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Budgeting_ Wise Use of Credit_Understanding Your Credit Report and Score
 

Budgeting_ Wise Use of Credit_Understanding Your Credit Report and Score

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  • DNA page 4 It is well established that credit scores are now a cornerstone of the U.S. credit system. Credit scores determine or at least greatly influence access to housing, unsecured credit lines, insurance, utility and cell phone services, and employment. Since they are based on credit reports, it is imperative that the underlying data be correct for (1) the score to have any meaning and (2) for consumers to accept the validity of credit scoring. Incidence of errors page 4 The Public Interest Research Group (PIRG) published a study, " Mistakes Do Happen: A Look at Errors in Consumer Credit Reports" ( www.pirg.org ), in which it was found that "one in four credit reports contains errors serious enough to cause consumers to be denied credit, a loan, an apartment or home loan or even a job." It’s vital to see your report and score page 11 In everyone’s life, there are always instances where credit is needed. From your first credit card to the last mortgage payment and every account in between, all these make up your credit history. The companies and people that give credit, such as banks, finance companies and other creditors, report information about you. These creditors send information regularly about your accounts to credit reporting bureaus that collect and archive this information. Your credit report can then be accessed by other creditors or distributed to others that are authorized to receive such information. The importance of good credit page 11 If you are thinking of buying a house, a car or simply applying for a new credit card, your credit report represents the first step in the lender’s decision-making process. The fact of the matter is that you need to have a good credit history in order to get credit. What is good credit? Simply put, a person with “good credit” has a well-established history of having paid their accounts on time.
  • What Information Is Contained In My Credit Report A Typical Credit Report Includes Four Types of Information Identifying Information Credit Information Public Record Information Inquiries Where can I get a copy: annualcreditreport.com MyFico.com
  • Review credit reports regularly . An accurate report will be an honest representation of a consumer’s history. Take control of yours. Pay bills on time . More recent negative remarks on a credit report are worse than problems that occurred years ago. For example, an account that has been delinquent in the past six months will do more damage to a credit score than a similar delinquency five years earlier. Reduce your overall debt . Keep your balances below 50% of your line of credit – pay off unpaid collections, judgments and tax liens. Limit revolving card usage . The goal should be not to max out your revolving or “open” lines of credit. Revolving means you can use it, pay it off, and use it again. Some experts advise no more than 50%, some say 35% as the maximum utilization level. Length of credit history Be aware that closing unused accounts may reduce your score. In choosing to close accounts, older accounts with a good history are the ones to keep because the age of an account and your length of time in the credit world also factors in the score. Easy access to credit may create the potential to get into trouble by going on a spending spree and racking up new debt, and lots of account numbers create more targets for identity theft. Limit the number of inquiries . Apply for credit only when necessary and get your credit report in advance. When shopping for a new car or a mortgage, make all applications within a 14-day period – inquiries will only count as one. Too many inquiries in a short period may be seen as an indication of financial problems or loading up on new credit. The scoring model is supposed to consolidate inquiries of the same type within a specific amount of time, which is 30 days.
  • All incorrect, incomplete, or outdated information can be disputed Be succinct in stating what your desired result is and provide documentation. If the information is outdated, it should be promptly removed. For information that the consumer believes is inaccurate or incomplete, the credit bureau has 30 days to verify the information with the creditor to ensure that it is correct. If the creditor cannot document the truthfulness of the disputed information, it must be deleted from the credit report. It is often necessary to dispute the same item with all credit reporting agencies that have recorded the negative notation. Credit bureaus do not communicate or share information and making a correction on one report does not mean the correction will appear on the report of a different bureau. Mail everything certified mail, return receipt requested. Disputes can be filed easily over the Internet; however, the conventional wisdom is that mailed disputes are the most effective and that certified mail should be used. You may use the sample dispute letters found at the back of the Consumer Guide to Good Credit.
