Credit Counseling

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Credit Counseling Repair

• The National Economics Department
• Financial Freedom Campaign
• NAACP

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Agenda

• What is Credit?
• Pros Cons
• Types of Credit
• Understanding Financial Institutions
• Importance of Building Credit
• Credit Building V.S. Non Credit Building
• What is Predatory Lending
• Understanding Credit Scores Credit Reports

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What is CREDIT?

• Credit Money you borrow and plan to repay.
• It allows you to make a purchase without
  having to pay the entire price at once.
• Interest Is the cost of borrowing money.

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Know the FACTS

• Cons

• Pros

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Types of Credit

• Revolving Credit Allows you to borrow money at
  any time up to a set limit. The most common types
  are credit cards.
• Installment Credit A loan that must be repaid
  over a specific period of time. This type of
  credit is common for larger purchases such as a
  home, car, or education.
• Non-installment or Service Credit Allows you to
  pay for a used service at a later date usually
  without an interest charge. (i.e. A utility bill)

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Types of Credit Continued

• Secured Credit Requires you to provide something
  of value to guarantee that you will repay your
  debt.
• It is usually used for installment loans. If you
  fail to repay, the lender takes your item as
  repayment
• Unsecured Credit Does not require a guarantee
  (collateral)

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Understanding Financial Institutions

• Financial Institutions Establishments that
  provide services, such as investments, loans and
  deposits.
• Some offer Depository Services, which means that
  you are able to open a checking and savings
  account
• Federal Deposit Insurance Corporation (FDIC)
  National Credit Union Share Insurance Fund
  (NCUSIF) Government backed insurance for your
  funds

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The Importance of Building Credit

• Its hard TO GET credit if you HAVE NOT ALREADY
  ESTABLISHED a credit history.
• Without a history, Lenders cant tell if you are
  RESPONSIBLE with your money (by paying your bills
  on time, etc.) or not.
• Building credit is NECCESSARY to proving your
  creditworthiness.

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Ways To Build Your Credit

• Apply for a secured credit card
• Your credit card limit will match the amount you
  have deposited into an account.
• Use a co-signer
• The co-signers good credit will serve somewhat
  like an insurance for your credit behavior

• Use retailer programs
• (i.e. Gas Station Cards, etc) They are generally
  easier to qualify for and can help you to
  establish a credit record.
• Get a credit card with a reputable credit
  building institution
• An institution that will protect and help you to
  grow your money.

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Credit Building Lending
Mission Credit Building Advantages
Banks These for-profit financial institutions are the largest source of deposits and credit in the economy. Protects your money The money you deposit in a bank is 100 insured (up to 250,000) by the Federal Deposit Insurance Corporation (FDIC) which means if anything ever happens to the bank, your money will be returned to you Helps increase your money Generally, when you open a deposit account with a bank, you earn money called interest Banks offer different interest rates on accounts, but the longer you keep your money in your account, the more interest your account earns Offer helpful services i.e. Special Savings Plans for College, or Special Rates on a Car loan, etc. Bank accounts make you think twice about how you spend your money Having to make a trip to the bank, write checks, or use the ATM becomes a conscious decision to spend Your moneys there when you need it, but by thinking about your purchase, you can save more, ultimately, by making wiser decisions
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Credit Building Lending
Mission Credit Building Advantages
Credit Unions These nonprofit cooperative financial institutions exist to serve their members financial needs. Credit Union benefits include the following Typically offer free accounts with no minimum balance requirements. Interest rates on savings, certificates of deposit, and some checking accounts are often higher than those offered by banks. Also, interest charged for loans and credit are often lower. In fact, some credit unions are regulated such that the interest rate on loans and credit cards must not exceed a certain rate.
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Non- Credit Building Lending
Mission Credit Products Terms
Alternative Finance Services These for- profit businesses make consumer and commercial loans. They focus on servicing customers with poor credit histories Alternative Finance Services usually charge higher interest rates and more fees then Traditional Lenders. Loans are often short term Common Examples Payday Loans Car Title Loans Tax Refund Anticipation Loans
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What is Predatory Lending?

• Predatory Lenders
• Direct a borrower away from loans with more
  affordable rates. Instead, the applicant is
  offered a loan with a high interest rate,
  questionable fees, or unnecessary charges.
• Predatory lenders often target low and moderate
  income people, people of color, and the elderly

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Predatory Lending Cont.

• Take the following steps to avoid predatory
  lenders
• Turn away loan offers from anyone who calls you
  on the telephone, comes to your door or send you
  emails without invitation.
• Be wary of high pressure sales pitches, such as
  claims that an offer is only good for a limited
  time
• Consult with a local nonprofit or consumer credit
  counseling agency whenever possible
• Avoid loans that include extras that you do not
  need
• Try to read all documents before signing
• Investigate Interest

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Ask yourself.

