week 3 understanding credit
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Faith and Finances1
Welcome to the Faith and Finances Series
UNDERSTANDING CREDITGod has called us to be good stewards
“Moreover it is required in stewards that one be found faithful”
1Corinthians 4:2
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Purpose
Understanding Credit will: Show you how to read a credit report Help you understand how your behavior
affects your credit health Help you build and repair your credit
history Provide you with good credit practices
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Objectives
By the end of this course, you will be able to: Describe the purpose of a credit report and
how it is used Read your credit report Order a copy of your credit report Identify ways to build and repair your credit
history
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Understanding Credit: Week 3 of 4
Help you build and repair your credit history
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Week 1 in Review
We learned about…– Credit Reports– Three Credit Bureaus– FICO Scores and what affects them– Why your credit score matters
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Week 2 in Review
We learned how your behavior affects your credit health…– Making Payments on Time– Using Debt Reasonably– Establishing a credit history– Inquiries– Types of Debt
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Remember…
The credit score is: A number that summarizes how much of a credit risk you could be Calculated based on a snapshot of the information in your credit report at a point in time **Most commonly referred to as a FICO Score
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…..Remember How Your Credit Report Is Used
Information in your credit report may determine whether you will: Get a loan, credit card, car loan, or mortgage Get a job Rent an apartment Get insuranceDetermine how much you pay for credit
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…… And There 5 Factors That Affect Your Score
Past payment history – 35%Amount owed – 30%How long you've had credit -15%New credit – 10%Types of credit – 10%
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….And The Most Important Factor: Payment History
How late your payments have been matters…..
30 days 60 days 90 days Collection
Your score goes….
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This Week….
We will focus on building and repairing your credit history
– How to Get a Copy of your Credit Report– Correcting Errors – Identity Theft– Credit Counseling– Credit Repair
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Credit Health Check Up
Managing your credit health is important.Managing your credit health is important.
Improving your score can help you get better credit terms, lower interest rates, and speed up credit approvals.
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Credit Health Check Up
It is important for you to know how lenders view your credit risk.
An critical time to check your FICO score is 6 months or so before you plan to make a major purchase….
A Car, A Home…..
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Credit Health Check Up
Why check your credit??
So you can… Verify the information on your credit report Correct any errors Take action to improve your score, if
necessary
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Credit Health Check Up
What’s a good FICO score??*What’s a good FICO score??*
Generally speaking… Below 630 – Bad 631-699 – Not Good700 -720 – Good Score721- 760 - Very GoodOver 761 - Great* Based on 9/19/07 FICO data
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Credit Health Check Up
Just like your physical health, you should check on your credit health regularly
Review your credit report least once a year……
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You Can Get a Free Credit Report
Each year you can get a FREE credit report from each credit bureau:
Equifax Experian TransUnion
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You Can Get a Free Credit Report
WRITE:Annual Credit Report Request Service
P.O. Box 105281
Atlanta, Georgia 30348-5281
CALL: 1-877-FACT-ACT (1-877-322-8228)
GO TO THE WEBSITE: www.annualcreditreport.com
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You Can Get a Free Credit Report
If: A company takes adverse action against you AND
you ask for your report within 60 days of receiving notice of the action.
You are unemployed and plan to look for a job within 60 days.
You are receiving public assistance. Your report is inaccurate because of fraud, including
identity theft.
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What’s an Adverse Action
You are denied credit Your credit line or credit card limit is reduced Your interest rate is increased because the
lender says you are a greater credit risk Your credit line or credit card is cut-off
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You Can Also Get A Credit Report…
By purchasing it from one of the credit bureaus:
Equifax: 1-800-685-1111 www.equifax.com Experian: 1-888-397-3742 www.experian.com TransUnion: 1-800-888-4213 www.transunion.com
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Credit Health Check Up
Mistakes get on your credit report most often because of….
Incomplete information or the report contains information about someone else
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Credit Health Check Up
Mistakes typically happen because….
You applied for credit under a different name There was a clerical error in reading information on a
hand-written application You gave an inaccurate Social Security number
(SSN) or the number was misread by the lender Loan or credit card information was inadvertently
applied to the wrong account
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Credit Health Check Up
If there is a mistake on your credit report….
You can dispute any errors by contacting the credit bureaus directly:
Equifax: 1-800-685-1111 www.equifax.com Experian: 1-888-397-3742 www.experian.com TransUnion: 1-800-888-4213 www.transunion.com
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Credit Health Check Up
If there is a mistake on your credit report….
It is best to follow up any verbal error inquiry with a written letter. The credit bureau has 30 days to investigate and respond to you.
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Credit Health Check Up
In reviewing your credit report, you may detect identity theft earlier.
Identity theft is when someone steals your personal information – name, SSN, or credit card number
And uses it to:– Open a new credit card account – Write checks in your name
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Identity Theft Can Hurt Your FICO Score
The unpaid credit card bills or bad checks can damage your credit history.