  • All incorrect, incomplete, or outdated information can be disputed Be succinct in stating what your desired result is and provide documentation. If the information is outdated, it should be promptly removed. For information that the consumer believes is inaccurate or incomplete, the credit bureau has 30 days to verify the information with the creditor to ensure that it is correct. If the creditor cannot document the truthfulness of the disputed information, it must be deleted from the credit report. It is often necessary to dispute the same item with all credit reporting agencies that have recorded the negative notation. Credit bureaus do not communicate or share information and making a correction on one report does not mean the correction will appear on the report of a different bureau. Mail everything certified mail, return receipt requested. Disputes can be filed easily over the Internet; however, the conventional wisdom is that mailed disputes are the most effective and that certified mail should be used. You may use the sample dispute letters found at the back of the Consumer Guide to Good Credit.
  • All incorrect, incomplete, or outdated information can be disputed Be succinct in stating what your desired result is and provide documentation. If the information is outdated, it should be promptly removed. For information that the consumer believes is inaccurate or incomplete, the credit bureau has 30 days to verify the information with the creditor to ensure that it is correct. If the creditor cannot document the truthfulness of the disputed information, it must be deleted from the credit report. It is often necessary to dispute the same item with all credit reporting agencies that have recorded the negative notation. Credit bureaus do not communicate or share information and making a correction on one report does not mean the correction will appear on the report of a different bureau. Mail everything certified mail, return receipt requested. Disputes can be filed easily over the Internet; however, the conventional wisdom is that mailed disputes are the most effective and that certified mail should be used. You may use the sample dispute letters found at the back of the Consumer Guide to Good Credit.

Budgeting_ Wise Use of Credit_Understanding Your Credit Report and Score Budgeting_ Wise Use of Credit_Understanding Your Credit Report and Score Presentation Transcript

  • Budgeting 101 www.credit.org Promoting Financial Literacy Presented by: Lori Lamb - Credit Education Supervisor
  • Introduction
    • Surveys show that only 12% of high school seniors learn about money management in school.
    • Historically, it has been up to parents to teach their children the skills needed.
    • Most of us learn these lessons the hard way after we’ve moved out on our own and made some mistakes.
  • Everything Begins with a Budget!
    • What is a Budget?
    • A budget (spending plan) is a plan to figure out
    • where your money goes before you get it.
  • Where to Begin When Creating a Budget:
      • How much do you earn?
      • How much do you spend?
    • Your Job
    • Spouse’s job
    • Part time job
    • Rental, room & board received
    • Commission/bonuses
    • Tax refund div. by 12 mos.
    • Investments
    • Government benefits
    • Unemployment insurance
    • Child support/alimony
    • Support from family
    • Other
    Track All Your Sources of Income
  • Track Your Spending!
    • Track ALL spending for at least 90 days (Then make it a habit to track spending ALWAYS)
    • Write down even the smallest expenditure
    • Transfer expenses to a monthly tracking sheet to summarize and view by category
    • Fill in your Net income for each week at the top.
    • List what you are spending for each of the categories:
      • Housing
      • Food (both categories)
      • Insurance
      • Medical
      • Auto
      • Child Support
      • Taxes
      • Personal
      • Savings - Emergency (10 – 15% of your Net monthly income)
    Tracking Sheet for Monthly Expenses List your income and expenses in the week they are due Total your expenses for each week, then subtract from income
  • Necessary Expenses
    • Housing (include utilities, taxes, insurance)
    • Food - groceries
    • Insurance (medical/dental/life)
    • Medical (co-pays, prescriptions)
    • Transportation (include car insurance, gas, oil, maintenance)
    • Child care, alimony, child support
    • Taxes – monthly payments from the prior year
    • Savings (3 – 6 months of your total monthly expenses saved in your emergency savings fund) PAY YOURSELF FIRST!
  • Discretionary Expenses
    • Personal care, clothing, jewelry
    • Entertainment (include cable TV!)
    • Miscellaneous
      • Pet care
      • Gifts
      • Fast food
      • Magazine subscriptions
      • Hair/nail salons
      • Cell phone
      • Cigarettes/Alcohol
      • Charitable giving
      • Internet access
  • Periodic Expenses
    • Insurance premiums
    • Taxes
    • DMV registration
    • Gift giving
  • Debt Payments
    • Credit Card Payments
    • Personal Loans
    • Student Loans
    • Any Other Debt
    • Payments (e.g. medical bills or collections)
  • Adding It All Up
    • Now it’s time to put everything together and see whether your budget will work.
    • If you are saving for a goal, you should include your short, mid and long term goals with your expenses in your budget as well!
