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Extra Credit
Understanding Credit & Debt
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FIVE “C’S” OF CREDITWORTHINESS Character - the honesty and reliability to repay a debt.
Have you used credit before? Do you pay your bills on time? How long have you lived at your present address or have been employed?
Capital/Collateral - if you have valuable assets such as real estate, personal property, investments, or savings with which to repay debt if income is unavailable.
Capacity/Cash Flow - your ability to repay the debt – employment, income.
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Benjamin Franklin On Debt
“Creditors have better memories than debtors.”
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What We’ll Talk About
Debt & How To Handle It
Your Credit Score & How To Raise It
Credit Reports & How To Obtain One
Credit In The Current Market
Talking To Your Students
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Not All Debt Is Evil Credit is a valuable tool, yet many
people misuse and overuse it.
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Warning Signs:Too Much Debt
Signs of someone who may be in trouble:
1) Making only the minimum payment
2) Maxing or nearly maxing out credit cards
3) Not knowing how much is owed
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Warning Signs:Too Much Debt
Signs of someone who may be in trouble:
4) Using credit cards to purchase items that used to be purchased with cash
5) Paying off one card with another card
6) Phone calls or letters from creditors
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Lowering Your Debt Ask Your Credit Card Company To Lower
Your Interest Rate
If Your Card Company Wont Lower – Shop For A Lower Rate Card
Set up a tight budget and stick to it. Find ways to save money – America Saves
Set realistic goals
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If You Are In Trouble Stop Borrowing
Contact Your Creditors
Review the Fair Debt Collection Act
Speak with a credit counselor
Washington State Department of Financial Institutions”Regulating financial services to protect and educate the public and promote economic vitality.”
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Where To Turn For Help
Credit Counselors
National Foundation for Credit Counseling
www.debtadvice.org
Debt Management Plans
Friends or Family Ask to borrow money from a friend or family
No to low-interest loans
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Protect Yourself Be wary of organizations or individuals that:
Promise to solve your problem overnight
Charge high up front fees
Won’t disclose the costs for their services
If It Sounds Too Good To Be True … It Probably Is
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Credit Scores & Reports
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DO you know your credit score?
Only 49% of Americans have obtained their credit score in the past two years.
(Consumer Federation of America, 2008)
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Credit Scores What Is A Credit Score?
The score given to an individual to determine their credit worthiness. FICO and Vantage.
Who checks your credit score? Credit card companies
Lenders
Insurance Companies
Employers
Phone companies
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Credit Scores How your score can affect you:
Interest Rates
If your rate goes up on 1 card it can go up on another
Insurance Rates
Some Employers Use It When Hiring
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An Example On a $225,000 home:
6% Interest Rate 30-year fixed = $1348/mo
5% Interest Rate 30-year fixed = $1207/mo.
$141.14/mo. difference
$50,810 over 30 yrs
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How Your Score Is Calculated
FICO® scores are calculated based on your rating in five general categories:
1) Payment History2) Amounts Owed3) Length Of Credit History
4) New Credit5) Types Of Credit Used
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What’s A Good Score? FICO Scores Range From 300 – 850
In the eyes of most lenders, FICO credit scores above 700 (750) are very good.
Recent changes in the economy have changed what lenders as a very good score
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Your Credit Report A credit report is a report containing a detailed
credit history of an individual. What’s On Your Credit Report?
Personal Information (Name, SSN, Etc.) Public Records & Collection Accounts (Bankruptcies,
Foreclosures, Etc.) Your Credit History & Current Obligations Credit Inquiries
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How To Check Your Credit Report & Score
You are entitled to 1 free credit report a year from each of the 3 major credit bureaus.
To request your free credit report visit www.annualcreditreport.com
You can also request your credit score. ***A small fee may apply.
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How to establish or obtain credit.
1. Apply to the bank or credit union you already have a relationship with.
2. Obtain a co-signer (but never be a co-signer )
3. Get a secured credit card 4. Get a department store card
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Improving Credit Scores
Pay Bills On Time (Get current, stay current)
Pay Off Debt – Don’t Move It Around
Don’t Close Unused Credit Cards As A Short-Term Strategy To Raise Your Score
Don’t Open New Credit You Don’t Need.
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More Tips For Improving Credit Scores
Repair Errors (Outstanding Debts You Paid)
Pay Down Balances To 20-30% Of Credit
If You Have 1 Or 2 Old Cards You Haven't Used Put A Little On The Card And Then Pay It Off
Do This About 1 Every 6 Months
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USE CREDIT WISELY(CAVEAT
EMPTOR)BASIC RULES TO FOLLOW:
You should charge only what you can afford to pay back.
Credit cards shouldn't be a money substitute for items you can't afford.
You need to pay your bills on time and not just the minimum amount.
Credit companies specifically target college students.
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Homework… Get a free credit report at…
www.annualcreditreport.com
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Resources FTC Credit Web Site
www.ftc.gov/credit
AICPA www.360financialliteracy.org/Life+Stages/
College/
Bad Credit Hotel www.controlyourcredit.gov/
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DFI: We’re here for you! Contact Us:
www.dfi.wa.gov / 1.877.RING.DFI Lyn Peters
Director of [email protected]
Jeremy LusheneWeb Master-Communications [email protected]
Washington State Department of Financial Institutions”Regulating financial services to protect and educate the public and promote economic vitality.”