P E R S O N A L F I N A N C I A L M A N A G E M E N T P R O G R A M

Credit Credit ManagementManagement: Using : Using Credit Credit WiselyWisely

C R E D I T M A N A G E M E N T 2

AgendaAgenda

•Uses of creditUses of credit•Credit Reports / Credit ScoringCredit Reports / Credit Scoring•Establishing creditEstablishing credit•The cost of creditThe cost of credit•Choosing and using credit cardsChoosing and using credit cards•Warning signsWarning signs•Recovering from over-Recovering from over-

indebtednessindebtedness•Sources of HelpSources of Help

C R E D I T M A N A G E M E N T 3

First, a few facts:First, a few facts:

•Personal Credit Card DebtPersonal Credit Card Debt– Median - $6,600Median - $6,600

– Average - $9,900Average - $9,900

•61% carry balances month to month61% carry balances month to month

•Almost half of all Americans are Almost half of all Americans are worried about the amount of debt worried about the amount of debt they havethey have

•Over half have no financial planOver half have no financial plan

C R E D I T M A N A G E M E N T 4

Wise Use of CreditWise Use of Credit

• It’s about behavior, not dollars!It’s about behavior, not dollars!

• To purchase assetsTo purchase assets

– HomeHome

– EducationEducation

• For convenienceFor convenience

• To take advantage of salesTo take advantage of sales

• Emergencies (convenience)Emergencies (convenience)

• ““Big Ticket” itemsBig Ticket” items

C R E D I T M A N A G E M E N T 5

Unwise Use of CreditUnwise Use of Credit

•To purchase consumablesTo purchase consumables

•Impulse buyingImpulse buying

•Spending for statusSpending for status

•Retaliatory spending (couples)Retaliatory spending (couples)

•Spending to feel goodSpending to feel good

•Everyday living expensesEveryday living expenses

C R E D I T M A N A G E M E N T 6

Qualifying for CreditQualifying for Credit

•Three C’s of Credit:Three C’s of Credit:– CharacterCharacter

– CapacityCapacity

– CollateralCollateral

•And the fourth “C” … Your Credit And the fourth “C” … Your Credit ReportReport

C R E D I T M A N A G E M E N T 7

Credit ReportsCredit Reports

•Detailed account of credit, Detailed account of credit, employment and residence historyemployment and residence history

•Used by prospective lenders, Used by prospective lenders, employers, landlords, insurance employers, landlords, insurance companies, etc.companies, etc.

•Three Credit Reporting AgenciesThree Credit Reporting Agencies

•www.annualcreditreport.comwww.annualcreditreport.com

C R E D I T M A N A G E M E N T 8

Components of a Components of a Credit ReportCredit Report

Personal Identification InformationPersonal Identification Information

•Name Name •• Social Security numberSocial Security number

•Address Address •• Employment informationEmployment information

•Date of birthDate of birth

Payment HistoryPayment History (Trade Lines) - Credit accounts (Trade Lines) - Credit accounts

Inquiries - List of everyone who accessed your credit Inquiries - List of everyone who accessed your credit report within the last two yearsreport within the last two years

Public Record and Collection Items Public Record and Collection Items

•Public records Public records • • Wage attachmentsWage attachments

•BankruptciesBankruptcies • • LiensLiens

•Foreclosures Foreclosures • • JudgmentJudgment

•SuitsSuits • • Collection Agencies – overdue Collection Agencies – overdue debtsdebts

C R E D I T M A N A G E M E N T 9

Credit ReportsCredit Reports

•Accurate Negative InformationAccurate Negative Information– Pay up and waitPay up and wait

•Two years for inquiries and paymentsTwo years for inquiries and payments

•Seven years for most informationSeven years for most information

•Ten years for bankruptciesTen years for bankruptcies

•Criminal Convictions—no limitCriminal Convictions—no limit

– The seven-year period starts from the The seven-year period starts from the date that the event took placedate that the event took place

C R E D I T M A N A G E M E N T 10

Credit ReportsCredit Reports

• Correcting Wrong InformationCorrecting Wrong Information

1.1. Inform CRA in writing. Dispute forms included on Inform CRA in writing. Dispute forms included on websites.websites.

2.2.CRA investigates, usually within 30 days.CRA investigates, usually within 30 days.

3.3.CRA provides you with written results and copy of CRA provides you with written results and copy of Credit Report.Credit Report.

4.4.CRA sends notices to others.CRA sends notices to others.

5.5. If not resolved, you can have a statement of dispute If not resolved, you can have a statement of dispute included in your file. Also, tell creditor that you included in your file. Also, tell creditor that you dispute an item.dispute an item.

*You have the right to put a statement of*You have the right to put a statement of up to 100 words on your Credit Report*up to 100 words on your Credit Report*

C R E D I T M A N A G E M E N T 11

Your Credit ScoreYour Credit ScoreAn objective estimate of how likely you are to An objective estimate of how likely you are to repay on time according to the agreed on terms. repay on time according to the agreed on terms.  The score is based on five areas of information: The score is based on five areas of information:

C R E D I T M A N A G E M E N T 12

What is a good credit What is a good credit score? score?

