Establishing Credit

Establishing Credit Presented by American Debt Counseling Education Department

How and Why We Get in Trouble Buy, buy, buy….pay later Can’t make ends meet

Buy, buy, buy….pay later

Can’t make ends meet

Why would you want to establish credit? To buy a house? To buy a car? To buy something you CANNOT afford?

To buy a house?

To buy a car?

To buy something you CANNOT afford?

Why we need credit? “ License to print money” Equal opportunity privilege Other benefits Convenience Emergency protection Easier budgeting Security

“ License to print money”

Equal opportunity privilege

Other benefits

Convenience

Emergency protection

Easier budgeting

Security

The four “C’s” of credit Capacity Credit History Capital Collateral

Capacity

Credit History

Capital

Collateral

Importance of credit It is the barometer that determines your individual risk to continue to borrow money Could affect: credit limits LTV interest rate

It is the barometer that determines your individual risk to continue to borrow money

Could affect:

credit limits

LTV

interest rate

If you do NOT have credit? Rent payments Utilities Cable television Insurance companies

Rent payments

Utilities

Cable television

Insurance companies

What are credit scores? Equifax = Beacon score Experian = FICO score Trans Union = Empirica score May differ by as much as 50 points. Scores could be between 300 and 900 Credit scores can make or break a would-be borrower

Equifax = Beacon score

Experian = FICO score

Trans Union = Empirica score

May differ by as much as 50 points.

Scores could be between 300 and 900

Credit scores can make or break a would-be borrower

What are credit scores? (cont’d) More than 640 Between 600 and 640 Below 600

More than 640

Between 600 and 640

Below 600

What is a credit report?

Types of credit Installment Revolving Secured Unsecured

Installment

Revolving

Secured

Unsecured

Healthy vs. blemished credit Healthy Blemished Lates Repossessions Liens Judgements Bankruptcies Foreclosures

Healthy

Blemished

Lates

Repossessions

Liens

Judgements

Bankruptcies

Foreclosures

Homeownership D-T-I: Debt to income ratio Front end ratio Back end ratio Mortgage “shock”

D-T-I: Debt to income ratio

Front end ratio

Back end ratio

Mortgage “shock”

Credit Scams Federal Trade Commission Deceptive ads: ‘ 900’ calls Security deposit, application and processing fees Qualification Annual fee

Federal Trade Commission

Deceptive ads:

‘ 900’ calls

Security deposit, application and processing fees

Qualification

Annual fee

How to Avoid the Scam Beware of easy credit ‘ 900’ call charges Credit repair companies

Beware of easy credit

‘ 900’ call charges

Credit repair companies

Budgeting “ Credit is a license to print money” “ Still is a loan, still has to be paid” Before you make a credit commitment make sure is within your budget!

“ Credit is a license to print money”

“ Still is a loan, still has to be paid”

Before you make a credit commitment make sure is within your budget!

Q & A Section

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