Understanding and Using Credit

1
Understanding and Using Credit
2
Overview

• Credit
• Credit Reports and Scores
• Identity Theft
• Credit Trouble

3
Credit
4
What is Credit?

• The benefit of being able to pay at a later date
  for the goods and/or services that one enjoys
  today
• Privilege
• Responsibility

5
Types of Credit

• Secured
• Repayment is backed by some form of collateral
• Car loan (secured by the car)
• Mortgage (secured by the property)
• Secured loan (secured by cash or other property)
• Unsecured
• Simply the promise to repay
• Alternative (private) education loan
• Revolving credit card
• Personal loan

6
Benefits of Good Credit

• A person with good credit is someone considered
  most likely to repay a loan
• Makes it more likely that you will receive the
  credit you want when you want it
• Car rentals
• Apartment rentals
• Utilities and phone service
• When financing education costs (particularly
  postgraduate education), good credit is needed to
  obtain an alternative student loan

7
Create a Good Credit History

• Pay your bills on time
• Keep your debt load reasonable
• Understand the basics
• Know the terms and conditions of all credit
• Review your credit history every year

8
Applying for Credit

• Print clearly
• Use your complete name
• Only apply for the credit you want
• Review your credit report before making a major
  purchase

9
Credit Reports and Scores
10
Your Credit Report

• Your financial resume

11
Information on Your Credit Report

• Personal Information
• Name, address (current and prior), SSN, DOB,
  employment
• Credit Information
• Current open accounts, closed accounts, rating
  and number of day(s) delinquent, timeliness of
  repayment, installment or open ended
• Public Record Information
• Bankruptcy, legal judgment, property lien,
  warrants

12
Information on Your Credit Report

• Inquiries
• Creditors and agencies who have requested your
  credit report
• Statements of dispute

13
(No Transcript)
14
Your Credit Report

• Visit annualcreditreport.com
• One free credit report per year from each
  reporting agency
• Additional reasons for free reports
• Unemployed and plan to apply for employment in
  the next 60 days
• Denied credit within 60 days on public assistance
• Denied employment or insurance in the past 60
  days
• A victim of identity theft

15
Credit Reporting Agencies

• Equifax, 1-800-685-1111
• www.equifax.com
• Trans Union, 1-800-888-4213
• www.transunion.com
• Experian, 1-888-397-3742
• www.experian.com

16
Fixing Credit Errors

• Document discrepancies in your credit report in a
  letter to the credit reporting agency, detailing
• Name, address, social security number
• Account and account numbers in dispute
• The information you are disputing and why
• Any documentation to support your claim
• A request for an updated credit report reflecting
  the correct information

17
Credit Scoring

• Credit scoring rates your risk as a borrower
• Developed by Fair, Isaac Co. FICO Score
• It is a system creditors use to help determine
• Whether or not to give you credit
• Interest rate to charge for credit
• Awards points for each factor that helps predict
  who is most likely to repay a debt
• Your credit score is based on information in your
  credit report make sure your it is accurate

18
What is Your Credit Score?

• A forecast of how likely you are able to repay a
  debt as agreed during the next 24 months
• The higher the score, the better the score, and
  the better the forecast that you will repay
• A snapshot of your credit history at a particular
  point in time
• Whether or not to give you credit
• Interest rate to charge for credit
• Only includes factors related to your credit
• Always changing

19
Information Considered in Scoring

20
Credit Scoring Does Not Consider

• Race, color, religion, national origin, sex or
  marital status
• Age
• Employment history, occupation, salary
• Where you live
• Non-credit inquiries

21
Why Credit Scoring?

• More than 70 of the top 100 financial
  institutions use FICO scoring to make billions
  of credit decisions annually because it is
• Fast
• Consistent
• Objective
• Cost Effective
• Reliable and updated regularly

22
FICO Scores Ranges Grades

• 760 above Excellent A
• 700 to 759 Very Good A
• 680 to 699 Good A
• 660 to 679 Above Satisfactory B
• 640 to 659 Satisfactory B-
• 620 to 639 Below Satisfactory C

23
Improving Your FICO

• Make loan/credit payments on time
• Pay down your debt and consider charging less
  often
• Keep balances low
• Dont close old, paid-off accounts
• Dont be afraid of credit counseling
• Stay out of bankruptcy

24
Identity Theft
25
Identity Theft

• Identity theft is the deliberate assumption of
  another persons identity
• Unauthorized use of personal information, such as
  date of birth, mothers maiden name and social
  security number
• Usually used to gain access to credit and commit
  fraud
• Often committed by people we know, like friends,
  family, or co-workers

26
Protect Yourself

• Check financial statements promptly
• Review your credit report annually
• Be careful with personal information
• Say NO
• Opt out of credit offers
• Minimize the number of credit cards you carry by
  calling 1-888-567-8688

27
Protect Yourself

• Shred and destroy
• Protect your mail
• Beware of strange ATMs
• Watch shoulder surfing
• Keep your eye on your card at restaurants and gas
  stations

28
Steps to Take if You Are a Victim

• Place a fraud alert with credit bureaus
• Start your research
• File police report
• File identity theft affidavit
• Call 1-877-ID-THEFT or mail to
• Identity Theft Clearinghouse
• Federal Trade Commission
• 600 Pennsylvania Ave, NW
• Washington, DC 20580
• Document everything

29
Credit Trouble
30
Signs of Credit Trouble

• Rising credit balances, decreasing income
• Paying just the minimum monthly payment
• Too many credit cards
• Near, at, or over credit limit
• Charges exceed monthly payments
• Using credit for food or gas
• No job
• Receiving letters and calls on debts
• Using credit cards in place of cash

31
Steps Toward Resolving Trouble

• Contact your lenders immediately
• Stop using credit
• Pay your bills when they are due
• Consolidate
• Get help from the professionals

32
Credit Counseling Resources

• National Foundation for Credit Counseling (NFCC)
  and its member agencies
• Member agencies known as Consumer Credit
  Counseling Services (CCCS)
• To locate, visit www.nfcc.org or call
  [phone]

33
QUESTIONS
34
THANK YOU!