What Are the Advantages and Disadvantages of Credit - Financial Literacy - أول ثانوي

5.2 What Are the Advantages and Disadvantages of Credit? Learning Objective Once you have completed this lesson, you should be able to: ⚫ identify the advantages and disadvantages of credit. Key Terms Credit score Fee ssonدا لها أي بل Link to www.lem.edu.sa Credit Score It is important to have a good credit score when applying for credit. An example of a credit agency that holds credit reports in Saudi Arabia is the Saudi Credit Bureau (SIMAH). The better your credit score: ⚫the lower the credit fees ⚫the wider the range of financial products you will be able to access ⚫ the more likely you are to be accepted for a financial product. Credit Score a tool used by lenders to help determine whether you qualify for a particular credit card, loan. mortgage, or service Advantages and Disadvantages of Credit People use credit for a variety of reasons. Credit provides many benefits when used wisely. However, many people get into trouble each year by not using credit carefully. As with many things in life, there are both advantages and disadvan- tages to using credit. When making a purchase, be sure the advantages of using credit outweigh the disadvantages. وزارة التعليم 123-1465 CHAPTERS Managing Credit 155

How can you build a good creditsture? CREDIT SCORE Excellent! دارة التعليم 1565

Advantages of Credit Credit is important because it offers many advantages. 1. Increased Purchasing Power Credit can greatly expand your purchasing power and raise your stand- ard of living. ⚫ Most people cannot purchase expensive items, such as a car or a house, simply by saving money and paying cash. Credit allows you to purchase these items and pay for them over time. As a result, you can enjoy these items now instead of later. 2. Security Using a credit card is safer than carrying cash with you. If you lose cash, there is no way to replace it. If you lose a credit card, you can simply call the bank or institu- tion and report your lost or stolen card. When you report a lost or stolen card, the bank or institution will freeze your card; you will not be held responsible for charges you did not make (within certain limits). 3. Convenience Credit is convenient. Most businesses now accept credit cards. Many accounts on which you make regular payments, such as monthly subscriptions, can be set up to be billed automatically to a credit card. Consumers can also use credit cards to get a cash advance, which is money borrowed against the credit card; this can be useful when purchasing foreign currency. وزارة التعليم 2071-1445 CHAPTERS Managing Credit 157

Should you use edit for all of your purchases to maximize the potential advantages? 4. Leverage When using credit, consumers have more leverage than they do when using cash or other methods of purchase. With credit, you can withhold payment for disputed items while the dispute is being investigated. However, with a Mada card, check, or cash, money has already been paid for the purchase; this can make it more difficult to settle a dispute and get a refund. 5. Benefits Credit customers often get special benefits. ⚫ Credit card holders might, for example, receive advance notice of sales and special offers from partner organizations, which the general public does not receive. Credit cards may have incentive programs for their customers, for example, some credit cards have a rewards program through which you earn: -points ⚫ cash back ⚫ airline miles other special awards. These rewards can be redeemed at a later date and used to purchase an unexpected item or treat that has not been budgeted for. درارة التعليم 158 Financial Literacy 45397885 6644 ११११ 1.08/te 08/24

Disadvantages of Credit Although credit has several advantages, it also has disadvantages. 1. Fees An item purchased on credit and paid for over time costs more because of the lee. ⚫ For example, a fee of 18% per year, is equivalent to 1,5% per month. This means that, on a SAR 1,000 balance, the fee would be SAR 15 per month. ⚫ The larger your balance and the longer you take to pay it off, the greater the fee. 2. Reduction of Future Buying Power When credit is used, future income is tied up by committing to make payments. Part of everything you earn in the future will go toward what you bought in the past. This can result in money being unavailable when you need to purchase other products. 3. Overspending Buying on credit can lead to overspending. ⚫ Because no cash leaves your bank account, you may not realize how much you are really spending. Using too much credit can result in debts so high that you can never pay them off. Failure to fulfill financial agreements will result in a poor credit score. 4. Identity Theft Having a credit card means that you run the risk of your account information being stolen. This might result in someone else making TH a margin above the costs that allows the borrower to repay in instalments وزارة التعليم 2071-1445 CHAPTER Managing Credit 159

وزارة التعليم 160 Financial Literacy purchases on your credit card without your knowledge, leaving you with a poor credit score and the inability to access future credit facil- ities. LOOKING ANEAD How can you ensure that you use credit responsibly in the future? To help you structure your thoughts, consider: . What regular service credit will you use? How will you manage your credit facilities? How will you keep a record of the credit used at any one time? Review Questions Choose the correct answer. 1. Credit scores are NOT important when applying for financial products. a. true b. false 2. Which of the following is NOT an advantage of credit? a. security b. reduction in future buying power c. convenience d. special benefits 3. Which of the following statements is NOT related to overspending? a. you may not realize how much you are really spending b. It can result in debts so high that you can never pay them off c. you can easily manage the minimum payments d. it can result in poor credit scores 4. It is important to use credit responsibly. a. true b. false 5. Identity theft can negatively aflect your credit score. a. true b. false