Linn Area Credit Union

PLUG IN TO HOW IT WILL AFFECT YOUR FUTURE

Credit is a word that is used a lot but can be kind of tricky to understand. Without knowing how important it can be, your spending habits now can make your life pretty miserable many years from now. Here’s a quick overview to make it possible for you to get loans for things like cars and houses sometime down the road…

Read the following info, complete the quizlet at the end and get a free gift when you apply for your first car loan at Linn Area Credit Union.

What is credit?

When someone gives you credit it means they are willing to loan you money in exchange for your promise to pay it back with interest. Interest is the amount you pay to use someone else’s money. The higher the interest rate, the more it will cost you to borrow money.

See what other places offer for interest rates

Compare the interest rate and any fees that are charged at several different lenders before you get a loan or credit card. All interest rates are quoted as an Annual Percentage Rate (APR). The APR is a good way to compare the amount it costs you in a year to use credit. If you’re considering buying a car (or anything else), let Linn Area Credit Union help with the loan for it - you’ll get a good interest rate. And we’ll work the payments around what you can afford.

How much does a higher rate cost me?

Let’s compare two loans for the same amount, but with different interest rates:

Amount Borrowed	Interest Rate	Total Amount Paid with Interest Over 5 Years
$1000	9% APR	$1,246
$1000	12% APR	$1,334

You would pay about $88 more to borrow $1,000 for five years at 12% APR. Doesn’t sound like much, but remember that’s only $1,000 – a $10,000 car loan would be 10 times higher. On $10,000 you’d pay about $888 more in five years. So make sure you borrow where you can get a low interest rate.

How long you have your loan makes a difference

Another key bit of info is the loan term, or how long the loan lasts. The longer the loan term, the more interest you’ll pay over that time. Car loans, for instance, are usually made in 3, 4, 5, 6 or even 7 year terms. The shorter the term, the less interest you’ll pay – but your payment will be higher too – because you’re paying for the whole amount of the car in fewer payments.

Credit affects everybody

Almost everyone takes out loans to get something now (like a car) and pay for it over time. Of course, it would be better if you could just pay cash for everything you need, but unless you’re a multi-millionaire, that’s usually not the way it works. For most of us, credit is the only way we can afford expensive things like cars and homes.

Building a good credit rating is important

Lenders use a credit report to help decide if you’re responsible enough to pay back a loan before they grant you a loan. Your credit report shows all credit cards, loans and charge cards you have ever had, and if you pay your bills on time (or not at all). It even has information about your employment and bank accounts. It shows your credit history for the past 7 to 10 years.

These credit reports also come with your credit score. This is a number used to rate how good your credit is. The higher the score, the better your credit rating. It’s a fact… if you have a good credit rating it will be easier for you to get a loan and borrow at lower interest rates than someone who has a bad credit rating.

If you ever slip up and don’t make some payments on time (for a loan, credit card, electricity bill, etc.), this will make your credit rating go down. Some of these can make it go down pretty far and it will take a LONG time for it to ever go up again. Plus, failing to make payments on time will show up on your credit report for years. How you handle your finances today will have a big impact on your finances in the future.

How to build a good credit rating

If you want to be able to get loans to buy things you need at low interest rates, it’s important to build a good credit rating. But how do you do that? It’s really quite simple:

Always make your loan payments on time!!!!! (This is really important!)
Keep some money in savings to make your loan payment(s) in case you lose your job or have some other big expenses come up.
Don’t borrow more than you can afford to pay back.
Use credit responsibly… consider whether the things you want to buy are “wants” or “needs” and only charge them to your credit card if you can afford to pay them back.
Pay off debts as quickly as you can. You can make bigger loan payments than required and save money on interest. Paying a loan off early looks good on your credit report!
If you have a checking account, handle it responsibly and don’t “bounce” checks.
Start out small using credit. Get a credit card and charge some purchases each month. Then pay the entire balance on the statement before the due date. Or get a car loan and make every payment on time.
If you aren’t going to be able to make your loan payment on time, contact the credit union right away. Sometimes we can make arrangements to help you.

Follow the tips above and you’ll be well on your way to proving that you are a responsible person who takes repaying their debts seriously. That’s the key to building a good credit rating.

CREDIT QUIZLET

First Name:
Last Name:
Date of Birth:	MM/DD/YYYY

1. The loan term is:
The amount of interest charged on a loan.
The length of time a loan is scheduled to be paid within.
The first year of a loan.
Usually 3, 4, or 5 years.

2. A higher interest rate on a loan will:
Look better on your credit report.
Help you pay the loan off faster.
Cost you more money in interest.
All of the above.

3. A Co-Signer is:
Usually a parent or other relative.
A person who agrees to make your loan payments if you can't or won't.
Someone who is contacted if you are late making a payment and they're co-signed on the loan.
All of the above.

4. If you have a good credit rating, it will be easier for you to get low rate credit:
True
False

5. Which of the following will help you build a good credit rating:
Making your loan payments on time.
Not borrowing more than you can afford to pay back.
Paying off debts as quickly as possible.
All of the above

6. Credit can be a good thing:
True
False

7. APR stands for:
Average percentage rate
Annual percentage rate
Average percentile recommendation
Annual personnel report