Please enable JavaScript.
Coggle requires JavaScript to display documents.
CHAPTER 4: CONSUMER CREDIT - Coggle Diagram
CHAPTER 4: CONSUMER CREDIT
What is Consumer Credit?
Credit is an arrangement to receive cash, goods or services now, and pay for them in the future.
Consumer credit is the use of credit for personal needs, except a home mortgage, by individuals and families.
Three ways consumers can finance purchases:
Draw on their savings
Use present earnings
Borrow against expected future income
Trade-offs with each alternative
Consumer credit:
Major economic force
USE AND MISUSES OF CREDIT: Ask yourself before use credit
Do I have the cash for the down payment?
Do I want to use my savings for this purchase?
Does this purchase fit my budget?
Could I use the credit I’ll need in some better way?
Can I postpone this purchase?
What are the opportunity costs of postponing this purchase?
What are the dollar and psychological costs of using credit for this purchase?
ADVANTAGES OF CREDIT
Current use of goods and services
Safer than cash
One monthly paymnet
Advance notice of sales
Easier to return merchandise
Convenient when shopping
DISADVANTAGES OF CREDIT
Temptation to overspend
Failure to repay loan may lead to loss of income
It does not increase total purchasing power
Credit costs money
Types of Credit
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, and installment loans for furniture, appliances and electronics
Open-End Credit
Use as needed until reaching
line of credit
max
Credit cards, departments store cards, bank credit cards, incidental credit
You pay interest and finance charges if you do not pay the bill in full when due
PROTECTING YOURSELF AGAINST DEBIT/CREDIT CARD FRAUD
Sign new cards when they arrive
Treat cards like money - keep them secure
Shred anything with your account number on it
Don’t give your number over the phone unless you initiate the call, and don’t put it on postcards
Get card & receipt after every transaction: compare receipts to bills when they arrive, checking for errors
Notify the card issuer if you don’t get your billing statement, or if your card is lost or stolen
Check credit report
When You Make Purchases Online
Use a secure browser
Keep records of online transactions
Review monthly statements-can do so online
Read policies of the websites you visit concerning refunds, site security, and privacy
Keep personal information private unless you know who is gathering it and why
Shop at businesses you know and trust
Never give out your password to anyone online
Don’t download files sent by strangers
TRAVEL AND ENTERTAINMENT CARDS
These cards are not really credit cards
Monthly balance is due in full
American Express recently started issuing credit cards
HOME EQUITY LOANS
like borrowing money against the value of your house.
Down payment and monthly instalments- you slowly build something called "home equity" the part of the house that you truly own
Lets you borrow money using that owned portion as collateral.
You get a lump sum of cash, and then you repay it in fixed monthly payments (just like a personal loan or mortgage)
Measuring Your Credit Capacity
Debt Payments-to-Income Ratio
monthly payments*
net monthly income
:!!: Consumer credit payments should not exceed a max of 20% of your net income
*Not including house payment which is a long-term liability
Debt To Equity Ratio
Total Liabilities / net worth = Shoul be < 1
*Excluding home value
BUILDING AND MAINTAINING YOUR CREDIT RATING
Limit your borrowing to your capacity to repay
Live up to the terms of contracts
Check to see what is in your credit report
CREDIT BUREAUS
Credit bureaus collect information
Bureaus get information from banks, finance companies, credit card companies, merchants, other creditors
Central Credit Reference Information System (CCRIS)
Functions of CCRIS
Helps banks assess your creditworthiness when you apply for a loan or credit card.
Provides lenders a snapshot of your financial commitments.
Promotes responsible lending and helps prevent over-borrowing.
Enables you to check your own credit standing through platforms like eCCRIS (online portal).
Who Contributes Data to CCRIS?
Banks (Maybank, CIMB, etc.)
Development financial institutions
Insurance companies (for credit-related info)
Credit leasing companies
Applying for Credit
What Creditors Look For: 5 Cs
Character -
Do you pay bills on time? :check:
Capacity -
Can you repay the loan? :check:
Capital -
What are your assets and net worth? :check:
Collateral -
What property do you have to pledge that the lender can repossess if you default on the loan? :check:
Conditions -
What economic conditions could affect your ability to repay the loan? :check:
Avoiding and Correcting Credit Mistakes
To Avoid Mistakes:
Pay bills and loans on time
Don’t max out your credit cards
Limit loan applications – too many can hurt your score
Review your credit report regularly
Keep old credit accounts active (if managed well)
To Correct Mistakes
Get your credit report from CTOS, Experian, or Credit Bureau Malaysia
Check for errors
Submit a dispute to the credit agency (with supporting documents)
Wait for investigation – they must respond within 21 days
Confirm correction – make sure your report is updated
Pay bills and loans on time
What if Your Identity is Stolen?
Contact the fraud department of each of the three major credit bureaus
Contact creditors to check for accounts that have been tampered with or opened fraudulently.
File a police report and keep a copy in case your creditors need proof of the crime.
Complaining About Consumer Credit
First try to solve the problem directly with the creditor :warning:
If that does not work there are more formal complaint procedures :warning:
There are a variety of consumer credit protection laws and federal agencies who administer and assist with complaint procedures :warning:
Laws That Protect You in Consumer Credit Complaints (Malaysia)
Credit Reporting Agencies Act 2010 (CRAA 2010)
Consumer Protection Act 1999
Financial Services Act 2013 (FSA)
Islamic Financial Services Act 2013 (IFSA)
Credit Tip-Off Service (CTOS)
CTOS is a private credit reporting agency in Malaysia, registered under the Credit Reporting Agencies Act 2010 (CRAA 2010).
It collects and compiles credit information to help lenders assess your creditworthiness
Functions of CTOS -Compiles your credit report, including:
Outstanding debts
Late payments
Legal cases (e.g., bankruptcies, court summons)
Business ownership (SSM data)
Directorship records