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The Daily Show

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  • Give participants a chance to answer the question before providing the correct answer. Identifying information such as name, address, SSN, and employment history are not included in the scoring process. “Soft Inquiries” are not included in the scoring process. More is presented about soft inquiries on Slide #11 .
  • Self explanatory
  • Credit score is NOT based on the identifying information in a consumer’s credit report, such as name, address, SSN, birth date, and employment history. It also is not affected by race or gender since these are not permissible factors in the credit granting process. “Soft Inquiries” also do not affect credit scores (see SLIDE #11 for more on soft inquiries).
  • Payment History (35%) [1] Account payment information on types of accounts – [2] Presence of adverse public records, collection accounts, and/or delinquency – [3] Severity of delinquency – [4] Amount(s) past due – [5] Timing of adverse public records and past due/collection accounts – [6] Number of past due accounts on file – [7] Number of accounts paid as agreed Amounts Owed (30%) [1] Amount owed on accounts – [2] Amount owed on specific types of accounts, e.g., revolving credit – [3] Lack of specific type of balance – [4] Number of accounts with balances – [5] Proportion of credit lines used on certain types of revolving accounts – [6] Proportion of certain types of installment accounts still owed Length of History (15%) [1] Time since accounts opened – [2] Time since accounts opened by specific account type – [3] Time since most recent account activity New Credit (10%) [1] Number of recently opened accounts and proportion of accounts that are recently opened, by type – [2] Number of recent inquiries for purpose of obtaining additional credit – [3] Time since recent account opening(s), by type – [4] Time since credit inquiry(s) for additional credit – [5] Re-establishment of positive credit history following past payment problems Account “Mix” (10%) [1] Number of various types of accounts, e.g., c redit card(s) -- revolving credit, retail account(s), installment loan(s), mortgage(s), consumer finance account(s)
  • The opposite of “Hard Inquiries” is “Soft Inquiries.” Answers A, C and D shown above are all “Soft Inquiries” and, therefore, are incorrect (as is Answer E.) More information about “Soft Inquiries” is presented on the next slide.
  • This information is based on the general population’s FICO ® scores as reported by Fair Isaac & Co. As you can see, 60% of the population with credit reports have a score of 700 or better. The score ranges can be interpreted as follows. 800+ is EXCELLENT credit With a score in this range you should be able to get any credit product you want provided you meet other criteria such as income or debt-to-income ratio requirements. You also should be offered the BEST price available. 750-799 is VERY GOOD to EXCELLENT credit As mentioned above, with a score in this range you should be able to get any credit product you want provided you meet other criteria such as income or debt-to-income ratio requirements. You usually should be offered the BEST price available. 700-749 is GOOD to VERY GOOD credit With a score in this range you should be able to get most any credit product you want provided you meet other criteria such as income or debt-to-income ratio requirements. But you may pay a bit more for it especially if your score is in the 700-725 range. 650-699 is FAIR to GOOD credit With a score in this range you should be able to get most any credit product you want provided you meet other criteria such as income or debt-to-income ratio requirements. But you likely will pay more for it. 600-649 is POOR to FAIR credit With a score in this range you likely will have trouble getting many types of credit on your own signature. If you get approved for the credit, you will pay more for it. Below 600 is VERY POOR to POOR credit With a score in this range you likely will not get most types of credit (even with a co-signer). If you get approved for the credit, you likely will pay considerably more for it. We have found at Access Group that the median credit score of our private loan borrowers falls in the range 700-715 and that the median has been improving gradually over the past four years.
  • This site is a collaboration between Bankrate.com and Fair Isaac & Co. It is designed to give consumers an estimate of the range within which their credit score likely falls based on their answers to 10 questions about their credit history. This tool is NOT a substitute for purchasing your credit score from a credit reporting agency but it is a place to start without having to pay any money.
