faith & finance week 6: credit score and living debt free
TRANSCRIPT
Faith & Finances - Oct 10, 2008
• Happenings in the market over last week
• How the credit score system works
• Living debt free - some tools on getting out of debt and staying out.
• Panic of 1907: Economy failing, no Fed. JP Morgan (the man) bailed out country.
• Great War 1914: US markets close for 4 months. Foreign investors pull out money. Market loses 30%. All losses recouped by 1916.
• Great Depression 1929 – 1941. Unemployment @ 25% in 1932.
• ’73 – 74 Crash, 45% value lost over the 2 yrs. Recovered in about 2 yrs.
• Black Monday Aug 1987 – Dow drops 23% in one day. Recovered value within 24 months.
• Tech Bubble 1999 – Dow <8000 up to almost 12,000 by beginning of 2000.
• 9/11 – Dow back below 8000. Rebounds to peak at around 14,000 in Oct 2007.
TRUE OR FALSE?
Each time you initiate an inquiry on your credit report, or get your score it,
negatively impacts your credit score.
FALSE - FALSE - FALSE - FALSE - FALSE
The scoring model does not count:
“consumer-initiated” inquiries - requests you have made for your credit report, in order to check it
“promotional inquiries” - requests made by lenders in order to make you a “pre-approved” credit offer
“administrative inquiries” - requests made by lenders to review your account with them
“employer initiated” inquiriesSource: myfico.com
QUESTION
If I pay off a collection amount or missed payment, will record of it be removed from
my credit file?
ANSWER
NO
Paying off a collection account / late pay / derogatory item will not remove it from
your credit file. It will stay on your file for 7 years along with any dollar amount
associated with the past due.
TRUE OR FALSE?
Your age and income, including salary or wage increases, impacts your score
FALSE - FALSE - FALSE - FALSE - FALSE
Factors such as sex, income, age, and length of employment are not taken into
account when the bureaus evaluate scores.
Source: myfico.com
TRUE OR FALSE?
Accurate negative information can be removed from your credit files to bump
up your credit score
FALSE - FALSE - FALSE - FALSE - FALSE
No one can legally remove negative information like bankruptcy, lien,
foreclosure that is accurate and current from your report. Only the passage of time
can erase these blemishes.
TRUE OR FALSE?
When you get married your credit information is combined with that of
your spouse
FALSE - FALSE - FALSE - FALSE - FALSE
Credit reports are individual. However it might be possible that there will be certain items
that will be reflected on your as well as your spouse’s credit reports. For instance, the info
regarding the accounts that you hold with your spouse will show up on both the reports.
.
Effect of hypothetical scenarios on credit score
Source: identitymonitor.citi.com Credit Analyzer tool
Event Effect on score
Max out all my credit cards (8%)Miss 2 payments on all my credit cards (18%)Miss 1 payment on all my credit cards (16%)Miss 1 payment on one of my credit cards (11%)Consolidate all credit cards into one line of credit (1%)Declare bankruptcy (20%)Pay off debt on all my accounts 4%Close all unused accounts 0%Take out a student loan of $30 k (2%)Apply for credit 1 time without opening any accounts (1%)Apply for credit 5 times without opening any accounts (1%)Open a new credit card and transfer existing card balance representing 90% of the new limit
(6%)
Some resources
• Credit score monitoring:
– Various products available which allow you to monitor your credit reports and/ or scores
– Free annual credit report (no scores) from www.annualcreditreport.com
• Dispute an entry on your credit report:
– Each of the agencies allow you to submit a dispute online, via phone or through the mail.