If you suspect identity theft, you should take immediate action and keep a record of your conversations and correspondence.
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Identity Theft Can Hurt Your FICO Score
You should…. Call the toll-free number at any one of the 3 credit
bureaus and place a fraud alert – you only have to call one to have an alert on all 3.
Contact the lender and close any accounts that have been tampered with or opened fraudulently.
File a report with your local police. File a complaint with the Federal Trade Commission.
Find more information at www.ftc.gov/bcp/microsites/idtheft.
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Identity Theft Can Hurt Your FICO Score
Tips….– Don’t send your SSN information in emails.– Don’t carry your SSN in your purse or wallet.– Keep all your credit tools in a safe place – credit
cards, debit cards, checks, account statements.– Shred any documents that contain financial
information if you no longer need them.– To correct an error on your credit report, work
directly with the credit bureau and your lenders.
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Credit Health Check Up
We know our credit health is not good, so how do we make ourselves healthy
again???
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Credit Health Check Up
Let’s understand the Truth about Credit Repair…..
No company, no individual can remove accurate information from your credit report.
No company, no one can create a new identity for you.
It can take years to repair your credit.
Legitimate companies provide a service BEFORE requesting payment.
You can order your credit report yourself.
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Credit Health Check Up
If you are going to use a Credit Counseling Agency…..
Interview several agencies Before signing any agreements
Ask questions regarding services, fees, and repayment plans.
Check with the State Attorney General , Better Business Bureau, and local consumer protection agency to find out if complaints have been filed.
Make sure your information will be keep confidential.
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Credit Health Check Up
Or you can enroll in a Debt Management Plan…..
It is NOT credit counseling. It is customized advice on managing your money
You deposit money each month with the credit counseling organization.
Your creditors may agree to lower your interest rates or waive certain fees.
You must make regular, timely payments. You may have to agree not to apply for or use any additional
credit will in the plan.
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Credit Health Check Up
Beware of Companies that: Promise to erase bad credit or bankruptcies Promise fast and easy credit repair. Offer to create a new identity for you. Want you to pay for repair services before providing
the services. Do not inform you of your rights and what you can do
yourself.
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Credit Health Check Up
Remember…Only consistent efforts and making your payments on time will
improve your credit.
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Remember…Your FICO Score Matters
Higher FICO Scores Result in Lower Interest Rates and $$$ Paid for
Credit
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Remember the Example from Week 1 $25,000 – 4 Year Auto Loan
FICO® score Interest Rate Paid (APR) Monthly payment *
720-850 6.19% $589
690-719 7.03% $599
660-689 8.57% $617
620-659 10.22% $637
590-619 13.33% $675
500-589 15.26% $699
* Estimated average over the life of the loan. Payments may vary.
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Auto Loan Example
If Your Score is > 760, You Paid $5,280 Less Than the Someone with a Score < 579 Over the Life of the Loan…..
……. Your Monthly Payment is $110 Lower
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Answers to Week 2 Quiz
The most important factor that affects your FICO score isa) New Credit b) Amounts Owed c) Payment History d) Length of
Credit History T/F Once you’ve had late payments, your score will always be
low. T/F Only two factors affect your score at a time. Maxing out on your credit cards could show a) you are overextended b) you are not using credit responsibly c)
you are a greater risk to the lender d) All of the above T/F Poor payment history 3 years ago will have less of an
impact on your credit score than recent payment history. T/F God calls us to be good stewards over what he gives us.
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Short Quiz
You should check your credit report at leasta) Every month b) every year c) every 2 years d) only when you are applying for
credit T/F Checking your credit score will help you get lower interest rates and speed
up credit approvals. T/F A credit counseling agency can remove negative information from your
credit report. T/F Placing a fraud alert at one credit bureau will be sent to all three bureaus. Which way does not protect your identity a) Shedding financial documents b) Not sending your SSN in emails c) keeping
your SSN in your wallet or purse d) Working directly with credit bureau to correct an error
T/F You can only get one free credit report a year from each credit bureau. T/F You should be willing to pay for credit counseling services before you start
the counseling. T/F God calls us to be good stewards over what he gives us.
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Home Activities
Before Week 4: Go to one of the credit bureau websites and get a free credit
report. Review your report for accuracy. Identify any corrections you need to make and contact the
credit bureau. Does there appear to be any loans on your report that you
were unaware of? If yes, Take action, Contact the bureau now. Look around your home and office and assess the protection
of your financial data. Are there any positive changes you can make?
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References
www.myfico.com “Understanding Your FICO Score”
(www.myfico.com/crediteducation) “To Your Credit”
(www.fdic.gov/moneysmart) Federal Trade Commission
(www.ftc.gov/bcp/microsites/idtheft)
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Next Session: Week 4 of 4
Providing tips on good credit practices
Putting it all together: 1-2-3