  • Ask participants what they think the score might be after you present the credit profile. This scenario is for a “typical” 1st year grad/professional student using the estimator at www.bankrate.com/brm/fico/calc.asp . The information presented on this slide was used to answer the 10 questions of the estimator. How well this estimator predicts the score range depends on the accuracy of the information that is provided by the user. The assumptions used here were based on the information given below (in italics), and changes in the credit information might change the score range as follows: How many credit cards ? – typical undergraduates graduate with about 3-4 credit cards – it is hard to tell what would happen with a change in number of cards because it will affect a number of the other factors as well (for instance, number of accounts opened in past year and credit utilization), but in general, adding another card probably would cause score to decline When was first loan borrowed ? – assume student opened at least one credit card account and borrowed at least one education loan while an undergraduate -- older is better, the older the credit history the better regarding credit score all else being equal How many accounts applied for in past year ? – assumed 2 education loans were borrowed for the current academic year -- more than 2 or 3 probably would lower score How recently was new account opened ? – assumed it was at the beginning of the fall term – older is better How many accounts have balances ? – assumed 2 credit cards have balances and at least 3 student loans with balances -- less is more in this case, fewer accounts with balances would be better How much debt ? – assumed the maximum amount permitted in the estimator – “less is more”; the lower the debt the better When did you miss a payment ? – assumed NO missed payments to date -- missing a payment is BAD and will have a negative impact on score How many accounts are past due ? – assumed NO past due accounts to date -- this is BAD; past due accounts have a negative impact on score What percent of credit card limits are used ? – assumed less than 30% -- “less is more”; more than 30% utilization seems to have a negative impact on score INTERPRETATION OF ESTIMATED SCORE RANGE: The ESTIMATED credit score range of 675-725 probably would be considered a GOOD score by many lenders. The student likely would be able to get any type of credit he/she needed, although he/she might have to pay a bit more for it, especially if the score was below 700. We have found that in the past four years the average applicant for an Access Group private loan has had a credit score in this range.
  • Now let’s try some variations to the scenario. Suppose the student misses one payment within the past 3 months (that is, one account is reported by a creditor as having a 30-day delinquency). Everything else about the credit report stays the same as in the initial scenario. What would happen to the credit score? It could drop by an average of 85 points according to the estimator! And with a score in this lower range, the student likely would have trouble obtaining many types of credit and would pay more for the credit he/she could obtain. Now, revise the scenario slightly. Suppose the one missed payment is within the past 3-6 months (rather than within the past 3 months)—in other words some time has passed (with positive payment history information) since this derogatory item was reported. What would happen to the score? It still could drop by an average of 80 points according to the estimator. So with the passage of time, the negative impact is not quite as great, but it still is a significant drop from the original estimate. The student probably would still have trouble obtaining many types of credit and would pay more for the credit he/she could obtain. The moral of these two scenarios: Don’t miss payments if you want to maximize your credit score.
  • Now let’s try another type of variation to the ORIGINAL scenario. Suppose the student is using more than 30% of his or her available credit card limit. In this case, let’s assume it’s at 50%. Everything else about the ORIGINAL credit report stays the same as in the initial scenario (there have been NO missed payments or past due accounts). What would happen to the credit score? It could drop by an average of 35 points from the original estimate according to the estimator! As you see, the drop would not be as great as with a missed payment (from the previous slide), but that may be because payment history carries more weight in the scoring process (35%) than debt (only 30%). With a score in this lower range, the student likely would have trouble obtaining some types of credit but probably not as much difficulty as with the missed payment scenario. He or she likely would pay more for the credit he/she could obtain. Now, revise the scenario slightly. In this 2 nd case, let’s assume credit card utilization is at 90%--the student is nearly “maxed” out on his or her credit cards. Everything else about the ORIGINAL credit report stays the same as in the initial scenario (there have been NO missed payments or past due accounts). What would happen to the credit score? It could drop by an average of 60 points from the original estimate according to the estimator! This estimated drop would be greater than in the case of 50% utilization and almost as great as with a missed payment (from the previous slide). With a score in this lower range, the student likely would have more trouble obtaining some types of credit than with less utilization, but probably still not as much difficulty as with the missed payment scenario. He or she likely would pay more for the credit he/she could obtain. The moral of these two scenarios: Don’t accumulate credit card debt if you want to maximize your credit score.
  • Self explanatory
  • This is based on a true story of an Access Group employee.
  • And here’s the rest of the story . . .
