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CHAPTER 4: CONSUMER CREDIT (PART 1) - Coggle Diagram
CHAPTER 4: CONSUMER CREDIT (PART 1)
DEFINITION:
arrangement to receive cash, goods or services now & pay for them in the future the use of credit for personal needs, except a home mortgage, by individuals and families
ADVANTAGES
Needed for hotel, car reservations and shopping online
May get rebates, airline miles, or other bonuses
Safer than cash
use of goods and services
A cushion for financial emergencies
DISADVANTAGES
Failure to repay loan may lead to loss of income
Does not increase total purchasing power
Temptation to overspend
Credit costs money
TYPES OF CREDIT
Credit Cards
Convenience Users
= pay balances in full each month
Borrowers
:, carrying a balance over, paying finance charges
Co-branding
is linking a credit card with a business offering rebates on products and services
Smart cards
have an imbedded computer chip
Debit cards
: similar impact as writing a check
Home Equity Loans
Borrowing money against the value of your house.
You get a lump sum of cash, and then you repay it in fixed monthly payments (just like a personal loan or mortgage).
Open-End Credit
Use as needed until reaching line of credit max & You pay interest and finance charges if you do not pay the bill in full when due
Credit cards, departments store cards, bank credit cards, incidental credit
Travel & Entertainment Cards
Must pay in full monthly
Closed-End Credit
One-time loans for a specific purpose that you pay back in a specified period of time, and in payments of equal amounts
Mortgage, automobile, & installment loans for furniture, appliances and electronics
Applying for Credit
Creditors Look For:
Character - Do you pay bills on time?
Capacity - Can you repay the loan?
Capital - What are your assets and net worth?
Collateral - What property do you have to pledge that the lender can repossess if you default on the loan?
Conditions - What economic conditions could affect your ability to repay the loan?
Avoiding and Correcting Credit Mistakes
Avoid → Pay on time, limit borrowing, review report
Correct → Check report (CTOS/Experian), dispute errors, update info
Identity theft → Report to bureaus + police
Complaints & Consumer Protection (Malaysia)
Credit Reporting Agencies Act 2010 (CRAA 2010) → Credit reporting rights
Consumer Protection Act 1999 → Fair loans, complaint tribunals
Financial Services Act 2013 (FSA 2013) → Regulates banks & lending practices
Islamic Financial Services Act 2013 (IFSA 2013) → Same for Islamic institutions
Central Credit Reference Information System
Central Credit Reference Information System (CCRIS)
managed by Bank Negara Malaysia (BNM).
Show
Total loans and outstanding balances
Monthly repayment records (up to 12 months)
Monthly repayment records (up to 12 months)
Legal actions (if any) related to unpaid debts
Credit Tip-Off Service (CTOS)
private credit reporting agency
Functions
Compiles your credit report, including
Directorship records
Business ownership (SSM data)
Legal cases (e.g., bankruptcies, court summons)
Provides credit scores (typically 300 to 850) - higher score = better credit risk
Differences between CCRIS and CTOS
CCRIS = factual loan data, CTOS = credit score + legal/business info
MEASURING YOUR CREDIT CAPACITY
Credit Bureues & Report
Credit Reporting Agencies Act 2010 (CRAA 2010)
- accuracy, fairness, privacy
✅ Right to data privacy (with your consent)
✅ Right to be notified when your data is used
✅ Right to correct wrong info
✅ Right to view your credit report
collect info from banks/companies
Building & Maintaining Your Credit Rating
Check to see what is in your credit report
Live up to the terms of contracts
Limit your borrowing to your capacity to repay
Debt Payments-to-Income Ratio
monthly payments
(Not including house payment which is a long-term liability)
/ net monthly income
Consumer credit payments should not exceed a max of 20% of your net income
Debt To Equity Ratio
Total liabilities
/
Net Worth
(exclude home value) =
Should be < 1
Co-signing Risk
You are promising to pay the loan if the borrower doesn’t. If they don’t pay,
you must cover the full amount + extra fees
. The bank can come straight to you for payment, without chasing the borrower first.