    • Total Necessary Expenses
    • + Total Discretionary Expenses
    • + Total Debt Payments
    • = Total Monthly Expenses
  • Now Let’s See if Your Budget Balances
    • Total Monthly Net Income
    • - Total Monthly Expenses
    • = Surplus (+) or Deficit (-)
  • If Your Expenses Exceed Your Income
    • Work to find solutions – self managed plan.
    • Credit counseling can help if you have high debt payments that are upsetting your budget.
    • Whatever you do, don’t cut into the 10% - 15% you should be saving; you need to save up to three – six total month’s of expenses to get through an emergency
    • Re-evaluate your budget periodically, especially when your income or needs change.
  • Self Managed Debt Repayment Plan
    • For credit cards, don’t just send the minimum monthly payment; if you do, you’ll be paying toward that debt for the next 30 years on the creditors plan!
      • For example, say you owe:
        • $6000 Divide by 48 months = $125 per month
        • Debt free in 4 years!
        • If that amount is too large for your budget, you can adjust the payoff term to something longer, like 5 years. (Then you’d only have to pay $100 per month.)
      • Whatever you do, though, don’t stretch out the payoff term so much that you’re just making minimum payments again. The key is to not charge any more on the existing debt and stick to Your plan!
  • Self Managed Debt Repayment Plan Strategies
    • Choose what best motivates and fits your goals:
      • Strategy 1: To see quick progress, pay off a small balance account and snowball payment into the next credit card; e.g. moving from owing five creditors to only four creditors is a good motivator.
      • Strategy 2: Trying to improve your credit scores. You’ll want to first pay down accounts with balances closest to their credit limits. That will improve your utilization ratio. (30% of your FICO score)
      • Strategy 3: Pay higher interest rates cards first to see less of your hard-earned money going towards finance charges.
    • Look for what fits and motivates you the most and then get going!
    • Strategy 2 = Rank by highest utilization
    • Strategy 3 = Rank by highest APR
    • Strategy 1 = Rank by lowest balance.
    $60 12% $3,022 $5,000 Visa $31 19% $1,547 $1,500 Store Card 2 $35 22% $1,728 $3,000 MasterCard $18 29% $890 $1,800 Store Card 1 PMT APR BALANCE LIMIT CARD 50% $18 29% $890 $1,800 Store Card 1 58% $35 22% $1,728 $3,000 MasterCard 60% $60 12% $3,022 $5,000 Visa 100% $31 19% $1,547 $1,500 Store Card 2 UTIL PMT APR BALANCE LIMIT CARD $60 12% $3,022 $5,000 Visa $35 22% $1,728 $3,000 MasterCard $31 19% $1,547 $1,500 Store Card 2 $18 29% $890 $1,800 Store Card 1 PMT APR BALANCE LIMIT CARD
  • Other Debts Issues
    • Utility Bills - Work out a payment plan or ask for utility assistance program with your local Community Action Partnership.
    • Student Loans – Look into deferment, flexible repayment options, consolidation loans, rehabilitation loans, Volunteer, and loan forgiveness.
    • The IRS - You can apply to pay them over time; speak to a tax advocate.
    • Child Support & Alimony - Go to court. Document that you can't pay.
    • Secured Debt – Home or car – forbearance, repayment plan, voluntary repossession, or sell to pay off loan.
    • For all debt, the key is communication. It's real important to call and say, 'I can't make this payment. I'd like to work something out.”
  • Increasing Income and Reducing Expenses Tips
    • Make sure you control your money, not the other
    • way around. Rework your budget as needs,
    • priorities, income, and expenses change.
    • Try some of these tips to reduce expenses for
      • You and Your home
      • Your phone
      • Your transportation
      • When grocery shopping
  • The WISE USE of CREDIT www.credit.org Promoting Financial Literacy
    • Consumers owe more than $793.1 billion in
    • revolving credit card debt, according to the latest
    • Federal Reserve Statistical Release.
    • So knowing the costs of credit card terms and
    • conditions AND how to use credit cards wisely
    • are more important than ever!
