A complete presentation from SpringCoin on Understanding and Improving Your Credit Score. How to establish or re-establish credit properly to save money and pay down debt.
2. Creator of www.carefulcents.com
for SpringCoin‟s blog
Contributor
(www.springcoin.com/blog)
Blogger for Huffington Post
3. Understanding & improving your credit
score
Using credit cards responsibly
Debt Relief Options
4. What is a credit score?
• Ranges from 300-850
• Most common type of score: FICO
• (3) Major Credit Reporting Agencies:
Equifax
Transunion
Experian
5. 5 Factors that Determine Your Credit Score
Payment History (35%)
Amounts Owed (30%)
Length of Credit History
(15%)
New Credit (10%)
Credit Mix (10%)
6. What‟s your track record?
• Do you have a proven track record of paying your bills on time?
What factors into your payment history?
• Public Records/Collections
• Bankruptcy
• Liens
• Judgments
Missed Payments
• How late were they? (30, 60, 90+ days late)
• A 30 day late payment that just happened a month ago will have more weight than
a 90 day late payment that happened two years ago.
7. Ruleof thumb is to utilize <30% of your
available credit
• Example: A credit card with a $10,000 credit limit
shouldn‟t exceed a balance of more then $3,000
Carrying a balance doesn‟t mean you‟re a
high risk borrower
8. Credit history = number of months or years
your account(s) have been active
The longer the credit history you have, the
greater your score
Never close accounts with a long credit
history
Are you utilizing your accounts that have a
long credit history?
9. Are you accumulating more debt?
Opening new accounts could be a sign of
financial hardships
Opening several credit accounts in a short
period of time represents greater credit risk
Applying for credit will show up as an
inquiry on your credit report Lower
credit score
10. What‟sin your credit score, do you have a
healthy mix?
• Credit cards, installments, mortgage, auto loans
Do not apply for accounts just because
you don‟t have it included, credit mix is not
a key factor
Credit mix is more important if you lack
sufficient information to base a score
11. There is no quick fix to improve your credit score
Do not contact a credit repair agency
Get a copy of your credit report to check for inaccuracies.
• AnnualCreditReport.com One free credit report for
each bureau once a year
Clean up past due accounts
Set up payment reminders, timely payments are the
biggest factor in determining your score
12. Apply for a secured credit card
• Easy approval
• Cash as collateral in case of default
• Make sure bank is reporting to all three major credit
bureaus
• Utilize this account while paying off balance every
month, do not exceed more than 30% of your credit
limit
• Will not get a rejection on your credit report (this will
hurt your credit)
• Rejections are easily spotted if there is an inquiry and
no corresponding accounts opened
• If possible, try to open 2-3 secured credit cards
13. Payment History = Single most important
factor, establish trust with creditors
Don‟t utilize more than 30% of your available credit
limit
Never close accounts with a long credit history
Get a free copy of your credit report at
www.annualcreditreport.com
Avoid credit repair agencies
Secured credit cards are the best way to improve
your credit score
14. Creditcards are necessary in today‟s
society
• Rental Cars
Security Deposit
• Hotels
Incidentals
• Fraud Protection
Better protection over debit cards
16. Typically carry a high interest rate
• Monthly payments get credited towards general
purchases first
Look over monthly statements
• Subscription Services
• Transaction Errors, interest rates
17. Don‟t carry a balance over 30% of your
credit limit
If you can‟t pay off the balance in
full, always try to pay more than the
minimum payment
Don‟t mistaken your available credit as
“free money”
Limit the number of credit cards you have
18. DO‟S DON‟TS
Analyze needs vs wants before Don‟t use credit card for
making a purchase everyday purchases
Notify creditors if you are going Don‟t use credit card to buy
to be late, they may possibly things you can‟t afford
waive late fees
Always pay on time, late fees Don‟t view available credit as
can be in excessive of $35+ „free cash‟, buy now pay later
Stay within 30% of your credit Don‟t take out cash advances
limit Don‟t make only minimum
Do try and pay off your entire payments
balance every month Don‟t sign up for department
Do check your balance store credit cards just because
frequently to make sure you you get a 1-time discount
are not overextended
19. Watch out for introductory/teaser rates
Monitor monthly statements
Always pay off balance in full or more than
minimum payment
Don‟t carry a balance over 30% of
available credit
Avoid cash advances
