Establishing Credit

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Presentation on establishing credit. Presented by the American Debt Counseling Education Department

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Establishing Credit

  1. 1. Establishing Credit
  2. 2. Establishing Credit Presented by American Debt Counseling Education Department
  3. 3. How and Why We Get in Trouble <ul><li>Buy, buy, buy….pay later </li></ul><ul><li>Can’t make ends meet </li></ul>
  4. 4. Why would you want to establish credit? <ul><li>To buy a house? </li></ul><ul><li>To buy a car? </li></ul><ul><li>To buy something you CANNOT afford? </li></ul>
  5. 5. Why we need credit? <ul><li>“ License to print money” </li></ul><ul><li>Equal opportunity privilege </li></ul><ul><li>Other benefits </li></ul><ul><ul><li>Convenience </li></ul></ul><ul><ul><li>Emergency protection </li></ul></ul><ul><ul><li>Easier budgeting </li></ul></ul><ul><ul><li>Security </li></ul></ul>
  6. 6. The four “C’s” of credit <ul><li>Capacity </li></ul><ul><li>Credit History </li></ul><ul><li>Capital </li></ul><ul><li>Collateral </li></ul>
  7. 7. Importance of credit <ul><li>It is the barometer that determines your individual risk to continue to borrow money </li></ul><ul><li>Could affect: </li></ul><ul><li>credit limits </li></ul><ul><li>LTV </li></ul><ul><li>interest rate </li></ul>
  8. 8. If you do NOT have credit? <ul><li>Rent payments </li></ul><ul><li>Utilities </li></ul><ul><li>Cable television </li></ul><ul><li>Insurance companies </li></ul>
  9. 9. What are credit scores? <ul><li>Equifax = Beacon score </li></ul><ul><li>Experian = FICO score </li></ul><ul><li>Trans Union = Empirica score </li></ul><ul><li>May differ by as much as 50 points. </li></ul><ul><li>Scores could be between 300 and 900 </li></ul><ul><li>Credit scores can make or break a would-be borrower </li></ul>
  10. 10. What are credit scores? (cont’d) <ul><li>More than 640 </li></ul><ul><li>Between 600 and 640 </li></ul><ul><li>Below 600 </li></ul>
  11. 11. What is a credit report?
  12. 12. Types of credit <ul><li>Installment </li></ul><ul><li>Revolving </li></ul><ul><li>Secured </li></ul><ul><li>Unsecured </li></ul>
  13. 13. Healthy vs. blemished credit <ul><li>Healthy </li></ul><ul><li>Blemished </li></ul><ul><ul><li>Lates </li></ul></ul><ul><ul><li>Repossessions </li></ul></ul><ul><ul><li>Liens </li></ul></ul><ul><ul><li>Judgements </li></ul></ul><ul><ul><li>Bankruptcies </li></ul></ul><ul><ul><li>Foreclosures </li></ul></ul>
  14. 14. Homeownership <ul><li>D-T-I: Debt to income ratio </li></ul><ul><li>Front end ratio </li></ul><ul><li>Back end ratio </li></ul><ul><li>Mortgage “shock” </li></ul>
  15. 15. Credit Scams <ul><li>Federal Trade Commission </li></ul><ul><li>Deceptive ads: </li></ul><ul><ul><li>‘ 900’ calls </li></ul></ul><ul><ul><li>Security deposit, application and processing fees </li></ul></ul><ul><ul><li>Qualification </li></ul></ul><ul><ul><li>Annual fee </li></ul></ul>
  16. 16. How to Avoid the Scam <ul><li>Beware of easy credit </li></ul><ul><li>‘ 900’ call charges </li></ul><ul><li>Credit repair companies </li></ul>
  17. 17. Budgeting <ul><li>“ Credit is a license to print money” </li></ul><ul><li>“ Still is a loan, still has to be paid” </li></ul><ul><li>Before you make a credit commitment make sure is within your budget! </li></ul>
  18. 18. Q & A Section
  19. 19. Please complete evaluation sheet Thanks

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