understanding credit and debt

A BadCreditChannel.com PresentatA BadCreditChannel.com Presentationion

UnderstandiUnderstanding Credit & ng Credit &

DebtDebt

Bad Credit Channel


Benjamin Franklin’s Benjamin Franklin’s Thoughts On DebtThoughts On Debt

““Creditors have better memories than Creditors have better memories than debtors.”debtors.”


TopicsTopics Debt & How To Handle ItDebt & How To Handle It

Your Credit Score & How To Raise Your Credit Score & How To Raise ItIt

Credit Reports & How To Obtain Credit Reports & How To Obtain OneOne

Credit In The Current Tight MarketCredit In The Current Tight Market

Talking To Kids About CreditTalking To Kids About Credit


Not All Debt Is EvilNot All Debt Is Evil Credit is a valuable tool, yet Credit is a valuable tool, yet

many people misuse and many people misuse and overuse it.overuse it.


Excessive Debt Excessive Debt Six Warning SignsSix Warning Signs

Signs of someone who may be in Signs of someone who may be in trouble:trouble:

1)1) Making only the minimum payment Making only the minimum payment

2)2) Maxing or nearly maxing out credit Maxing or nearly maxing out credit cardscards

3)3) Not knowing how much is owedNot knowing how much is owed


Debt Warning Signs, cont.Debt Warning Signs, cont.

Signs of someone who may be in trouble:Signs of someone who may be in trouble:

4)4) Using credit cards to purchase items Using credit cards to purchase items that used to be purchased with cashthat used to be purchased with cash

5)5) Paying off one card with another cardPaying off one card with another card

6)6) Phone calls or letters from creditorsPhone calls or letters from creditors


Lowering Your DebtLowering Your Debt

Ask Your Credit Card Company To Ask Your Credit Card Company To Lower Your Interest RateLower Your Interest Rate

If Your Card Company Wont Lower – If Your Card Company Wont Lower – Shop For A Lower Rate Card Shop For A Lower Rate Card

Set up a tight budget and stick to Set up a tight budget and stick to it. Find ways to save money – it. Find ways to save money – America SavesAmerica Saves

Set realistic goalsSet realistic goals


If You Are In TroubleIf You Are In Trouble

Stop BorrowingStop Borrowing

Contact Your Creditors Contact Your Creditors

Know your rights. Review the Fair Know your rights. Review the Fair Debt Collection ActDebt Collection Act

Speak with a credit counselorSpeak with a credit counselor


Where To Turn For Where To Turn For HelpHelp

Credit CounselorsCredit Counselors

– National Foundation for Credit National Foundation for Credit

Counseling Counseling www.debtadvice.orgwww.debtadvice.org

– Debt Management PlansDebt Management Plans

Friends or FamilyFriends or Family

– Ask to borrow money from a friend Ask to borrow money from a friend or family. or family.


Protect YourselfProtect Yourself

Be wary of organizations or individuals Be wary of organizations or individuals that:that:

– Promise to Promise to solve your problem solve your problem overnightovernight

– Charge Charge high up front feeshigh up front fees

– Won’t disclose the costs for their servicesWon’t disclose the costs for their services


Credit Reports & Credit Reports & Credit ScoresCredit Scores


Common KnowledgeCommon Knowledge

Only 49% of Americans Only 49% of Americans have obtained their have obtained their credit score in the past credit score in the past two years. two years.

Have you? Have you?


Credit ScoresCredit Scores

What Is A Credit Score?What Is A Credit Score?– The score given to an individual to determine The score given to an individual to determine

their credit worthiness.their credit worthiness. FICO and Vantage. FICO and Vantage.

Who checks your credit score?Who checks your credit score?– Credit card companiesCredit card companies

– Lenders Lenders (Auto Loans, Home Loans, Personal Loans)(Auto Loans, Home Loans, Personal Loans)

– Insurance CompaniesInsurance Companies

– EmployersEmployers

– Phone companiesPhone companies


Credit ScoresCredit Scores

How your score can affect you:How your score can affect you:

– Interest RatesInterest Rates If your rate goes up on 1 card it can go up If your rate goes up on 1 card it can go up

on anotheron another

– Insurance RatesInsurance Rates

– Some Employers Use It When HiringSome Employers Use It When Hiring


An ExampleAn Example

On a $225,000 home:On a $225,000 home:

– 6% Interest Rate6% Interest Rate 30-year fixed = $1348/mo30-year fixed = $1348/mo

– 5% Interest Rate5% Interest Rate 30-year fixed = $1207/mo.30-year fixed = $1207/mo.