FICOScore

Category % of US Population

Meaning

700 and up Excellent 60% Qualify for very best interest rates and terms

600-699 Good 27% May not qualify for very best interest rates and

terms

500-599 Risky 12% May have to pay up to 2 percentage points higher than those in “Excellent”

category

400-499 Very Risky 1% Will probably have to pay maximum rate allowed by

law.

C R E D I T M A N A G E M E N T 13

Establishing a Credit Establishing a Credit HistoryHistory

•Maintain a checking or savings Maintain a checking or savings accountaccount

•Pay bills on timePay bills on time•Savings (share) secured loanSavings (share) secured loan•Cosigned loanCosigned loan•Local retailer or gas cardLocal retailer or gas card•Major retail charge accountMajor retail charge account•Major bank cardMajor bank card

C R E D I T M A N A G E M E N T 14

The Cost of CreditThe Cost of Credit

•Your Credit Worthiness MattersYour Credit Worthiness Matters– The better your credit history, the The better your credit history, the

better rates you will qualify forbetter rates you will qualify for

•Comparison ShopComparison Shop– Credit is a product, so comparison Credit is a product, so comparison

shopshop

C R E D I T M A N A G E M E N T 15

Where to BorrowWhere to Borrow

•Credit UnionsCredit Unions

•Commercial BanksCommercial Banks

•Savings & Loan AssociationsSavings & Loan Associations

•Consumer Finance CompaniesConsumer Finance Companies

•Retail MerchantsRetail Merchants

BEWARE OF Predatory LendingBEWARE OF Predatory Lending

C R E D I T M A N A G E M E N T 16

How Much You BorrowHow Much You Borrow

Interest Rate of 9% on a 5 yr. LoanInterest Rate of 9% on a 5 yr. Loan

DownPayment

AmountFinanced

MonthlyPayment

FinanceCharge

Total Cost

$0.00

$2,000

$5,000

$8,000

$5,000

$10,000

$103.80

$166.08

$207.60 $2,456

$1,965

$1,228

$11,965

$11,228

$12,456

Bigger Down Payment = Less Total CostBigger Down Payment = Less Total Cost

C R E D I T M A N A G E M E N T 17

How Long to RepayHow Long to Repay

Interest Rate of 9%Interest Rate of 9%

Term ofLoan

AmountFinanced

MonthlyPayment

FinanceCharge

Total Cost

1 Year

3 Years

5 Years

$10,000

$10,000

$10,000

$207.60

$318

$874.50 $494

$1,448

$2,456

$11,448

$12,456

$10,494

Shorter Repay Period = Less Total CostShorter Repay Period = Less Total Cost

C R E D I T M A N A G E M E N T 18

Minimum Monthly Minimum Monthly PaymentPayment

Beware of the myth of the minimum paymentBeware of the myth of the minimum payment

$1,000 credit card balance, 18% APR$1,000 credit card balance, 18% APR

Minimum Monthly Payment

Time to Pay Off Debt

Interest Paid

2% 19 Years $1,931

5% 2 Years 382

$50 2 Years 176

$20 7.5 Years 803

C R E D I T M A N A G E M E N T 19

Minimizing Interest Minimizing Interest ChargesCharges

•Simple interestSimple interest

•Add-on interestAdd-on interest

Example: $1,000 at 12% for 1 yearSimple Interest paid = $66Add-on interest paid = $120

Example: $1,000 at 12% for 1 yearSimple Interest paid = $66Add-on interest paid = $120

Read the Contract!Read the Contract!

C R E D I T M A N A G E M E N T 20

Choosing Credit Cards: Choosing Credit Cards: Know the TermsKnow the Terms

• Annual Percentage RateAnnual Percentage Rate

• Grace PeriodGrace Period

• Annual FeesAnnual Fees

• Transaction Fees and other chargesTransaction Fees and other charges

• Balance Computation Method for Finance Balance Computation Method for Finance ChargesCharges

– Average Daily BalanceAverage Daily Balance

– Adjusted BalanceAdjusted Balance

– Previous BalancePrevious Balance

– Two-Cycle BalancesTwo-Cycle Balances

C R E D I T M A N A G E M E N T 21

Other Costs and Other Costs and FeaturesFeatures

•Other Costs and FeaturesOther Costs and Features– How will you use it?How will you use it?

– How high a credit limit?How high a credit limit?

– Are there special delinquency rates?Are there special delinquency rates?

– What is the rate for Cash Advances?What is the rate for Cash Advances?

– Credit life, credit disability and credit Credit life, credit disability and credit unemployment insurance unnecessary unemployment insurance unnecessary and expensiveand expensive

C R E D I T M A N A G E M E N T 22

Military Cards: Military Cards: STARCARDSTARCARD

•Use at ALL military installationsUse at ALL military installations

•Administered by AAFESAdministered by AAFES

– 1-877-891-STAR or www.aafes.com1-877-891-STAR or www.aafes.com

•Finance charges accrueFinance charges accrue

•Can reach into your paycheckCan reach into your paycheck

C R E D I T M A N A G E M E N T 23

Government Credit Government Credit CardsCardsand Navy Cashand Navy Cash

•Purchase cardsPurchase cards

•Travel cardsTravel cards

•Authorized and approved charges only!Authorized and approved charges only!