    • http://www.federalreserve.gov/releases/g19/Current/
    Introduction
  • The Cost of Credit
    • Some of the most common terms and conditions you will find in a credit card agreement or offer: 
      • Annual Fee - $15 - $300
      • Annual Percentage Rate (APR)
      • Balance Transfer Fee
      • Cash Advance Fee
      • Default Purchase Rate
      • Finance Charge
      • Grace Period
      • Insurance/Protection
      • Late Fee
      • Notice of Reaffirmed Debt
      • Overlimit Fee – since the Credit CARD Act of 2009,
        • customers must “opt in” to be able to go over their limit
      • Reward Program Fee
      • Transaction Fee
  • The Cost of Using Credit
    • Based on these next average daily balance examples,
    • here is the interest you’ll pay each year. If you pay
    • only the minimum payment each month !
    • (This is only an estimate, not taking into consideration of any new
    • purchases or and other fees that may change the amount of your balance)
    $1,245 $747 $249 24.9% $800 $480 $160 16.0% $450 $270 $90 9.0% $5,000 $3,000 $1,000 APR
  • Annual Percentage Rate APR
    • Let’s say the credit card has a 21% APR or interest rate
      • Divide the 21% APR by 365 days in the year = .0575%
        • This is the daily rate the creditor will charge you each day that you carry a balance on your purchases.
      • Example $500 balance x .0575% = $2.87
      • Day 1 $500 + 2.87 = new balance of $502.87
      • Day 2 $502.87 x .0575% = $2.89 $505.76
      • Day 3 $505.76 x .0575% = $2.90 $508.66
      • Day 4 $508.66 x .0575% = $2.92 $511.58
      • Day 5 $511.58 x .0575% = $2.94 $514.52
      • Day 6 $514.52 x .0575% = $2.96 $517.48
      • Day 7 $517.48 x .0575% = $2.98 $520.46
      • Day 8 $520.46 x .0575% = $2.99 $523.45
        • Each day for 28 or 30 days this goes on…
      • If you do not pay your entire (purchases) balance off before grace period (usually 20 days from billing) you will have to pay all this interest!
  • Types of Credit Card Ownership
      • Individual – only person liable for debt
        • Reports to credit report
      • Joint/Co-applicant – both liable for debt
        • Reports to both credit reports
      • Authorized User/Buyer – not liable for debt
        • Reports to credit report – is used in the scoring
  • Comparing Costs Institution Credit Card Type Purchase APR Fixed or Variable Annual Fee Purchase Late/ Overlimit Fee Purchase Grace Days Cash Advance APR Fixed or Variable Cash Advance Fee Rewards Program Rewards Program Fee Example: Bankcard Visa 18.24% Variable $0 $39 $35 20 days from billing 28.24% Variable 3%/$10 min Yes $20 Example: Bankcard Mastercard 9.00% Fixed $0 $39 $35 20 days from billing 28.24% Variable 3% No $0 Example: Bankcard Mastercard 0% for 1Year 12.99% Fixed $0 $39 $35 20 days from billing 22.99% Variable 3%/$10 min Yes $0                    
  • How Much Debt Can You Handle?
      • Experts say to keep your monthly consumer debt payments down to
      • around 10 – 15% of your total net monthly income.
      • The absolute maximum is 20%.
      • This includes payments due on credit cards, personal, school, and car
      • loans, but not first mortgages, home equity loans or rent.
        • If you are single: 20%
        • If you and your spouse work: 20%
        • If you have children: 15%
        • If you are retired and on fixed income: 10%
    • To calculate your monthly payments use Springboard’s financial tools http://www.credit.org/resources/Financial-Tools-Worksheets-Calculators/how_much_do_you_owe
  • High Cost of Ignoring Your Bills
      • Your creditors will charge late fees of $39 or less per month
      • Finance charges will continue on the balances of your accounts
      • The creditors will likely raise your annual percentage rate (APR) to approximately 33% because you have not honored your contract.
      • Once your balances exceed your credit limit, if you have not opted out, you will be charged an over the limit fee of $29 or more each month, and all that adds up.
  • How to Reduce Credit Card Debt
      • Find out how much you owe
      • Pay more than the minimum
      • Send your payment in as soon as bill arrives
      • Refuse your card issuer’s offer of a minimum payment of zero
      • Refuse your card issuer’s offer to skip a payment for a month
      • Consolidate your cards – between existing cards
      • Refinance your high rate card – ask your card issuer if they can lower your interest rate
  • Before You Swipe!!!