– www.transunion.com / www.experian.com / www.equifax.com
Comparison of some credit monitoring products
One time score and report
Monthly score & report(1 agency)
Monthly scores & reports(All 3 agencies)
www.myfico.com$42.84
*Report & score from all 3 agencies
www.myfico.comScorewatch: $8.95
* Experian score and report
www.identityguard.com$11.99 per month
www.myfico.com$15.95
report & score from1 agency
www.experian.comTriple Advantage: $14.95
* monthly monitoring of all scores, copy of Experian report
and score monthly
www.truecredit.com$14.99 per month
Most of these products offer the same general features: Credit score simulation, fraud / ID theft alerts, ID theft insurance (not every product)
Steps to becoming debt free
2. Confront the situation – don’t just hope it goes away
3. Make inventory of all debt
4. Consider discussing your situation with somebody you respect and trust in the area of Godly finances
5. Decide on a plan to pay down the debt
6. Track your progress each month
Example of an inventory
Amt owing
4,000
3,500
1,000
6,000
30,000
44,500
Monthly min. pmt
50
40
80
197
608
$975
APR
30%
12%
15%
11%
8%
10.9%
Pmt. status
Late
Up to date
Late
Up to date
Up to date
Creditor
NYC Bank credit card
Staten Island credit card
Forever Young store card
NYC Bank personal loan
Graduate Bank student loan
TOTAL
Tracking progress: Snowball method
Illustration of Snowball method Jan-08 Feb-08 Mar-08
CreditorAmount owing
Min monthly
pmt APR
Late pmt owing at
1/1/08Amt paid
Balance owing
Amt paid
Balance owing
Amt paid
Balance owing
Forever Young store card 1,000 80 15.0% 240 320 693 390 311 315 0
Staten Island credit card 3,500 40 12.0% 0 40 3,495 40 3,490 155 3,370
NYC Bank credit card 4,000 50 30.0% 150 160 3,940 90 3,949 50 3,997
NYC Bank personal loan 6,000 197 11.0% 0 197 5,858 197 5,715 197 5,570
Graduate Bank student loan 30,000 608 8.0% 0 608 29,592 608 29,181 608 28,768
TOTAL 44,500 975 10.9% 1,325 43,578 1,325 42,646 1,325 41,705
Amount available for debt payments per budget: $1,325
Minimum monthly payment at January 1, 2008 $975 Excess available for debt paydown $350
Tracking progress: Highest APR method
Illustration of Track High APR method Jan-08 Feb-08 Mar-08
CreditorAmount owing
Min monthly
pmt APR
Late pmt owing at
1/1/08Amt paid
Balance owing
Amt paid
Balance owing
Amt paid
Balance owing
NYC Bank credit card 4,000 50 30.0% 150 200 3,900 360 3,638 400 3,328
Forever young store card 1,000 80 15.0% 240 280 733 120 622 80 549
Staten Island credit card 3,500 40 12.0% 0 40 3,495 40 3,490 40 3,485
NYC Bank personal loan 6,000 197 11.0% 0 197 5,858 197 5,715 197 5,570
Graduate Bank student loan 30,000 608 8.0% 0 608 29,592 608 29,181 608 28,768
TOTAL 44,500 975 10.9% 1,325 43,578 1,325 42,645 1,325 41,701
Amount available for debt payments per budget: $1,325
Minimum monthly payment at January 1, 2008 $975 Excess available for debt paydown $350
Tracking progress: Snowball vs Highest APR method
Comparison of the two methods over 12 monthsBalance owing at
12/31/08
Creditor
Amount owing @
1/1/08 APR SnowballHigh APR
first
Forever Young store card 4,000 30.0% 0 31
Staten Island credit card 1,000 15.0% (0) 0
NYC Bank credit card 3,500 12.0% 3,773 3,437
NYC Bank personal loan 6,000 11.0% 4,207 4,207
Graduate Bank student loan 30,000 8.0% 24,920 24,920
TOTAL 44,500 10.9% 32,901 32,596
Interest paid over the 12 months 4,301 3,996
Month in which 1st debt fully paid off March '08 Nov '08
Month in which 2nd debt fully paid off Nov '08 Jan '09
Some points to consider
• Tithing – do not stop being faithful with your tithe to try pay down debt faster. You will block God’s provision in your finances.
• It is not irresponsible to give over and above your tithes if you are in debt. Continue to be generous (possibly to a lesser extent) and make room for the supernatural in your finances.
• Debt consolidation can be a useful tool, but consider it carefully. It could end up costing you more in the long run and it can negatively impact your credit score.
• A situation where you are unable to pay your minimum monthly payments would require some additional steps to what we have discussed here. If you are in that situation, don’t go it alone – ask somebody for advice and to walk it through with you.