Bell Ringer

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Bell Ringer

• How do you think a person establishes good
  credit?
• Why do you think this?

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Getting Technical with Credit

• February 9, 2006

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What is credit?

• Loans, credit cards, and other methods of
  deferred payment are know as credit.

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Why do these people want to loan me money?

• Credit-card companies, banks, and other financial
  institutions make money off loaning people money.
• Borrowers (the people who need the money), pay
  fees to the lenders
• These fees can be hefty

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Are you credit worthy?

• Creditors look for capacity, capital, character,
  and collateral when judging your credit
  worthiness.
• Much of this information is obtained from and
  organization called a credit bureau.

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What are you saying?

• If you fail to maintain a good credit rating, you
  will find it very difficult to obtain credit
• Creditors will also look for stability in your
  life

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FICO

• A FICO is a three digit number that determines
  the interest rate you will pay on your credit
  cards, car loan, and home mortgage.
• Just about every financial move you make for the
  rest of your life will be tied to your FICO score

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Ok, so whats this FICO?

• Your FICO score is based on your spending and
  bill-paying habits, and your overall debt load.
• FICO scores range from 300-850, with 300 meaning
  toxic financial risk and 850 being the best.
• You want to be in the 720 range.

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How do I know my score?

• There are three credit bureaus out there
  Equifax, Experian, and TransUnion
• You get one free credit report a year
• Make sure you check with all 3 credit bureaus
  because each bureau receives different
  information about you from different sources

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I thought we were talking FICO

• Once you know your credit score from all three
  bureaus and you have cleared up any mistakes,
  then you are ready for your FICO score
• Like your credit score, you have three FICO
  scores.
• Unless you are buying a house, you only need to
  worry about getting one FICO scoreand that will
  cost you 14.95

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Establishing good credit- focus on what matters
to the FICO folks.

• Pay on time
• Manage your debt-to-credit-limit ratio
• Protect your credit history
• Create the right mix of credit

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But I dont have any credit!

• If you dont have an FICO score its because you
  have no credit
• Credit card companies will still issue you a card
  based on your income, but the interest rate will
  be higher b/c you are an unknown
• Another option is a secured credit card.

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Some tricks to establishing credit

• Maintain savings and checking accounts
• Get a department-store charge card
• Use your bank deposits as collateral for a credit
  card
• Have someone with good credit cosign your credit
  application

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Websites

• http//www.suzeorman.com
• www.myFICO.com

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Bibliography

• The Money Book for the Young Fabulous and Broke
  by Suze Orman (2005).
• Prentice Hall Economics Principles in Action