mod9top1_app_creditfile.docx

Rania Lahbibi Module: Consumer Credit Basics, Topic Application: You are in “Charge” Credit File 1. List of big dreams you'd like to buy that would require borrowing money. ● Start My Own Clothing Business ● Purchase my First Car 2. Which item are you considering financing? a. I would consider financing my dream of creating my own clothing business because this would require borrowing more money than my other dream. 3. Approximately how much will the item cost? Come up with a definition for credit. a. Starting my own “brick-and-mortar” clothing business would approximately cost $50,000. A definition for credit would be the act of borrowing money to access goods and services but paying them back over a certain period of time. 4. Then, explain how credit is rated and at least two ways to build and maintain a good credit rating so you will be approved for the loan. a. Credit is rated by the payment history of an individual and indicates to lenders if you are at low risk or high risk. Two ways to build and maintain a good credit rating would be paying your bills on time or earlier, and limiting the number of credit cards you own. These two ways would help you and the lender recognize you as low risk and be able to get loans approved. 5. How long will it take to pay off the money you borrow at 6.0% per year? (Use the calculators at Creditkarma.com or Bankrate.com for help.) a. If the length of the loan is 48 months, then I will have to pay $1,174.00/per month to pay off my loan. 6. How much will you end up paying in interest charges? a. I will end up paying $6,364.07 in interest charges. Pros Cons Capital Investment Being in Debt for a long period of time. Business Growth Potential High number of interest charges. Building Credit History Limited Flexibility in Spending Potential for High Cash Flow 7. Explain your reasoning for why you would or wouldn't borrow money to purchase the item. If you would borrow money, what would be the best way to finance the purchase (unsecured loan, finance company, etc.)? a. I think I would borrow money because I am putting towards something that could gain sufficient amounts of cash flow and revenue, thus allowing me to pay back the loan. I think that the best way to finance the purchase would be getting a loan from a finance company because it would be legally entitled than an unsecured loan.