Understanding Credit and Debt


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Topics Covered: Debt & How To Handle It,
Your Credit Score & How To Raise It, Credit Reports & How To Obtain One, Credit In The Current Tight Market, & Talking To Kids About Credit.

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  • BadCreditChannel.com Bad Credit Education Presentation: Understanding Credit and Debt.
  • Understanding Credit and Debt

    1. 1. Understanding Credit & Debt Bad Credit Channel
    2. 2. Benjamin Franklin’s Thoughts On Debt <ul><li>“ Creditors have better memories than debtors.” </li></ul>
    3. 3. Topics <ul><li>Debt & How To Handle It </li></ul><ul><li>Your Credit Score & How To Raise It </li></ul><ul><li>Credit Reports & How To Obtain One </li></ul><ul><li>Credit In The Current Tight Market </li></ul><ul><li>Talking To Kids About Credit </li></ul>
    4. 4. Not All Debt Is Evil <ul><li>Credit is a valuable tool, yet many people misuse and overuse it. </li></ul>
    5. 5. Excessive Debt Six Warning Signs <ul><li>Signs of someone who may be in trouble: </li></ul><ul><li>Making only the minimum payment </li></ul><ul><li>Maxing or nearly maxing out credit cards </li></ul><ul><li>Not knowing how much is owed </li></ul>
    6. 6. Debt Warning Signs, cont. <ul><li>Signs of someone who may be in trouble: </li></ul><ul><li>Using credit cards to purchase items that used to be purchased with cash </li></ul><ul><li>Paying off one card with another card </li></ul><ul><li>Phone calls or letters from creditors </li></ul>
    7. 7. Lowering Your Debt <ul><li>Ask Your Credit Card Company To Lower Your Interest Rate </li></ul><ul><li>If Your Card Company Wont Lower – Shop For A Lower Rate Card </li></ul><ul><li>Set up a tight budget and stick to it. Find ways to save money – America Saves </li></ul><ul><li>Set realistic goals </li></ul>
    8. 8. If You Are In Trouble <ul><li>Stop Borrowing </li></ul><ul><li>Contact Your Creditors </li></ul><ul><li>Know your rights. Review the Fair Debt Collection Act </li></ul><ul><li>Speak with a credit counselor </li></ul>
    9. 9. Where To Turn For Help <ul><li>Credit Counselors </li></ul><ul><ul><li>National Foundation for Credit Counseling www.debtadvice.org </li></ul></ul><ul><ul><li>Debt Management Plans </li></ul></ul><ul><li>Friends or Family </li></ul><ul><ul><li>Ask to borrow money from a friend or family. </li></ul></ul>
    10. 10. Protect Yourself <ul><li>Be wary of organizations or individuals that: </li></ul><ul><ul><li>Promise to solve your problem overnight </li></ul></ul><ul><ul><li>Charge high up front fees </li></ul></ul><ul><ul><li>Won’t disclose the costs for their services </li></ul></ul>
    11. 11. Credit Reports & Credit Scores
    12. 12. Common Knowledge <ul><li>Only 49% of Americans have obtained their credit score in the past two years. Have you? </li></ul>
    13. 13. Credit Scores <ul><li>What Is A Credit Score? </li></ul><ul><ul><li>The score given to an individual to determine their credit worthiness. FICO and Vantage. </li></ul></ul><ul><li>Who checks your credit score? </li></ul><ul><ul><li>Credit card companies </li></ul></ul><ul><ul><li>Lenders (Auto Loans, Home Loans, Personal Loans) </li></ul></ul><ul><ul><li>Insurance Companies </li></ul></ul><ul><ul><li>Employers </li></ul></ul><ul><ul><li>Phone companies </li></ul></ul>
    14. 14. Credit Scores <ul><li>How your score can affect you: </li></ul><ul><ul><li>Interest Rates </li></ul></ul><ul><ul><ul><li>If your rate goes up on 1 card it can go up on another </li></ul></ul></ul><ul><ul><li>Insurance Rates </li></ul></ul><ul><ul><li>Some Employers Use It When Hiring </li></ul></ul>
    15. 15. An Example <ul><li>On a $225,000 home: </li></ul><ul><ul><li>6% Interest Rate </li></ul></ul><ul><ul><ul><li>30-year fixed = $1348/mo </li></ul></ul></ul><ul><ul><li>5% Interest Rate </li></ul></ul><ul><ul><ul><li>30-year fixed = $1207/mo. </li></ul></ul></ul><ul><ul><ul><li>$141.14/mo. difference </li></ul></ul></ul><ul><ul><ul><li>$50,810 over 30 yrs </li></ul></ul></ul>