  • The Identity Theft Resource Center (ITRC) was founded in December 1999 by Linda Foley as a national nonprofit, grant/donation funded program based in San Diego, CA. Jay Foley from the ITRC spoke about identity theft in a concurrent session at our Conference last November in Orlando, FL. The following information was included in Jay’s presentation and is taken from the handout that was included in the “Conference Materials” binder that was distributed to all attendees at the Conference. Consumer Suggestions from ITRC : ( ©August 2002, Identity Theft Resource Center. Permission granted to companies to distribute.) Cross-cut shred all sensitive papers before they go in the trash. This includes pre-approved credit card offers, checks, insurance benefit statements, bills, statements, anything with barcodes. Guard your SSN – don’t carry it and resist giving it out unless necessary. Don’t put SSN on checks. Check your credit report once a year [from each of the three national credit reporting agencies] – Equifax, Experian and Trans Union. Block your name from pre-approved credit card lists – call (888) 5-OPT-OUT [1-888-567-8688]. Guard your personal information. Carry as little as possible in your wallet. Get credit cards with your picture on them. Be alert to shoulder surfers listening for information. Cancel credit cards you no longer use. Use firewall software to protect your computer (www.zonealarm.com). Watch out for Internet scams. For more information : Contact the Identity Theft Resource Center (ITRC) online at www.idtheftcenter.org or by phone at (609) 693-7935. TRANSITION TO NEXT SLIDE: A new law has been passed that also will help protect each of us from identity theft—the “FACT” Act.
  • The FACT Act (Public Law 108-159) provides a number of protections to consumers that are designed to address the growing problem of identity theft and to further protect the privacy rights of individuals. The Act was signed into law on December 4, 2003 by President Bush. Companies have one year to implement all provisions of the law. Regulations currently are being developed. (Refer attendees to the Law for details.) The following three provisions of the law provide new protections to consumers to help protect them against identity theft and/or to help in early detection of possible identity theft: A free copy of your credit report from each of the 3 national credit reporting agencies on an annual basis (the process for obtaining these free reports is yet to be announced) Mandatory notification by a creditor when derogatory credit information is reported about your account by that company to a credit reporting agency (it is not clear, however, what form that notification must take at this point) Mandatory notification by a creditor when the company offers credit terms to you based on your credit report that are less favorable than the most favorable terms available to a substantial proportion of the customers served by that company (it is not clear, however, what form that notification must take at this point) Regulations must be implemented by the end of 2004 Watch for more details as regulations are published and plans for implementation by credit reporting agencies are announced. Information will be reported in Access Update as it becomes available More information likely will be presented at the upcoming 2004 Graduate and Professional Financial Aid Conference sponsored by Access Group in Scottsdale, AZ.
  • Transcript

    • 1. The Daily Show http://www.thedailyshow.com/video/index.jhtml?videoId=89150&title=Trendspotting---Credit
    • 2. Credit You’re in Charge! Chapter 10 Homework : Read Section 1 & 2…Watch TV commercials and bring in Junk Mail
    • 3.  
    • 4. <ul><li>A Look at Credit Card Debt </li></ul><ul><li>There are currently 1.2 billion cardholders of all ages with a total of $650 billion in debt. </li></ul><ul><li>Americans charged $1.3 trillion to credit cards and $400 billion to debit cards </li></ul>
    • 5. Students & Credit Cards <ul><li>Some recent statistics </li></ul><ul><ul><li>78% of undergraduate students (18-25) have credit cards (up from 67% in 2002) </li></ul></ul><ul><ul><li>32% of students have four credit cards or more </li></ul></ul><ul><ul><li>One in four students owes more than $3,000 </li></ul></ul><ul><ul><li>Nearly 10% owe $7,000 or more </li></ul></ul><ul><ul><li>In 2002 more than 100,000 people under the age of 25 filled for bankruptcy </li></ul></ul>2004 Nellie Mae Study
