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Credit, Risk Assessment Score and Budgeting
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Credit, Risk Assessment Score and Budgeting

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  • 1. American Debt Counseling, Inc. Credit, Risk Assessment Score and Budgeting www.americandebtcounseling.org
  • 2. Credit Reports & CRA’s
  • 3. What is a Credit Reporting Agency?
    • A credit reporting agency (CRA)
      • gathers and maintains credit data
        • aka credit report/credit history
        • shows payment history
      • available to subscribers who have a “ permissible purposes”
        • lenders
        • employers
        • landlords
        • government agencies
  • 4. Understanding Your Credit Report
    • Credit Reports Contain:
      • Identifying Information
        • Name
        • Current and former addresses
        • SSN, Date of Birth, Employers
      • Public Record/Collection Acct Information
        • Tax or State Liens
        • Bankruptcy
        • Foreclosure
        • Judgments
  • 5. Understanding Your Credit Report
      • Credit Information
        • Opening Date
        • High Credit or Credit Limit
        • Loan Amount
        • Monthly Payment
        • Balance
        • Past Due Amount
        • Type of Account and Rating
          • O, R, I
          • 1,2,3,4,5,7,8,9
        • Responsible Party
          • Joint, Individual, Maker/Co maker
  • 6. Understanding Your Credit Report
      • Inquiries (Hard)
        • Credit Inquiries
          • Automobile
          • Mortgage
          • Credit Cards
        • Employment Inquiries
          • Current or future employers (EMP)
  • 7. Understanding Your Credit Report
      • Inquiries (Soft)
        • Promotional Inquiries
          • Pre-approved offers (PRM)
          • Account Monitoring (AM)
          • Account Review (AR)
          • Consumer Copy (ECIS)
  • 8. How Long Does Information Stay On File?
    • Credit Accounts
      • Accounts paid as agreed
        • Up to 10 years from DLA
      • Accounts not paid as agreed
        • 7 years from DLA
    • Collection Accounts
        • 7 years from DLA (Date of Last Activity)
  • 9. How Long Does Information Stay On File?
    • Bankruptcy and Judgments
      • Chapter 7 – Liquidation of debts
        • reported for 10 years
      • Chapter 13 - Reorganization or Repayment
        • reported 7 years
      • Lawsuit or an unpaid judgment
        • reported for 7 years
        • or until the statute of limitations runs out, whichever is longer
  • 10. How Long Does Information Stay On File?
    • Tax Liens
      • Paid IRS Tax Liens
        • 7 years from date paid
      • Unpaid IRS Tax Liens
        • indefinitely
    • Student Loans
      • Defaulted Student Loans
        • indefinitely
        • cannot be included in bankruptcy
  • 11. How Do I Get A Copy of My Credit Report?
    • Contact the three major credit reporting agencies:
      • Equifax www.equifax.com
      • Experian www.experian.com
      • Trans Union www.transunion.com
  • 12. What Does It Cost?
    • You’re entitled to a free credit report if:
      • Your application has been denied for
        • credit
        • insurance
        • employment
            • AND
      • You request your report within 60 days of receiving the notice of the adverse action.
  • 13. Ways to Obtain a Free Copy?
    • You’re also entitled to a free copy of your credit report once a year if:
      • You're unemployed and plan to look for a job within 60 days,
      • You're on welfare, or
      • Your report is inaccurate because of fraud.
  • 14. Ways to Obtain a Free Copy? Cont.
    • Go to www.annualcreditreport.com
    • To access this website you will need your address, social security number etc.
    • Once access has been granted you will be able to separately access each CRA.
    • Transunion and Equifax allow registration which will keep information for 30 days.
  • 15. How Do I Correct Errors on My Credit Report?
    • Get a copy of your credit report
      • Highlight the error's
      • Write a letter of dispute that includes an explanation of the error's
      • Locate and photocopy
        • documents to show items reported incorrectly
      • Send everything to CRAs
        • highlighted copy of your credit report,
        • your letter of dispute,
        • and a copy of any additional information
  • 16. What Is The FICO ® Credit Score, Anyway?
  • 17. FICO ® Credit Score
    • What is a FICO ® Score?
      • A generic risk score used by lenders, developed by Fair, Isaac Corporation in conjunction with Equifax, Experian and TransUnion.
      • Predicts how likely you are to repay your debt; if you qualify for the loan; and what your interest rate will be.
  • 18. FICO ® Credit Score
    • CRA Product Names
      • Equifax---------------- BEACON ®
      • Experian-------------- Experian/Fair Isaac Risk Model
      • TransUnion---------- EMPIRICA ®
  • 19. FICO ® Credit Score
    • Score Ranges
    • 300 to 900
      • The higher the score the better the credit
      • The lower the score the riskier the credit
  • 20. FICO ® Credit Score Interest Rate
    • What a Difference a Score Makes!