•Navy Cash CardNavy Cash Card– On-board Debit Card SystemOn-board Debit Card System

– ““Electronic Purse”Electronic Purse”

C R E D I T M A N A G E M E N T 24

Debt to Income Ratio Handout

Debt to Income Ratio Handout

Debt: How Much is Too Debt: How Much is Too Much?Much?

Calculate your debt-to-income

ratio

Calculate your debt-to-income

ratio

C R E D I T M A N A G E M E N T 25

Warning Signs of Warning Signs of Too Much CreditToo Much Credit

•Not paying off each monthNot paying off each month

•Making only minimum paymentsMaking only minimum payments

•Gradually more income committed Gradually more income committed to debt repaymentsto debt repayments

•Falling behind on paymentsFalling behind on payments

•Using cash advances to meet Using cash advances to meet monthly living expensesmonthly living expenses

C R E D I T M A N A G E M E N T 26

Other IndicatorsOther Indicators

•Little or no money in savingsLittle or no money in savings

•Dependent on second job to make Dependent on second job to make ends meetends meet

•Owing over 20% net income per Owing over 20% net income per month to creditorsmonth to creditors

•At or near credit limits most of the At or near credit limits most of the timetime

C R E D I T M A N A G E M E N T 27

Critical PointCritical Point

•Rotating bills Rotating bills (paying some this month, some next month)(paying some this month, some next month)

•Using credit to pay creditUsing credit to pay credit

•Being denied additional creditBeing denied additional credit

•Dishonesty with spouse about debtsDishonesty with spouse about debts

•Use of consolidation loans to reduce Use of consolidation loans to reduce paymentspayments

C R E D I T M A N A G E M E N T 28

Recovering from DebtRecovering from Debt

•Take Charge! Construct a budget Take Charge! Construct a budget and and spending plan, prioritize debtsspending plan, prioritize debts

•Construct a “power payment” planConstruct a “power payment” plan

•Talk to Your CreditorsTalk to Your Creditors

C R E D I T M A N A G E M E N T 29

Beware of:Beware of:

• Credit clinicsCredit clinics

• Debt consolidation loansDebt consolidation loans

• BankruptcyBankruptcy

– Chapter 7Chapter 7

– Chapter 13Chapter 13

– New Bankruptcy Law New Bankruptcy Law Much Stricter!Much Stricter!

"Credit problems? No problem!"

"We can erase your bad credit-100% guaranteed."

"Create a new credit identity-legally."

"We can remove bankruptcies, judgments, liens, and bad loans from your credit file

forever!“

"Consolidate your bills into one monthly payment without borrowing"

"STOP credit harassment, foreclosures, repossessions, tax levies and

garnishments"

"Keep Your Property"

"Wipe out your debts! Consolidate your bills! How?

By using the protection and assistance provided by federal law. For once, let the

law work for you!"

C R E D I T M A N A G E M E N T 30

Stop Thief! Avoiding Stop Thief! Avoiding Identity TheftIdentity Theft

• Watch your purse or wallet at all timesWatch your purse or wallet at all times

• Don’t carry your Social Security cardDon’t carry your Social Security card

• Don’t share personal information with Don’t share personal information with random people you don’t knowrandom people you don’t know

• Read statements, look for suspicious activityRead statements, look for suspicious activity

• Shred charge receipts, checks, bank Shred charge receipts, checks, bank statements, expired cards and any other statements, expired cards and any other documents with personal informationdocuments with personal information

C R E D I T M A N A G E M E N T 31

Talk to a ProfessionalTalk to a Professional

Non-profit Debt Management Non-profit Debt Management CounselingCounseling•www.aiccca.orgwww.aiccca.org•www.nfcc.orgwww.nfcc.org•www.myvesta.orgwww.myvesta.org

• Your bank or credit unionYour bank or credit union

C R E D I T M A N A G E M E N T 32

Sources of HelpSources of Help

•Your Command Financial SpecialistYour Command Financial Specialist

•Fleet and Family Support CenterFleet and Family Support Center

•Navy Legal Services OfficeNavy Legal Services Office

•Credit Union or Credit Counseling Credit Union or Credit Counseling AgenciesAgencies

•Debt Management ProgramsDebt Management Programs

C R E D I T M A N A G E M E N T 33

SummarySummary

•Keep your budget up-to-dateKeep your budget up-to-date

•Calculate your Debt-to-Income RatioCalculate your Debt-to-Income Ratio

•Plan purchasesPlan purchases

•Shop for creditShop for credit

•Check credit report annuallyCheck credit report annually

•Use all of your available resourcesUse all of your available resources

•Build wealth, not debtBuild wealth, not debt

C R E D I T M A N A G E M E N T 34

Print your Certificate

Click on the following link to add your name to the certificate and print it:

Credit Management