extra credit understanding credit & debt. five “c’s” of creditworthiness character - the...
TRANSCRIPT
Extra Credit
Understanding Credit & Debt
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.
Benjamin Franklin On Debt
“Creditors have better memories than debtors.”
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
Not All Debt Is Evil Credit is a valuable tool, yet many
people misuse and overuse it.
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
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
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.”
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
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
Credit Scores & Reports
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
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
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
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
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
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
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
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.
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
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
Resources FTC Credit Web Site
www.ftc.gov/credit
AICPA www.360financialliteracy.org/Life+Stages/
College/
Bad Credit Hotel www.controlyourcredit.gov/
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.”