    • 6. What is the average rate for a credit card? 15.39%
    • 7. What is the highest interest rate currently charged on a credit card? 41%
    • 8. What is the average # of credit cards a person holds? 14
    • 9. What is the Average Household Credit Card Debt? <ul><li>$8,000 </li></ul>http:// www.comcast.net/data/fan/html/popup.html?v =911903823
    • 10. True or False? <ul><li>You can easily get credit if you have never borrowed before and have not had any credit problems. </li></ul><ul><li>FALSE </li></ul><ul><li>You can help yourself to obtain larger amounts of financing if you use small amounts of credit first and repay them as agreed. </li></ul><ul><li>TRUE </li></ul>
    • 11. True or False? <ul><li>Interest rates can vary greatly from lender to lender. </li></ul><ul><li>TRUE </li></ul><ul><li>Applying for as many credit cards as possible will improve your credit rating. (ex. AE credit card, Best Buy credit card) </li></ul><ul><li>FALSE </li></ul>
    • 12. True or False? <ul><li>Credit cards are convenient but can be risky if not used carefully. </li></ul><ul><li>TRUE </li></ul><ul><li>If you pay your balance in FULL each month, you will never pay interest. </li></ul><ul><li>TRUE </li></ul>
    • 13. True or False? <ul><li>When making a decision on a loan application, a lender does a full review of the applicant’s income, existing commitments and expenses, and past credit experience. </li></ul><ul><li>TRUE </li></ul><ul><li>Credit bureau information is available to anyone who will pay to receive a report. </li></ul><ul><li>FALSE </li></ul>
    • 14. True or False? <ul><li>The most important thing to do when borrowing is to read and understand the loan agreement before you sign. </li></ul><ul><li>TRUE </li></ul><ul><li>If you have trouble paying bills, you should call your creditors to explain the situation. </li></ul><ul><li>TRUE </li></ul>
    • 15. True or False? <ul><li>Paying your credit card bills on time each month is both a necessary and sufficient condition for having good credit. </li></ul><ul><ul><li>Paying your bills on time is necessary for good credit, but not sufficient. </li></ul></ul><ul><ul><li>All the credit account information in your credit report affects your credit rating. </li></ul></ul><ul><li>FALSE </li></ul>
    • 16. What is Credit?
    • 17. What is Credit? <ul><li>TRUE or FALSE </li></ul><ul><li>Supplying of money, goods, or services in exchange for the promise of future payment (which usually includes interest) </li></ul><ul><li>Examples of Credit - loan from the bank, using electricity in your house, credit cards. </li></ul>Section 1
    • 18. How do Credit Cards Work? <ul><li>Stores, retailers, and merchants must pay a fee to use (accept) credit cards. </li></ul><ul><li>Example: </li></ul><ul><ul><li>The store makes a $1000 sale on a Chase Visa card. </li></ul></ul><ul><ul><li>Chase then pays the store $960. </li></ul></ul><ul><ul><li>The fee the store pays the bank is 4%. </li></ul></ul><ul><ul><li>(Merchandise may then be overpriced.) </li></ul></ul>
    • 19. Why Borrow?? <ul><li>TRUE or FALSE </li></ul><ul><li>Credit can help you buy the things you want earlier than you could get them by savings. </li></ul><ul><ul><li>Buying a home (look at the equity) </li></ul></ul><ul><ul><li>Furthering your education </li></ul></ul><ul><ul><li>For your health </li></ul></ul>
    • 20. Total Credit Payments <ul><li>TRUE or FALSE </li></ul><ul><li>Your total credit payments should not exceed 20 to 25% of your monthly take-home pay! </li></ul>
    • 21. What is the true cost of paying the “minimum” <ul><li>Suppose: </li></ul><ul><ul><li>Credit card balance = $8,000 </li></ul></ul><ul><ul><li>Interest rate (APR) = 18% </li></ul></ul><ul><ul><li>Minimum payment = 2% of balance </li></ul></ul><ul><li>How long would it take to pay it off? </li></ul><ul><ul><li>647 months / 54 years </li></ul></ul><ul><ul><li>Total interest paid = $22,931 </li></ul></ul><ul><ul><li>This assumes you STOP using the credit cards! </li></ul></ul><ul><ul><li>It will take even longer if you don’t stop! </li></ul></ul>