    16. 16. How Your Score Is Calculated <ul><li>FICO® scores are calculated based on your rating in five general categories : </li></ul><ul><li>1) Payment History 2) Amounts Owed 3) Length Of Credit History </li></ul><ul><li>4) New Credit 5) Types Of Credit Used </li></ul>
    17. 17. What’s A Good Score? <ul><li>FICO Scores Range From 300 – 850 </li></ul><ul><li>In the eyes of most lenders, FICO credit scores above 700 (750) are very good . </li></ul><ul><li>Recent changes in the economy have changed what lenders as a very good score </li></ul>
    18. 18. Your Credit Report <ul><li>A credit report is a report containing a detailed credit history of an individual. </li></ul><ul><li>What’s On Your Credit Report? </li></ul><ul><ul><li>Personal Information (Name, SSN, Etc.) </li></ul></ul><ul><ul><li>Public Records & Collection Accounts (Bankruptcies, Foreclosures, Etc.) </li></ul></ul><ul><ul><li>Your Credit History & Current Obligations </li></ul></ul><ul><ul><li>Credit Inquiries </li></ul></ul>
    19. 19. How To Check Your Credit Report & Score <ul><li>You are entitled to 1 free credit report a year from each of the 3 major credit bureaus . </li></ul><ul><li>To request your free credit report visit www.annualcreditreport.com </li></ul><ul><li>You can also request your credit score. A small fee may apply. </li></ul>
    20. 20. Improving Credit Scores <ul><ul><li>Pay Bills On Time. Get current & stay current. </li></ul></ul><ul><ul><li>Pay Off Debt – Don’t Move It Around or Ignore it. </li></ul></ul><ul><ul><li>Don’t Close Unused Credit Cards As A Short-Term Strategy To Raise Your Score </li></ul></ul><ul><ul><li>Don’t Open New Credit You Don’t Need. </li></ul></ul>
    21. 21. More Tips For Improving Credit Scores <ul><ul><li>Repair Errors (Outstanding Debts You Paid) </li></ul></ul><ul><ul><li>Pay Down Balances To 20-30% Of Credit </li></ul></ul><ul><ul><li>If You Have 1 Or 2 Old Cards You Haven't Used Put A Little On The Card And Then Pay It Off </li></ul></ul><ul><ul><li>Do This About 1 Every 6 Months </li></ul></ul>
    22. 22. Credit In Today’s Tight Market <ul><li>Lenders are lowering credit limits </li></ul><ul><ul><li>20% banks lower on prime borrowers </li></ul></ul><ul><ul><li>60% banks lower on subprime borrowers </li></ul></ul><ul><li>Lenders are tightening their requirements. </li></ul><ul><ul><li>Good Score - 750 or higher </li></ul></ul><ul><li>Lenders are closing inactive cards </li></ul><ul><ul><li>Less liability </li></ul></ul>
    23. 23. Talking to Kids about Credit
    24. 24. Key Talking Points <ul><li>Communicate the following key ideas with your students/children </li></ul><ul><ul><li>They should charge only what they can afford to pay back. </li></ul></ul><ul><ul><li>Credit cards shouldn't be a money substitute for items they can't afford. </li></ul></ul><ul><ul><li>They need to pay their bills on time and not just the minimum amount. </li></ul></ul><ul><ul><li>Credit companies specifically target college students. </li></ul></ul>
    25. 25. Resources for Students <ul><li>DFI’s Right on the Money – Financial Know-How For College Students </li></ul><ul><ul><li>www.dfi.wa.gov/consumers/collegebookorder.htm </li></ul></ul><ul><li>FTC Credit Web Site </li></ul><ul><ul><li>www.ftc.gov/credit </li></ul></ul><ul><li>AICPA </li></ul><ul><ul><li>www.360financialliteracy.org/Life+Stages/College/ </li></ul></ul><ul><li>Bad Credit Hotel </li></ul><ul><ul><li>www.controlyourcredit.gov/ </li></ul></ul>
    26. 26. For More Credit Info… <ul><li>This presentation is brought to you by </li></ul><ul><li>>> BadCreditChannel.com </li></ul><ul><li>The Go-To Information Source for Individuals Living with Bad Credit </li></ul>