$141.14/mo. difference $141.14/mo. difference

$50,810 over 30 yrs$50,810 over 30 yrs


How Your Score Is How Your Score Is CalculatedCalculated

FICO® scores are calculated based on FICO® scores are calculated based on your rating in your rating in five general five general categoriescategories::

1) Payment History1) Payment History2) Amounts Owed2) Amounts Owed3) Length Of Credit History3) Length Of Credit History

4) New Credit4) New Credit5) Types Of Credit Used5) Types Of Credit Used


What’s A Good Score?What’s A Good Score?

FICO Scores Range From FICO Scores Range From 300 – 850300 – 850

In the eyes of most lenders, FICO In the eyes of most lenders, FICO credit scores above credit scores above 700 (750) are 700 (750) are very goodvery good..

Recent changes in the economy Recent changes in the economy have changed what lenders as a have changed what lenders as a very good scorevery good score


Your Credit ReportYour Credit Report

A credit report is a report containing a A credit report is a report containing a detailed credit history of an individual.detailed credit history of an individual.

What’s On Your Credit Report?What’s On Your Credit Report?– Personal Information (Name, SSN, Etc.)Personal Information (Name, SSN, Etc.)– Public Records & Collection Accounts Public Records & Collection Accounts

(Bankruptcies, Foreclosures, Etc.)(Bankruptcies, Foreclosures, Etc.)– Your Credit History & Current ObligationsYour Credit History & Current Obligations– Credit InquiriesCredit Inquiries


How To Check Your How To Check Your Credit Report & ScoreCredit Report & Score

You are entitled to 1 free credit report a You are entitled to 1 free credit report a year from each of the 3 major credit year from each of the 3 major credit bureaus. bureaus.

To request your free credit report visit To request your free credit report visit www.annualcreditreport.com www.annualcreditreport.com

You can also request your credit score. You can also request your credit score. A small fee may apply. A small fee may apply.


Improving Credit Improving Credit ScoresScores

– Pay Bills On Time. Get current & stay Pay Bills On Time. Get current & stay current.current.

– Pay Off Debt – Don’t Move It AroundPay Off Debt – Don’t Move It Aroundor Ignore it.or Ignore it.

– Don’t Close Unused Credit Cards As A Short-Don’t Close Unused Credit Cards As A Short-Term Strategy To Raise Your ScoreTerm Strategy To Raise Your Score

– Don’t Open New Credit You Don’t Need.Don’t Open New Credit You Don’t Need.


More Tips For Improving More Tips For Improving Credit ScoresCredit Scores

– Repair Errors (Outstanding Debts You Paid)Repair Errors (Outstanding Debts You Paid)

– Pay Down Balances To 20-30% Of CreditPay Down Balances To 20-30% Of Credit

– If You Have 1 Or 2 Old Cards You Haven't If You Have 1 Or 2 Old Cards You Haven't Used Put A Little On The Card And Then Used Put A Little On The Card And Then Pay It OffPay It Off

– Do This About 1 Every 6 MonthsDo This About 1 Every 6 Months


Credit In Today’s Tight Credit In Today’s Tight MarketMarket

Lenders are lowering credit limitsLenders are lowering credit limits

– 20% banks lower on prime borrowers20% banks lower on prime borrowers

– 60% banks lower on subprime borrowers60% banks lower on subprime borrowers

Lenders are tightening their requirements. Lenders are tightening their requirements.

– Good Score - 750 or higher Good Score - 750 or higher

Lenders are closing inactive cardsLenders are closing inactive cards

– Less liabilityLess liability


Talking to Kids Talking to Kids about Creditabout Credit


Key Talking PointsKey Talking Points

Communicate the following key Communicate the following key ideas with your ideas with your students/children students/children – They should charge only what they can afford to pay They should charge only what they can afford to pay

back. back. – Credit cards shouldn't be a money substitute for Credit cards shouldn't be a money substitute for

items they can't afford. items they can't afford. – They need to pay their bills on time and not just the They need to pay their bills on time and not just the

minimum amount.minimum amount.– Credit companies specifically target college Credit companies specifically target college

students.students.


Resources for Resources for StudentsStudents

DFI’s Right on the Money – DFI’s Right on the Money – Financial Know-How For College Financial Know-How For College StudentsStudents– www.dfi.wa.gov/consumers/collegebookorder.htm www.dfi.wa.gov/consumers/collegebookorder.htm

FTC Credit Web SiteFTC Credit Web Site– www.ftc.gov/creditwww.ftc.gov/credit

AICPAAICPA– www.360financialliteracy.org/Life+Stages/www.360financialliteracy.org/Life+Stages/

College/College/ Bad Credit HotelBad Credit Hotel

– www.controlyourcredit.gov/ www.controlyourcredit.gov/


For More Credit Info…For More Credit Info…

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