    • 22. Creditworthiness??? <ul><li>TRUE or FALSE </li></ul><ul><li>To get a loan, you must demonstrate your creditworthiness to lenders. </li></ul><ul><ul><li>Character </li></ul></ul><ul><ul><li>Capacity </li></ul></ul><ul><ul><li>Capital </li></ul></ul><ul><ul><li>Collateral </li></ul></ul><ul><ul><li>Conditions </li></ul></ul>Section 2
    • 23. 5 C’s of Credit – Getting Credit <ul><li>1 st four deal with a borrower’s Ability to Pay </li></ul><ul><li>C haracter – Measure of your sense of financial responsibility. How trustworthy are you? Credit record. Willing to repay? </li></ul><ul><li>C apacity – Measure of your financial ability to repay a loan. Ability to meet financial obligations. Steady job? How long have you worked? How much debt to you currently have? </li></ul>
    • 24. 5 C’s of Credit – Getting Credit <ul><li>C apital – Value of what you own, including savings, investment and property. (net worth) </li></ul><ul><li>Collateral – Additional forms of security you can provide the lender. (your assets) </li></ul><ul><li>Last refers to general business conditions </li></ul><ul><li>Conditions – What is the intended purpose of the loan? What are the current economic conditions and how does your company fit in? </li></ul>
    • 25. Loan Application <ul><li>TRUE or FALSE </li></ul><ul><li>A Credit Application consists of…name of employer, salary, years worked at present employer, address and length of time living there, home ownership, credit reference, & bank references </li></ul>
    • 26. Go to the loan application on page 20 in your packet and fill it out
    • 27. Credit Report <ul><li>TRUE or FALSE </li></ul><ul><li>When applying for an apartment, buying a car or even applying for a job, they will run your credit report to check what kind of person you are. </li></ul>
    • 28. What is a Credit Report? college – lesson 4 - slide 4-F
    • 29. payment codes <ul><li>Status type of account code </li></ul><ul><li>-O Open (entire balance due each month) </li></ul><ul><li>-R Revolving (payment amount variable) </li></ul><ul><li>-I Installment (fixed number of payments) </li></ul>Status timeliness of payment 0 Approved not used; too new to rate 1 Paid as agreed 2 30+ days past due 3 60+ days past due 4 90+ days past due 5 120+ days past due; collection account 6 Making regular payments under wage earner plan or similar arrangement 7 Repossession 8 Charged off to bad debt college – lesson 4 - slide 4-G
    • 30. Your Credit Score <ul><li>TRUE or FALSE </li></ul><ul><li>A company that collects information about consumers’ credit history and sells it to lenders are called Credit Bureaus </li></ul><ul><ul><li>Trans Union </li></ul></ul><ul><ul><li>Equifax </li></ul></ul><ul><ul><li>Experian </li></ul></ul>
    • 31. What’s a credit score? <ul><li>A credit score is: </li></ul><ul><li>A numerical forecast of the likelihood you’ll successfully repay a future loan (300-850) </li></ul><ul><li>Based on credit account information in your credit report </li></ul><ul><li>An automated credit evaluation tool </li></ul><ul><li>Comparable to your “credit GPA”. . .you want the highest possible score! </li></ul>
    • 32. What factors affect your score?
    • 33. Question <ul><li>Inquiries that you request (“Soft” inquiries) </li></ul><ul><li>“ Hard” inquiries </li></ul><ul><li>Inquiries by lenders who want to solicit you for a new credit card (“Soft” inquiries) </li></ul><ul><li>Inquiries by prospective employers or landlords (“Soft” inquiries) </li></ul><ul><li>All the above would impact your score </li></ul><ul><li>What types of inquiries impact your credit score? </li></ul>“ Hard” inquiries occur when a lender requests your credit report because you have applied for credit from them
    • 34. How do people score?
    • 35. Estimating Your Score <ul><li>Fair Isaac & Co. and Bankrate.com jointly developed credit score estimator: </li></ul><ul><ul><ul><li>www.bankrate.com/brm/fico/calc.asp </li></ul></ul></ul><ul><li>Credit score range is estimated based on answers to 10 questions about credit use and payment behavior </li></ul>