Separate needs vs wants
21. DEBT SNOWBALL DEBT STACKING
Paying off lowest balance Paying off highest interest
credit card first rate credit card first
Make minimum payments Make minimum payments
on all accounts accept for on all accounts accept for
the lowest balance credit the highest interest rate
card credit card
Once lowest balance Once highest interest rate
account is paid off, “roll credit card is paid off, “roll
over” your payments to the over” your payments to the
next lowest balance account next highest interest rate
account
22. This method is good for:
• Consumers who can afford to pay more than the
monthly minimum payments
• Have a steady source of income and continue to
pay more than minimum payments
• Need to have discipline to roll over payments to
next account
23. Creditor Balance Min Payment Interest Rate
Chase $5,000 $180 18.99%
Citi $3,000 $120 8.99%
Wells Fargo $7,000 $240 24.99%
Total $15,000 $540
Creditor Total Interest Paid Creditor Total Interest Paid
Chase $1364.63 Chase $1581.75
Citi $216.57 Citi $334.32
Wells Fargo $3290.67 Wells Fargo $2649.34
Total $4871.96 Total $4565.41
24. What is a Debt Management Plan (DMP)
• A DMP is administered by a credit counselor
• Credit counselors will take 1 monthly payment and
disburse it to your creditors
• Interest Rate Reductions & Waiver of late fees
• Past due amounts put into back of loan
• Plans can last up to 60 months
25. BENEFITS DRAWBACKS
Interest Rate Reductions Accounts will be closed
(varies by creditor, 0-15%) Notation on credit report
Ease of one monthly stating you‟re enrolled in
payments consumer credit counseling
Out of debt <60 months (this does not affect your
Waiver of late fees & credit score)
penalties Credit score decrease
Past due amounts put into (overall debt to income ratio
arrears will increase)
26. Consumers who are carrying high interest
rate credit cards
Unable to afford more than the minimum
payments
Suffered financial hardship, fell behind on
monthly payments
About to fall behind due to financial
hardship
27. What is debt settlement?
• Debt settlement is the negotiation of your severely
past due accounts to pay off your accounts for less
than what is owed
• Example: $10,000 in credit card debt, 6 months
behind, negotiate a settlement for $4500, payment is
considered as “settled in full”
• Only unsecured debts are eligible (no mortgage/auto
loans)
• Only accounts that are severely past due will be
considered for debt settlement, or accounts that are
already in collections
28. BENEFITS DRAWBACKS
Has the most amount of Increased collection calls
savings Tax implications (any debt
Some creditors can forgiven over $600 reported
potentially settle as low as to IRS)
20% Creditors have the right to
Ideal for accounts that are sue you (judgment)
already in collection status Negative impact on credit
score
Reported on credit report as
“settled in full”
29. Consumers whose accounts are already in
collection status
Judgment Proof (no assets, income is
protected from wage garnishment)
Have funds readily available for settlement
Accounts that are severely past due (4-6+
months)
30. Different types of debt consolidation
• Consolidation through mortgage refinance
Often requires high credit score
Need sufficient equity in home to qualify
Balance Transfer
• Consolidate multiple accounts into one credit
card/loan
• Requires high credit score
• Watch for introductory teaser rates
31. No impact on credit score
Easier to manage payments
More transparency of your overall debt
Potentially get out of debt faster
32. CHAPTER 7 CHAPTER 11
Often referred as liquidation Often referred as
of debts restructuring of debts
Commonly used if you have Used if you have significant
little assets or no money left assets that you want to keep
Commonly used to protect
over after living expenses home against foreclosure
Most unsecured debts can Consumer pays trustee
be eliminated every month, lasts 3-5 years
Process moves quick Trustee distributes your
Must pass “means test” monthly payments to your
creditors
Ends collection calls
33. Debt Snowball vs Debt Stacking requires you to pay more than
minimum payments
• Debt Snowball = Pay off lowest balance
• Debt Stacking = Pay off highest interest rate
Debt Management Plans will help you lower interest rates and get on
a payment plan that lasts no more than 60 months
• Creditors will close accounts
• Interest rates vary among creditors
Debt settlement has most savings, but is not right for everyone
• Credit score implication
• Possible Tax liabilities
• Creditors may sue for non payment
34. Debt Consolidation
• Requires excellent credit score
• No impact on credit score
Bankruptcy
• Will remain on credit report for 7-10 years
• Chapter 7: liquidation of assets
• Chapter 11: restructuring of debts, pay trustee