingcredit will help you avoidproblems in your personalfinances.l creditl interestl creditorl debtorl open-end creditl line of creditl closed-end creditl secured loanl collaterall security interestl secured partyl repossessl smart cardThe Meaning of CreditCredit is an arrangement through which you may receive cash,goods, or services now and pay for them in the future. The cost of usingsomeone else’s money is called interest . The party who sells the goodson credit or lends the money is called the creditor , and the party whobuys the goods on credit or borrows the money is called the debtor .Types of CreditThere are different kinds of credit that you can use. The two mainkinds are open-end credit and closed-end credit.Open-End CreditOpen-end credit is credit that can be increased by the debtor bycontinuing to purchase goods or services on credit, up to a certain limit.You are given a line of credit , or a maximum amount of money madeavailable to you. Charge accounts and credit cards are examples of openendcredit. Your first bank credit card, for example, may have a creditlimit of $2,000. You can buy whatever you want until the total of yourpurchases reaches that level.Closed-End CreditClosed-end credit is credit given for a specific amount of moneyand cannot be increased by making additional purchases. Buying aLOOK BEFOREYOU LEAPBefore taking out aloan, you should sitdown and figure outyour finances. Whatis perhaps the mostimportant point youshould consider?484 Unit 5: Using Your Purchasing Power