    • Ask yourself these important
    • questions:
    • Can I pay the entire purchase off in full when I get home? (online or over the phone)
      • If the answer is NO you may go to question 2
    • Can you pay the entire purchase off in full before your grace period ends (20 days from your billing date)
      • If the answer is no
      • Don’t swipe the card!!!
  • Understanding Your Credit Report & Score www.credit.org Promoting Financial Literacy
  • Introduction
    • Our credit reports determine our access
    • to:
      • Housing (Buying or Renting)
      • Unsecured credit lines (Credit Cards)
      • Insurance (for Home or Car)
      • Cable
      • Utility and Cell phone services
      • Employment
  • Credit History is Your Financial DNA
    • The importance of good credit
      • More employers are reviewing credit reports of prospective employees: Employment fields, such as financial services, gaming, military and law enforcement, continually monitor their employees’ credit reports.
      • Insurance companies review your credit report when you apply to insure you home and/or car.
      • Without good credit, it is very difficult to obtain a credit card, which is helpful if an emergency arises.
      • Many businesses prefer the use of credit cards.
  • Credit Reports
    • What information is contained in my credit report?
      • Identifying Information
      • Public Record
      • Credit Information
      • Inquiries
      • Your Rights
      • How to Dispute Inaccuracies
  • Your Free Credit Report
    • You should review your credit reports at least once a year.
    • You are entitled to one free report from each bureau every 12 months from:
    • www.annualcreditreport.com
    • 877-322-8228
    • Scores are not free!
  • What Affects Your FICO Score?
  • Simple Ways to Improve Your Credit Score
    • Review credit reports regularly
    • Make your payments on time/pay
    • Set-up Payment reminders or automatic payments
    • Pay off unpaid debts -collections
    • Keep balances below 50% of line of credit or less (Lenders prefer 25% or less)
    • Keep old credit active – use the card at least once or twice a year to keep active
    • Demonstrate a mixture of credit: Revolving, installment, mortgage
    • Limit inquiries
  • Disputing Errors
    • What can you dispute?
    • Anything that is not yours (reported to the wrong credit report or id theft)
    • Anything that is reported inaccurately
    • Anything that is past the statute of limitations for reporting
    Date Your Name Your Address Your City, State, Zip Code   Complaint Department Name of Credit Bureau Address City, State, Zip Code   Dear Sir or Madam: I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received. This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information. Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please reinvestigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible. Sincerely, Your name Enclosures: (List what you are enclosing)
  • Statute on Limitations for Reporting
      • Chapter 7, 11 or 12 bankruptcies 10 years from the date filed
      • Chapter 13 bankruptcy filings 7 years from date paid
      • Chapter 13 bankruptcy that is not completed 10 years
      • Bankruptcies voluntarily dismissed 7 years
      • Civil judgments 7 years from the date filed
      • Unpaid tax liens Indefinite
      • Paid tax liens 7 years from date paid
      • Collections paid or unpaid 7 years from date of the initial missed payment
      • Charge off accounts 7 years from date of the initial missed payment
      • Credit accounts 7 years from the date of initial missed payment
      • Inquiries 2 years
  • Basics of sending dispute letters
    • Some disputes may be done online, if unable
    • to, then follow these steps in writing:
    • Provide a copy of your photo id, social security card, and proof of address (such as a utility bill, pay stub or bank statement)
    • Provide copies of any documentation supporting your dispute
    • Keep originals send copies
    • Send all letters certified mail or return receipt
    • Keep a separate file for each of the credit reporting agencies
    • Respond quickly
    • Know your rights
  • Resources
      • http://www.myfico.com/CreditEducation/ - FICO’s credit education center.
      • http://www.channelone.com/life/credit/ - play the credit card simulator game, or take credit 101 quiz.
      • www.whatsmyscore.org – everything you need to know about credit: buying a car, credit 101, FICO score estimator.
      • www.ftc.gov – your rights, identity theft resources or to file a complaint
      • http://www.credit.org/resources/Tools - Springboard’s financial tools.
  • Thank You!
    • Springboard Nonprofit Consumer
    • Credit Management
    • 800-449-9818
    • www.credit.org
    • [email_address]