1.what factors influence your credit score? 2.what are the advantages and disadvantages of credit?...
TRANSCRIPT
1. What factors influence your credit score?2. What are the advantages and disadvantages of credit?3. As a borrower how are you legally protected?4. How do the C’s of credit effect your ability to get a loan?
(Credit , open/revolving credit, closed-end/installment credit, cosign, capacity, character, collateral, conditions, loan term, grace period, APR, finance charges, annual fee, credit limit, credit report, credit score, credit bureaus,
FICO score, Bankruptcy, chapter 7 & 13, ID theft, Truth in Lending Act)
Understanding Credit
Credit: arrangement to receive cash, goods, or services now and pay for them in the future
68% of teens have never discussed credit responsibility
84% of college students have at least 1
17% of college students pay there credit card off in full each month
Credit Benefits
• Emergencies• Safety & Convenience• Bonus & Rewards• Buyer Protection• Build Credit• Immediate
Gratification
• Interest
• Overspending
• Debt
• Identity Theft
Credit Risks
Building Good Credit
Paying bills on time Responsibly using credit Having limited-no debt Limited lines of credit Responsible spending Correct credit mistakes
Paying bills late Criminal record Lots of debt Too many lines of credit (cards/loans)
Bankruptcy Defaulting on a loan Exceeding credit limits
Hurting your Credit
http://www.investopedia.com/video/play/5-Easy-Ways-To-Improve-Your-Credit#axzz1cCDFWuQy
Types of CreditCharacteristics Closed-Ended
Installment CreditOpen-ended credit (Revolving credit)
Definition A one-time loan Credit is extended in advance
Purpose of the loan Specified in application
May be used for a variety of purposes
Payments Specified number of equal payments
Vary depending upon amount charged
Loan amount Agreed upon during the application process
May be increased for responsible consumers
Examples Mortgage, Automobile Loan
Credit Card
The C’s of Credit:
Capacity- Ability to Repay the Debt? Current income vs. expenses/debt- Cash flow
Collateral- Assets of value to secure a loan Home or car that will help you secure a loan
Character- Previous record of credit use Credit score & previous credit history Past default or bankruptcies?
Conditions- Principal & Interest How much are you borrowing, for what, & at what interest rate
Closed-end Credit
Term: Length of time you will repay a loan (Loan)
Debt: The entire amount of money you owe to lenders
APR: (Annual Percentage Rate)
Origination Fee: Cost to set up a loan
*The quicker you pay it off the higher the monthly payments, but the less overall you will pay.
Car http://www.bankrate.com/calculators/auto/early-payment-payoff-calculator.aspx
Home: http://www.mortgage-calc.com/mortgage/simple.html
Credit Cards
Credit Limit: Maximum amount of credit a lender will extend to a customer
Grace Period: Length of time you have to pay a line of credit before you start
accumulating finance charges.
Annual Fee: Yearly charge for privilege of using credit
Finance Charge: Total dollar cost to use credit
Pay in full each month within grace period and it costs you nothing.
Cash Advance: A loan taken out on a line of credit or a credit card • May cost a flat rate ($10) or %, whichever is greater• Don’t forget ATM fees, no grace period, & higher interest rateBalance Transfer: Move unpaid credit card debt from one card to another• May charge cost or fee for transfer• Typically has higher APR than purchases
Credit Cards
ExistingVISA$2,00024% APR
NewDiscover$2,00014% Intro APR
Interest Rates and Interest Charges
Annual Percentage Rate (APR) for
Purchases
0% introductory APR for 18 monthsAfter that, your APR will be 11.99%, 16.99%, or 21.99%, based
on your creditworthiness.
APR for Balance Transfers
0% introductory APR for 18 months After that, your APR will be 11.99%, 16.99%, or 21.99%, based on your creditworthiness.
APR for Cash Advances
25.24%
Penalty APR and When it Applies
Up to 29.99%, based on your creditworthiness. This APR may be applied to your account if you:
(1) Make a late payment or (2) Make a payment that is returned
Paying Interest Your due date is at least 23 days after the close of each billing cycle. We will begin charging interest on cash advances and
balance transfers on the transaction date.
Minimum Interest Charge
If you are charged interest, the charge will be no less than 50 cents.