      • Score APR
      • 720-850 5.604% A+
      • 700-719 5.729% A
      • 675-699 6.267% B
      • 620-674 7.417% C
      • 600-619 8.531% D
      • 500-599 9.289% F
  • 21. What a FICO ® Score Considers
    • Five types used to calculate a FICO ® score . (Each type counts as a percentage of a total FICO ® score)
      • Payment history= 35%
      • Amounts owed= 30%
      • Length of credit history= 15%
      • New credit= 10%
      • Types of credit in use= 10%
  • 22. What A FICO ® Score Does Not Consider
    • Race, color, religion, national origin, sex and marital status
    • Age
    • Employment
      • salary
      • occupation
      • title
      • employer
      • date employed
      • employment history
    • Residence
  • 23. What A FICO ® Score Does Not Consider
    • Reported child/family support obligations
    • Interest rate on existing accounts
    • Consumer/CRA Inquiries
    • Information not found in credit report
    • Information not proven to be predictive of future credit performance
    • Participant in credit counseling
  • 24. Tips For Improving Your FICO® Score
    • Pay bills on time
    • Bring past due accounts current and keep them current
    • Keep balances low
    • Contact creditors immediately if problems arise
    • Pay debt off – don’t move it around
    • Don’t open several new accounts
    • Don’t have excessive inquiries
    • Use caution when closing accounts
  • 25. Credit Repair Companies
    • Everything a credit repair company can do legally, you can do yourself !
      • Credit repair companies charge money—sometimes lots of money
      • No one can legally remove accurate negative information from a credit report
      • If you decide to work with a company, research its offer carefully
  • 26. Payday Loans
    • Payday Loans
      • Personal check in exchange for cash
      • Held 15 days
      • Fees range from $30 and up
      • Rollovers
        • Additional Fees added
  • 27.
    • Be Patient
    • the Payoff Is Worth It!
  • 28. The True Cost of Credit Card Debt
  • 29. The True Cost of Paying the Minimum Payment!
    • (For all details, see credit card disclosures)
    • EXAMPLE
    • $2,000 X 2% (minimum monthly payment %) = $40.00
      • $40.00 $2,000.00
      • - 30.00 Finance Charge Amt to Principal - 10.00
      • $10.00 Amt to Principal New Balance $1,990.00
    How does interest work? A. Average Daily Balance $2,000 Maxed-0ut Credit Card! B. Annual Percentage Rate 18% APR Or 1.5% per month C. Minimum Payment Percentage 2% of balance 2% x $2000 = $40 E. Finance Charge $30.00 1.5% x $2000
  • 30. The True Cost of Paying the Minimum Payment!
  • 31. The True Cost of Paying the Minimum Payment!
  • 32. The True Cost of Paying the Minimum Payment!
  • 33. Stretching Your Dollars
  • 34.
    • What is a budget/spending plan?
      • Your budget/spending is the foundation for your financial success.
      • It’s what you can do within your income.
      • It’s not about denying yourself.
    Budget/Spending Plan
  • 35. Budget/Spending Plan
    • What Do I Do First?:
      • Get Organized
        • File box
        • Jar
        • Shoe box
        • Large manila envelope
    GET AND SAVE RECEIPTS
  • 36. Budget/Spending Plan
    • Next, create the budget/spending plan by:
      • using money management software
      • using a paper a budget form
      • using a budget workbook
    • Then, complete the budget/spending plan
    • in detail:
      • be honest with yourself.
      • it won’t work if your budget doesn’t truly reflect how you spend.
  • 37. Developing A Spending Plan
    • Expense Categories
      • Fixed (Examples of Fixed Expenses)
        • Child care
        • Rent/mortgage
        • Installment payments
          • Car, home and personal-type loans
        • Insurance premiums
        • Tithes
  • 38. Developing A Spending Plan
      • Flexible (Examples of Flexible Expenses)
        • Food
        • Utilities
        • Gas
        • Home phone/cell phone
        • Car maintenance
        • Credit card payments
        • Personal/Medical Needs
  • 39. Developing A Spending Plan
      • Luxury
        • New Clothes
        • Going out to eat
        • Entertainment/Recreation
        • Gifts
  • 40. Budget/Spending Plan
    • Savings included in your budget:
      • Three types of savings:
        • Emergency Reserve
          • Three months of living expenses in the event
            • laid-off
            • medical reasons
            • divorce
        • Short-term
          • Vacation, special occasion, special purchase
        • Long-term
          • Down payment on a home
          • Buying a new car
          • Retirement
  • 41. Budget/Spending Plan
    • Review:
      • Put in writing
      • Keep it simple
      • Stick to major categories
      • Review plan and make changes
      • Keep records and receipts
      • Buy what you “need”
      • Allow for relaxation/entertainment
      • Save what is left
  • 42. Credit Counseling
  • 43. Credit Counseling
    • Are you Knee-Deep In debt?
    • Do you have more month than money?
      • When debt becomes overwhelming:
        • Talk with your creditors.
        • Consult with a certified credit counselor.
  • 44. Credit Counseling
    • What can a certified credit counselor do?
      • Review your finances and help you set up a budget.
      • Review your credit situation.
      • Look at the possibility of a Debt Repayment Plan (or debt management plan, aka DMP).
  • 45. Credit Counseling
    • How does DMP work?
      • May reduce interest rates and fees.
      • Helps you begin making consistent, on-time payments
        • payments made to the counseling agency.
      • You will see results over time
        • Credit Score/Credit History begins to improve.
  • 46. Credit Counseling Review
    • Is there a fee for their services?
        • What are they?
    • What services does the agency offer?
        • Budget/Credit Counseling
        • Debt Repayment
        • Credit Report Review
  • 47. Credit Counseling Review
    • Is the agency truly accredited and, if so, by whom?
    • Are the counselors certified and, if so, by whom?
  • 48. Have A Nice Day!