• Is this purchase a need or a want?
• Do I really need the item right now, or can I
  wait until I have the cash?
• How much do I have to pay to borrow this money?

• How will this credit payment affect my household
  budget each month?
• Will I still have this item when I finish paying
  for it?
• Should I go home and sleep on my decision before
  using my credit to make a purchase?

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The Credit Score

• A Credit Score is used to predict how likely an
  individual is to repay a new loan based on the
  financial institutions experience with consumers.
• There are various computer models used. In
  general the computer model assigns points to
  information on a credit report
• A FICO Score The credit scores used by the
  credit bureaus are produced from a software
  developed by the Fair Isaac and Company.

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U.S. Credit System
Public Records
Creditors
Collection Agencies
Credit Bureaus/Inquiries
Data Furnishers
TransUnion
Equifax
Experian
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The FICO Score Factors that influence credit

• 35 Payment History
• 30 Amounts Owed
• 15 Length of Credit History
• 10 New Credit
• 10 Type of Credit in Use

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Racial Credit Score Disparities
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Racial Disparities in Credit Scores

• Fair Isaac The percentage of individuals from
  high minority areas with relatively low credit
  scores was twice as large as the share of
  individuals from other areas
• Federal Reserve Fewer than 40 of consumers who
  lived in high-minority areas had credit scores
  over 701, while nearly 70 of consumers who
  lived in mostly white neighborhoods had scores
  over 701
• Harvards Joint Center for Housing Median credit
  score for whites in 2001 was 738, but for Blacks
  it was 676 and Hispanics it was 670
• Freddie Mac Blacks were three times as likely
  and Hispanics twice as likely to have FICO scores
  below 620 as whites

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The Credit Report Explored

• Credit Report A record of how you have paid your
  credit card debt and other loans.
• It reflects the following
• How much debt you have
• If youve made your payments on time
• Whether or not youve paid back your loans

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The Credit Report Explored

• Credit reports are complied by national
  credit reporting agencies called credit bureaus

• There are three Credit Bureaus
• TransUnion
• Equifax
• Experian

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Credit Report Explored

• Note
• There are multiple credit scores available for
  you.
• Different scoring models are used with different
  institutions (Vantage Scoring System v. FICO
  Scoring system).
• The FICO score is the most commonly used one, as
  it is the one used by the three credit bureaus.

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The Credit Report Explored

• Information typically included

• Common errors on the report

• Indentifying Information
• Name, Address, Social
• Credit Information
• Dates opened, credit limits
• Public Record Information
• Bankruptcy, Foreclosures
• Inquiries
• Others who looked at report

• Duplicate Information
• Uninvited Inquiries
• Items that should no longer be listed on your
  credit report

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Want GOOD Credit???

• Tip 1 Pay your bills on time
• Tip 2 Contact your lenders immediately if you
  foresee a payment problem
• Tip 3 Borrow at a minimum
• Tip 4 Do not overdraft accounts
• Tip 5 Understand loan terms/agreements before
  signing

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Protecting Your Finances

• Keep the original copies of your documents in a
  safe place.
• Keep your important computer files safe.
• Make copies of all of your important documents.

• Keep a copy of your important papers in safe, or
  storage that is secure and outside of the home,
  in case of an emergency
• Monitor your accounts regularly

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Recognizing Credit Repair Scams

• The company wants you to pay for credit repair
  services before they provide any services.
• The company recommends that you do not contact
  any of the three major national credit reporting
  companies directly.
• The company tells you they can get rid of most or
  all the negative credit information in your
  credit report, even if that information is
  accurate and current.
• The company suggests that you try to invent a
  new credit identity and then, a new credit
  report by applying for an Employer
  Identification Number to use instead of your
  Social Security number.
• The company advises you to dispute all the
  information in your credit report, regardless of
  its accuracy or timeliness.

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YOUR RIGHTS

• Each of the nationwide consumer reporting
  companies Equifax, Experian, and TransUnion is
  required to provide you with a free copy of your
  credit report once every 12 months, if you ask
  for it.
• It doesnt cost anything to dispute mistakes or
  outdated items on your credit report.
• No one can legally remove accurate and timely
  negative information from a credit report

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Where To Get Help

• Annual Credit Report www.annualcreditreport.com
• Experian www.experian.com
• Equifax www.equifax.com
• TransUnion www.transunion.com
• National Foundation For Credit Counseling
  www.nfcc.org
• Federal Trade Commission Choosing a Credit
  Counselor www.ftc.gov
• Department of Justice List of Credit Counseling
  Agencies- http//1.usa.gov/2P1Bq4
• Better Business Bureau See if there are any
  alerts on the organization you are considering
  www.bbb.org
• Association of Independent Consumer Credit
  Counseling Agencies www.aiccca.org