Credit Overview by Mr. Billingslea

Background Checks for Employment

• Major companies conduct background checks on applicants, including criminal history, drug screening, education verification, and credit history.

Understanding Credit Scores

• A credit score, ranging from 300 to 850, quantifies an individual's creditworthiness using an algorithm from credit reporting agencies.
• Lenders rely on credit scores to assess loan eligibility, determine interest rates, and set credit limits.

Impact of Credit Reports on Employment

• Approximately 20% of Americans may miss job opportunities due to negative information in their credit reports.

Major Credit Reporting Agencies

• The primary agencies that issue credit reports are Equifax, TransUnion, Experian, and Credit Karma.

Concept of Capital

• Capital refers to currency, the accepted medium of exchange in a society, with the U.S. dollar being the currency of the United States.

Three C's of Credit

• The evaluation of creditworthiness involves Character (moral qualities), Capacity (ability to repay), and Capital (financial resources).

Definition of Capacity

• Capacity assesses an individual's ability to repay debt, influenced by factors like income and existing financial obligations.

Importance of Character

• Character indicates moral qualities, with a person’s credit score reflecting reliability from a creditor's perspective.

Definition of Collateral

• Collateral serves as security for loans, which can be forfeited if repayment is not made. Examples include property, vehicles, and savings accounts.

Purpose of Credit Cards

• Banks issue credit cards primarily to generate profit through interest and fees associated with card usage.

Understanding Interest

• Interest represents the cost of borrowing money, calculated as a percentage of the loan amount.

Advantages of Credit

• Benefits include increased purchasing power, the opportunity to earn rewards, and the convenience of cashless transactions.

Disadvantages of Credit

• Downsides include higher overall purchase costs, the temptation for impulsive spending, and the risk of financial over-extension.

Building Credit History

• Engaging in responsible credit behavior, such as making timely payments, can help establish and improve credit history.

Installment Loans

• An installment loan requires regular, scheduled payments, typically monthly, and includes closed-end loans like mortgages and auto loans, which have a fixed repayment period.

This quiz covers essential concepts related to credit, including the importance of background checks during the hiring process and the role of credit scores in assessing creditworthiness. Gain insight into how credit reporting agencies measure financial reliability and the implications for loan qualification.