Fees
Annual Fee None
Transaction Fees -----
Balance Transfer Either $5 or 3% of the amount of each transfer,
whichever is greater.
Cash Advance Either $10 or 5% of the amount of each cash advance,
whichever is greater.
Foreign Purchase Transaction
3% of each purchase transaction in US dollars.
Penalty Fees
Late Payment Up to $35
Returned Payment
Up to $35
FEES
G6
Due Date: The day by which the company requires at least the minimum payment
Payments / credits: Amount applied toward balance (amount paid off)
Total Credit Limit: Total amt. you have to spend on your credit card
Total Credit Available: Amt. still available on card (Total credit limit- purchases)
Minimum Payment Due: The minimum amount that must be paid to avoid
defaulthttp://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspx
Understanding the Bill
MINIMUM PAYMENT PAYOFF (18% APR)
ITEM COST MIN PAYMENTTIME TO PAYOFF
TOTAL AMOUNT
PAID
TOTAL INTEREST
PAID
Bedroom Set
$3,500 $87.5019 yrs. & 10 months
$8,173.24 $4,673.24
TV $1,000 $259 yrs. & 5 months
$1,923.12 $923.12
New Balance: The total amount currently owed on a credit card
Example Statement
https://www.citicards.com/cards/wv/html/cm/know-the-rules/how-credit-cards-work/how-to-read-your-statement.html
4-C-44-C-4
• Transactions taking you over credit limit will be denied unless
• Late payment fees limited to under $25 (unless 2nd time in 6 months)
• No inactivity fees
• If under 21 must show ability to pay or have cosigner
• Credit card companies cannot solicit within 1,000 ft of college campus
• Statements must include length of time it would take to pay of balance
if paying min. amount.
New Regulations
4-C-24-C-2
Credit History: Record of borrowing and repaying loans.
Credit Report: Detailed record of credit and financial transactions.
Credit Score: Rating used by credit reporting companies to help lenders decide whether and/or how
much credit can be extended to a borrower.
The Language of Credit
http://www.investopedia.com/video/play/what-is-a-credit-score#axzz1cCDFWuQy
Credit Reports
Who can see your credit report?
Potential Creditors
Government agencies
Landlords
Insurance companies*Employers (only with written permission)
Teens – Lesson 7 - Slide 7-D
Over 50% of credit reports have errors. Most common are
1.Mistaken identity2.Fraud
If incorrect, notify in writingEXAMPLE
Your Credit
Can check once a year free from each agency
Equifax (www.equifax.com) Experian (www.experian.com) Trans Union (www.transunion.com)
Should check your credit report at least once per year to make sure there are no errors
Credit Bureau: An agency that collects information on how promptly people and businesses pay their bills.
Credit Inquiries
Not all credit inquiries are the same!Type of inquiry Soft check Hard check
Do they impact your credit score?
Not usually Yes
Examples•Individuals checking their free reports
Permission given when seeking credit•Automobile loan
Individuals should avoid too many hard credit checks at one time!
Credit Score
Number that shows how much of a risk you are to creditors. It is based on your credit report-FICO score ranges from 300-850Made up of:
Teens – Lesson 7 - Slide 7-D
http://www.investopedia.com/video/play/3-Important-Credit-Score-Factors#axzz1cCDFWuQy
Credit Score
720-850Lenders rest easier when they extend credit to people in this category. They see you as a moderate to low risk and are more likely to give you a competitive interest rate on the loans they provide.
620-719In this range, lenders still consider you a fair to good risk, but interest rates on loans provided will probably be higher. You should work to improve your score by paying your bills on time and reducing your outstanding debt.
350-619Lenders may be very wary about extending loans or credit to you if you fall into this high-risk range, so improving your score should be a priority.
Teens – Lesson 7 - Slide 7-D
Payday Loan
User writes a check to lender for amount + fee Payday loans usually for between $50 and $1000 Fees between $10 and $30 per $100 borrowed
Fees translate to an APR of 391% - 443%4
Short-term loans for small amounts. Use for emergencies only• 10 years ago almost non-existent • In 2005 loans equaled $40 Billion and $6 Billion in fees• Today there are more payday loan stores than McDonalds and Burger King restaurants in California5
How to get out of debt…. Spend less than you earn!