    • 36. What’s the score? A Typical Student <ul><li>How many credit cards? </li></ul><ul><li>When was first loan borrowed? </li></ul><ul><li>How many accounts applied for in past year? </li></ul><ul><li>How recently was new account opened? </li></ul><ul><li>How many accounts have balances? </li></ul><ul><li>How much debt? (other than mortgage) </li></ul><ul><li>When did you miss a payment? </li></ul><ul><li>How many accounts are past due? </li></ul><ul><li>What percent of credit card limits are used? </li></ul><ul><li>2 - 4 </li></ul><ul><li>2 - 5 yrs. </li></ul><ul><li>2 </li></ul><ul><li>3 - 6 mos. </li></ul><ul><li>5 - 6 </li></ul><ul><li>$20,000+ </li></ul><ul><li>Never </li></ul><ul><li>None </li></ul><ul><li>20% - 29% </li></ul>675 to 725
    • 37. What would happen to typical student’s credit score if… Score DROPS 590 - 640 Missed one payment within past 3 months Missed one payment within past 3 – 6 months Score DROPS 595 - 645 Original score was 675 to 725
    • 38. What would happen to typical student’s credit score if… Score DROPS 640 - 690 Owe at least 50% of your available credit card limit Owe at least 90% of your available credit card limit Score DROPS 615 - 665 Original score was 675 to 725
    • 39. To Maximize Your Score… <ul><li>Don’t procrastinate – pay all your bills on time </li></ul><ul><li>Avoid owing more than 30% of your available revolving credit </li></ul><ul><li>“ Less is more” – keep your revolving debt as low as possible </li></ul><ul><li>“ Older is better” – older accounts score more favorably </li></ul><ul><li>Minimize the opening of new revolving accounts </li></ul>
    • 40. How to check your credit <ul><li>As of March 1, 2005 you can now get your credit report for FREE!!! </li></ul><ul><li>https://www.annualcreditreport.com </li></ul>
    • 41. <ul><li>Overhead Projector $3,000.00 </li></ul>
    • 42. <ul><li>Screen to show Power Point $250.00 </li></ul>
    • 43. <ul><li>Consumer Ed Textbook $60.00 </li></ul>
    • 44. <ul><li>Pen to take notes $1.00 </li></ul>
    • 45. <ul><li>Having class with Mr. Kelley… </li></ul><ul><li>Priceless </li></ul><ul><li>For some things money can’t buy…for everything else, there’s Consumer Education Class </li></ul>
    • 46. QUICK REVIEW <ul><li>Commercials </li></ul><ul><ul><li>What is the overall feeling? </li></ul></ul><ul><ul><ul><li>Makes you want to spend money!!!! </li></ul></ul></ul><ul><li>Junk Mail </li></ul><ul><ul><li>What is the overall feeling? </li></ul></ul><ul><ul><ul><li>Makes you feel like you are getting a deal. </li></ul></ul></ul><ul><ul><ul><li>Throw it right in the garbage! </li></ul></ul></ul>
    • 47. QUICK REVIEW <ul><li>There are different types of Credit Cards </li></ul><ul><ul><li>Credit cards from Banks </li></ul></ul><ul><ul><li>Retail Credit Cards </li></ul></ul><ul><ul><li>Travel and Entertainment Credit Cards </li></ul></ul><ul><ul><li>Gasoline Credit Cards </li></ul></ul><ul><li>What are the 5 C’s of credit and what do they mean??? </li></ul><ul><ul><li>Capacity </li></ul></ul><ul><ul><li>Character </li></ul></ul><ul><ul><li>Capital </li></ul></ul><ul><ul><li>Collateral </li></ul></ul><ul><ul><li>Conditions </li></ul></ul>
    • 48. Types of Consumer Borrowing <ul><li>TRUE or FALSE </li></ul><ul><li>There are 2 different types of consumer spending </li></ul><ul><ul><li>Unsecured loan (Open-End Credit) </li></ul></ul><ul><ul><li>Secured loan (Closed-End Credit) </li></ul></ul>Section 3
    • 49. <ul><li>Unsecured loan (Open-End Credit) </li></ul><ul><ul><li>Not backed by collateral. </li></ul></ul><ul><ul><li>Based on your creditworthiness </li></ul></ul><ul><ul><li>Pay higher interest rates </li></ul></ul><ul><ul><li>Credit Cards </li></ul></ul><ul><li>Secured loan (Closed-End Credit) </li></ul><ul><ul><li>Loan that is backed by something of value pledged to ensure payment </li></ul></ul><ul><ul><li>Collateral </li></ul></ul><ul><ul><li>Installment loan** </li></ul></ul><ul><ul><ul><li>Repaid with a certain amount of payments with a certain interest rate </li></ul></ul></ul><ul><ul><ul><li>Down payment needed </li></ul></ul></ul>
    • 50. Where do you get loans? <ul><li>TRUE or FALSE </li></ul><ul><li>You can get a loan from banks, S&L associations, Credit Unions, Finance Companies, Life Insurance Companies, Credit Card Cash Advances, Pawnbrokers, Rent-to-Own Companies. </li></ul>
