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Elements and Performance Criteria

  1. Identify and discuss the role of credit in society
  2. Identify and discuss the range of credit options available
  3. Identify and discuss costs of using credit
  4. Analyse and discuss the effective use of consumer credit
  5. Manage personal credit rating and history

Required Skills

This unit covers the knowledge and skills required to understand the functions and implications of different forms of credit and the strategies and methods to make appropriate and effective decisions regarding the management of personal debt and the use of credit facilities

This is a new unit designed to enhance consumer financial literacy

This unit has wide application and may be used in workplaces schools adult amp community learning organisations or registered training organisations in order to build the financial literacy of learners The unit may also be used as part of prevocational or new apprenticeship programs or as part of services provided by counselling or advisory organisations

Unit Sector

No sector assigned

ELEMENT

PERFORMANCE CRITERIA

Identify and discuss the role of credit in society

The concepts and terminology of credit provided by a financial institute and debt incurred by a borrower are analysed and discussed

The historical and current role of consumer credit within Australian society is identified and advantages and disadvantages of credit use are analysed and discussed

The impact of consumer debt on the national economy is analysed and discussed

Identify and discuss the range of credit options available

Types of credit facilities used by businesses are analysed and compared

Types of credit facilities used by individuals are analysed and compared

Differences between unsecured and secured loans are analysed and discussed

Implications of default on secured loans are explained to the client

Identify and discuss costs of using credit

Fees and costs associated with different types of credit options are analysed and discussed

The features and associated risks of fixed versus variable interest rates are analysed and compared

Ways to compare advertised interest rates and the effects of fees and charges are analysed and discussed

Analyse and discuss the effective use of consumer credit

Ways to avoid excessive or unmanageable debt are analysed and discussed

Strategies to minimise fees on credit are identified and discussed

The importance of meeting minimum payments on credit cards is analysed and discussed

Ways to avoid credit card fraud are identified analysed and discussed

Manage personal credit rating and history

The role of credit reference agenciesis analysed and discussed

The purpose and use of credit reference reports in assessing loan applications is analysed and discussed

Implications of establishing a poor credit history are analysed and discussed

The right to access and methods of obtaining own credit reference report are analysed and discussed

This describes the essential skills and knowledge and their level required for this unit

Knowledge requirements include

principles of lendingcredit

role of credit in society

understanding of the financial institutions regulatory bodies credit reference agencies and consumer advisory bodies that are involved in the provision and management of credit

Skills requirements include

communication skills including active listening and the ability to provide explanations of complex concepts in plain language

numerical and mathematical skills are relevant to calculations of interest and loan repayments

Evidence Required

Assessment of performance requirements in the unit should be undertaken in an industry context The Evidence Guide identifies the critical aspects knowledge and skills to be demonstrated to confirm competency for the unit Competency is demonstrated by performance of all stated criteria including the Range of Variables applicable to the workplace

Overview of assessment requirements

To achieve competency in this unit a person must be able to demonstrate the following

ability to analyse and clearly explain the role of credit within the community

ability to analyse and clearly explain the different types of consumer credit options currently available

ability to analyse and clearly explain the associated implications and risks of the various credit schemes available as well as the implication of establishing a poor credit reference history

Evidence required for demonstration of consistent performance

Competence in this unit must be assessed over a period of time in order to ensure consistency of performance over the Range of Variables and contexts applicable to the work environment

Deliveryassessment relationship to other units

This unit may be assessed on its own or it may be assessed with other units that cover related skills and knowledge

Evidence is most relevant when provided through an integrated activity which combines the elements of competency for the unit or a cluster of units of competency

Method of assessment

For valid and reliable assessment of this unit evidence should be gathered through a range of methods to indicate consistent performance

Assessment of this unit of competence will usually include observation of processes and procedures oral andor written questioning on underpinning knowledge and skills and other methods as required

Context of assessment

This unit may be assessed in a formal learning environment onthejob or within the environment of a related service provider such as counselling or advisory services

Resources required for assessment

Assessment of this unit of competence requires access to information about current and historic interest rates information about a wide range of credit products software and other resources relevant to the unit of competency

Range Statement

The Range Statement relates to the unit of competency as a whole. It allows for different work environments and situations that will affect performance.

The following variables may be present with training and assessment depending on the work situation, needs of the candidate, accessibility of the item, and local industry and regional contexts. If bold italicised text is shown in Performance Criteria, details of the text are provided in the Range Statement.

The role of consumer credit includes:

• enabling approved applicants the ability to purchase items (goods and/or services) where the cost of the item exceeds current savings available

Advantages and disadvantages of credit may include:

Advantages:

• obtain and can use purchased item immediately

• minimises the need to carry cash or write cheques

• allows for instalment payments on expensive items

• convenient form of payment when travelling, especially overseas

Disadvantages:

• may increase cost of items purchased due to interest accrued

• usually attracts other fees such as account servicing fees

• can lead to compulsive buying habits

• creates a false sense of wealth

Consumer credit facilities may include:

Fixed:

• personal loans

• leases including mobile phones, cars, business premises, office equipment including personal computers

• hire purchase

• 'buy now, pay later' schemes

Revolving:

• credit cards

• store cards

• overdraft

Differences between unsecured and secured loans include:

• a secured loan is supported by an underlying asset while an unsecured loan is not

• unsecured loans attract higher interest rates due to increased risk to the lending institution

Implications of default on secured loans include:

• repossession of the underlying asset by the lending institution

• any shortfall in sale of reposed asset against outstanding loan amount must be paid by borrower

Fees and costs associated with different credit options may include:

• loan establishment fees

• credit purchase fees

• late payment fees

• account servicing fees

• withdrawing from a foreign Automatic Teller Machine (ie. the ATM of a lending institution other than your own)

Fees and costs may be analysed and compared using:

• software applications such as Excel

• online, web based, calculation tools

• manually, comparing fees and costs drawn from tables and charts provided by financial institutions and analysed using a calculator

Ways to compare advertised interest rates may include:

• informing the client of the 'comparison rate' which includes all associated fees and charges

Strategies to minimise fees on credit may include:

• paying the minimum monthly instalment on time

• know how many free transactions come with the card

• consolidating savings and credit facilities with the one institution where account servicing fees can be cancelled out

Ways to avoid credit card fraud include:

• not disclosing Personal Identification Number (PIN) to anyone

• selecting a PIN only the card holder would know

• signing the back of the credit card

Credit reference reports refers to:

• reports established and maintained by credit reference agencies which record all negative events (ie. defaults) listed by creditors against debtors

Implications of establishing poor credit history may include:

• inability to obtain finance in the future

• necessity to obtain guarantor in future loans

• higher interest rate penalties

• may disadvantage applications for rental accommodation

Methods of obtaining own credit reference file may include:

• writing, emailing or telephoning the relevant agency requesting a copy of your file, having provided relevant details to identify self