Stick to budget
Pay all loans- even if it is minimum
Prioritize- highest interest rate first
Look for ways to cut costs
Truth-in-Lending Act1. Lenders must disclose all costs of credit
2. Limits liability of credit card holder to $50 for unauthorized use
Fair Debt Collection Practices Act 3. Lenders may not add extra costs or harass consumers
Consumer Credit Protection Act
Handling Credit Problems
Consumer Credit Counselor Nonprofit organization that provides debt counseling services
for families and individuals with serious financial problems.
Debt Repayment Plan Reorganizes debt and sometimes includes renegotiating
terms Creditors will often accept such arrangements for partial
payment, rather than not be repaid.
Results of Overuse1. Garnishment of Wages: Money deducted from wages for money owed.
2. Repossession: Loss of property from failure to repay loan.
3. Bankruptcy: Legal process in which some or all of the assets of a debtor are distributed among the creditors because the debtor is unable to pay his or her debts. (legal process of getting out of debt)
Chapter 7: allows to erase debt, must be unemployed or low income. Must seek counseling. Keeps only exempt propertyChapter 13: allows pay back of debt with more time, court oversees repayment plan.
Top Questions To Ask Before Signing on Dotted Line……
1. Do I really need it or can it wait?2. Can I qualify for credit?3. What is the interest rate (APR)?4. Additional Fees?5. How much is the monthly payment?6. Can you afford the payment?7. What happens if payments are late?8. Is there a penalty for paying off early?9. Is it worth it?
© Family Economics & Financial Education – Revised October 2004 – Consumer Protection Unit – Identity TheftFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of
Arizona
IDENTITY THEFT occurs when someone wrongfully acquires and uses a consumer’s personal identification, credit, or account information.
Identity Theft
• The dollar loss suffered because of identity theft and consumer fraud was $1.8 billion in 2008. -- Federal Trade Commission
• 9-10 million people a year are victims of ID Theft.—FTC
• Approximately 7% of identity theft victims in 2008 were under 20 years of age. -- United States Department of Commerce
© Family Economics & Financial Education – Revised October 2004 – Consumer Protection Unit – Identity TheftFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Name Address and Telephone Number Social Security number Driver’s license number Bank account numbers Credit card numbers Passwords Bills
Personal Identification Information Includes
© Family Economics & Financial Education – Revised October 2004 – Consumer Protection Unit – Identity TheftFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Wallet/Purse Loss or Theft - Taken from a lost or stolen wallet/purse (most common method).
Mail and Phone - Info. is taken from mailboxes, a change of address form is completed, or personal info. is solicited by phone.
“Dumpster Diving” - Personal info. is discarded carelessly either at home or by businesses and thieves remove it from the trash.
“Insider Access” - Dishonest employees steal info. & sell it Credit Reports – A credit report containing personal information may be
obtained fraudulently.
Internet - Personal data taken off the Internet.• Phishing• Spyware• Malware
Ways Identity Thieves Acquire Information
© Family Economics & Financial Education – Revised October 2004 – Consumer Protection Unit – Identity TheftFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Safety Tips for Shopping Online
1. Know the real deal: Get all details before buying including prices, delivery time, warranty information, and return policies.
2. Look for clues about security: Make sure the browser states “https” or “shttp”
3. Use a credit card: Credit cards are the safest way
4. Use an escrow service: An escrow service will hold a person’s money until confirmation of the product or services has been received.
5. Keep proof handy: Print and file all information in case needed later.
© Family Economics & Financial Education – Revised October 2004 – Consumer Protection Unit – Identity TheftFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
If You Are A VictimAct immediately!Keep a detailed record of correspondence and phone records.1.Contact the three major credit bureaus and request a “fraud alert.” in writing and over phone2.Close all accounts which have been tampered with or opened fraudulently.3.File a police report.4.File a complaint with the Federal Trade Commission.
© Family Economics & Financial Education – Revised October 2004 – Consumer Protection Unit – Identity TheftFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
ATM & Debit Cards, Electronic Transfers
Liability depends upon how quickly the loss is reported (Consumer Credit Protection Act). Within two days is a maximum of $50.00. Within sixty days is a maximum of $500.00. After sixty days a person may be liable for
everything. To report a loss call the financial institution and follow up in
writing. Get new bank numbers, personal identification numbers, and
passwords.
Card Liability