    • 51. Regular Charge Accounts <ul><li>Must pay entire amount each month </li></ul><ul><ul><li>Often within 25-30 days after billing date. </li></ul></ul><ul><li>No stated interest rate…Do not pay interest </li></ul><ul><li>Must come in grip with credit problems every month </li></ul><ul><li>Examples: _________________ </li></ul>
    • 52. Revolving Charge Accounts <ul><li>Carry a balance from one month to the next. </li></ul><ul><li>Minimum payment due or more </li></ul><ul><li>APR is the annual percentage rate of interest the is charged for credit. </li></ul><ul><li>The maximum rate that may be charged is controlled by state law. </li></ul><ul><li>Buy when the time is right…and pay when the time is right. </li></ul><ul><li>Examples: ____________________ </li></ul>
    • 53. Credit Card Costs <ul><li>Costs: </li></ul><ul><ul><li>Interest </li></ul></ul><ul><ul><li>Grace period (time when no interest is charged) </li></ul></ul><ul><ul><li>Annual fees </li></ul></ul><ul><ul><li>Penalty (late payment, over credit limits, etc.) </li></ul></ul><ul><li>Features: </li></ul><ul><ul><li>Credit limit </li></ul></ul><ul><ul><li>How widely the card is accepted </li></ul></ul><ul><ul><li>What services and features are available </li></ul></ul>
    • 54. Advantages of Credit Cards <ul><li>Temporary expansion of income </li></ul><ul><li>Reduced need for cash </li></ul><ul><li>Provide convenience and security </li></ul><ul><li>Establishes credit </li></ul><ul><ul><li>a credit rating is a record, kept by a credit rating agency that tells prospective creditors how good a person is at paying off debts </li></ul></ul><ul><li>Advance notice of sales </li></ul><ul><li>Reduced sale prices </li></ul>
    • 55. Disadvantages of Credit Cards <ul><li>Interest/Finance Charges </li></ul><ul><li>Can lead to overspending (customers spend 20 to 30% more using credit cards than they would with cash) </li></ul><ul><li>Can give you bad credit rating (not making payments on time, incurring excessive debt) </li></ul><ul><li>College students (with limited or no credit history and income) are charged higher interest rates. </li></ul>
    • 56. Credit Rights and Responsibilities <ul><li>TRUE or FALSE </li></ul><ul><li>The Truth in Lending Act of 1968 requires creditors to adequately inform consumers about the costs and conditions of borrowing. </li></ul><ul><ul><li>Finance charge – Total cost a borrower must pay for a loan, including interest and fees. </li></ul></ul><ul><li>TRUE or FALSE </li></ul><ul><li>The Fair Debt Collection Practices Act (1977) states it is illegal to threaten, harass, or abuse a debtor </li></ul>Section 4
    • 57. Consumer Credit Rights <ul><li>TRUE or FALSE </li></ul><ul><li>The Equal Credit Opportunity Act of 1974 says it is illegal to discriminate against applicants on the basis of the applicant's sex, marital status, race, national origin, religion, age, or receipt of public aid. </li></ul>
    • 58. Consumer Credit Rights <ul><li>TRUE or FALSE </li></ul><ul><li>The Fair Credit Billing Act (1974) states you have the right to fix any errors in your credit card statement. </li></ul><ul><li>TRUE or FALSE </li></ul><ul><li>The Fair Credit Reporting Act (1970) protects the privacy and accuracy of information in a credit report. </li></ul>
    • 59. Credit Card protections <ul><li>Prompt credit for payment </li></ul><ul><ul><li>Issuer must credit your account on the day they receive payment </li></ul></ul><ul><li>Refunds of credit balances </li></ul><ul><ul><li>You have option of keeping the credit balanced or receiving refund </li></ul></ul>
    • 60. Credit card protections <ul><li>Unauthorized charges </li></ul><ul><ul><li>If you report your card lost before it is used, you cannot be held responsible for any unauthorized charges </li></ul></ul><ul><ul><li>If you card is used before you report it lost, you are liable for $0 if reported within 2 business days. After that, you are liable for no more than $50.00 </li></ul></ul><ul><li>Disputes about merchandise </li></ul><ul><ul><li>In some circumstances, you have the right to withhold payment for unsatisfactory merchandise or services. </li></ul></ul>
    • 61. Consumer Credit Responsibilities <ul><li>Credit is a privilege, not a right! </li></ul><ul><ul><li>Accept responsibility </li></ul></ul><ul><ul><li>Know your debt capacity </li></ul></ul><ul><ul><li>Self-Control with Credit </li></ul></ul><ul><ul><ul><li>Pay more than the minimum </li></ul></ul></ul><ul><ul><ul><li>Avoid too many credit cards </li></ul></ul></ul><ul><ul><ul><li>Pay with cash </li></ul></ul></ul><ul><ul><ul><li>Keep accurate records </li></ul></ul></ul>
    • 62. How to establish a good Credit History <ul><li>TRUE or FALSE </li></ul><ul><li>Ways to establish a good credit history are to start small, not missing a payment, save regularly, get your own card (not a parent/guardian or spouse), and avoiding Bankruptcy </li></ul>Section 5
    • 63. Make sure to read the small print… you are legally bound by the contract you sign <ul><li>Balloon Payment Clause - when the last payment is much higher than the previous payments. </li></ul><ul><li>Acceleration Clause - gives the seller the right to declare the entire balance if the buyer misses even one installment payment. </li></ul>
    • 64. Bankruptcy <ul><li>TRUE or FALSE </li></ul><ul><li>Using credit until you cannot possibly pay off the debt is the worst credit mistake you can make. </li></ul><ul><ul><li>Chapter 7 (‘straight bankruptcy’) </li></ul></ul><ul><ul><li>Chapter 13 (‘wage earner bankruptcy’) </li></ul></ul>
    • 65. Help for Credit Problems <ul><li>Debt Consolidation Loans </li></ul><ul><ul><li>One large loan made to enable debtors to pay several debts at once. </li></ul></ul><ul><ul><li>Hope to get a consolidation at a lower rate than your are paying currently. </li></ul></ul><ul><li>Credit Counseling Services </li></ul><ul><ul><li>Non-profit service that helps consumers create budgets to pay their bills. </li></ul></ul><ul><ul><li>Make sure to check them out on the BBB. </li></ul></ul>
    • 66. True-Name Fraud <ul><li>A True Story… </li></ul><ul><li>Person accidentally left purse on public transit </li></ul><ul><li>Purse was taken by someone; trouble began </li></ul><ul><li>More than $10,000 charged within 24 hours on credit cards </li></ul><ul><li>New account opened that was never paid </li></ul>What do you think happened to her credit?
    • 67. True-Name Fraud <ul><li>What’s her score? </li></ul><ul><li>Has taken a lot of work to clear credit history </li></ul><ul><li>Most recent corrected credit report has credit score of 737 – a Very Good credit score </li></ul><ul><li>BUT — one credit reporting agency still is reporting the fraudulently opened account with charged off debt – that score is 599 </li></ul>What can you do to protect yourself?
    • 68. Protecting Yourself <ul><li>Shred sensitive papers/documents </li></ul><ul><li>Protect your SSN </li></ul><ul><li>Check your credit reports at least once a year </li></ul><ul><li>Block your name from pre-approved credit card lists </li></ul><ul><li>Guard your personal information </li></ul><ul><li>Use firewall software to protect your computer </li></ul>Suggestions from the Identity Theft Resource Center (ITRC): For more information, visit the ITRC Web site at www.idtheftcenter.org
    • 69. Another Scam <ul><li>ATM SCAM </li></ul>
    • 70. Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”) <ul><li>Provides new protections to consumers to help protect them against identity theft, including: </li></ul><ul><li>Free credit reports annually </li></ul><ul><li>Notification when derogatory information is reported </li></ul><ul><li>Notification when offered credit terms are less favorable </li></ul><ul><li>Must be implemented by December of 2004 </li></ul><ul><li>Watch for more details </li></ul>
    • 71. Credit Card Don’ts <ul><li>Don’t get a card with a high limit </li></ul><ul><li>Don’t get more than 1 card </li></ul><ul><li>Don’t use them for cash advances </li></ul><ul><li>Don’t charge more than you can pay off in a month </li></ul><ul><li>Don’t let banks increase your credit limit </li></ul>Source: USA Funds Life Skills -Module 1
    • 72. Credit Card Do’s <ul><li>Limit the number of cards you have </li></ul><ul><li>Use a debit card vs. a credit card </li></ul><ul><li>Use a card that has no annual fee and lower interest rates </li></ul><ul><li>Know all of your card’s hidden fees </li></ul><ul><li>Always pay more than the minimum amount each month </li></ul><ul><li>Pay on time, all the time. </li></ul>

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