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Understanding Credit Reports

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  • 1. 1.4.2.G1 Understanding Credit Reports Family Economics & Financial Education Take Charge of Your Finances
  • 2. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit Report Detectives Meet Isabella, your new client: • About to graduate from college • In extreme debt • Concerned about finding a job • Doesn’t understand her credit report YOUR MISSION: Help Isabella understand her credit report, identify what she did to get into this situation, and decide what she can do to improve her credit report.
  • 3. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 The Credit Process • Wants to acquire an item • Does not have enough money and wants to borrow from a lender Borrower • Person or organization with resources to provide a loan • Credit card company, depository institution, etc. Lender • If approved by the lender, receives credit • Pays the lender interest for the privilege of borrowing Borrower Credit – when goods, services, and/or money are received in exchange for a promise to pay back a definite sum of money at a future date.
  • 4. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Isabella’s Story • What is your analysis of her situation? • Does she need your help? • Why? IN SMALL GROUPS: READ ISABELLA’S SCENARIO
  • 5. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit History Reporting Lender Report consumer’s credit transactions to CRA’s Lender examples: store accounts, credit card companies, utility companies, etc. Credit Reporting Agency (CRA) Keep a record of consumer’s credit transactions (credit history) Agencies include: Equifax TransUnion, Experian Credit Report Record created by the CRA of an individual’s credit history If an individual has not acquired credit, they will not have a report What they do Additional Information
  • 6. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit Reporting Agencies • Acquire information from: Retail stores that offer credit accounts Credit card companies Mortgage and finance companies Depository Institutions LandlordsUtility accounts Cell phone companies Collection agencies
  • 7. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Information can be divided into 4 categories: • Personal Information • Accounts Summary • Public record items related to credit • Credit Inquiries Information in a Credit Report Lenders may or may not report information to all three credit reporting agencies. An individual’s information may be different in each report.
  • 8. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Personal Information Personal Information • Name and aliases • Current and past addresses • Social security number • Date of birth • Employment history Isabella’s Personal Information: • Name – Isabella G. Langley • Addresses – 101 Hopeful Ave. & 695 Parent Street • Date of birth – 05/04/86 • Telephone numbers – 555-354-2368 & 555-198- 2358 • Employers – Lucky’s Restaurant & Jane’s Daycare FIND ISABELLA’S PERSONAL INFORMATION
  • 9. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Accounts Summary • Types of accounts • Date the account was opened • Credit limit or loan amount • Account balance • Payment history, including missed or late payments Isabella’s Accounts • Sam’s Electronic World • City of Anywhere • U.S. Department of Education • Financial Institution School Loan • Shop ‘Til You Drop Store Credit Card • Love to Read Store Credit Card • The Free Money Credit Card Accounts Summary WHAT LENDERS DOES ISABELLA HAVE ACCOUNTS WITH?
  • 10. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Isabella’s Late or Missed Payments • Sam’s Electronic World • Past due • Store Credit Card • Occasional late payments Accounts Summary DOES ISABELLA HAVE ANY LATE OR MISSED PAYMENTS ON ACCOUNTS ?
  • 11. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Public Record Items • Accounts turned over to collection agencies • Public records • Bankruptcy • Tax liens • Legal suits • Foreclosures Isabella’s Public Record Items • City of Anywhere • In Collection Public record items related to credit IDENTIFY PUBLIC RECORD ITEMS IN ISABELLA’S REPORT
  • 12. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit Inquiries • Requests for an individual’s credit report • Completed by: • Insurance agencies • Potential credit companies • Financial institutions • Landlords • Potential employers, etc. WHAT INQUIRIES DOES ISABELLA HAVE ON HER REPORT?
  • 13. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit Inquiries Not all credit inquiries are the same! Type of inquiry Soft check Hard check Do they impact your credit score? Not usually Yes Examples •Individuals checking their credit reports •Credit card companies companies pre- approving individuals individuals •Pre-employment Permission given by the individual when seeking credit •Credit card •Automobile loan •Insurance Individuals should avoid too many hard credit checks at one time!
  • 14. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Isabella’s Report Inquiries Type of inquiry Soft checks Hard checks Examples •A Very Big Bank •Need More Credit •Keeping You Insured •The Dream Sales Job •Shop ‘Til You Drop
  • 15. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Medical Information • Where an individual was treated • What they were treated for Information NOT allowed on a credit report: • Information regarding late medical payments Information allowed on a credit report
  • 16. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Equal Credit Opportunity Act • Prohibits credit discrimination on the basis of: • Race • Religion • Marital status • Nationality • Gender • Age Creditors may ask for this information (except religion) in certain situations, but may not use it to discriminate when deciding whether to grant you credit
  • 17. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit Scores Mathematical tool created to help a lender evaluate the risk associated with lending a consumer money •Based upon information in the credit report •At a particular point in time •Numeric “grade” of a consumer’s financial reliability •Used by lenders to determine a consumer’s risk of defaulting on a loan
  • 18. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit Scores • Most common scoring system is FICO • Credit scores range from 300-850, with 850 being the best score WHAT IS ISABELLA’S SCORE?
  • 19. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit Score Impact THIS IS BASED UPON A 30 YEAR FIXED MORTGAGE RATE FOR A $300,000 LOAN FICO Score Interest Rate Monthly Payment 30 Year Amount 760 5.9% $1,787 $643,320 650 7.2% $2,047 $736,920 590 9.3% $2,500 $900,000 $256,680 saved over the lifetime of this loan because of a good credit score!
  • 20. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 How Credit Scores are Determined Five categories of information from a credit credit report are used: • Payment history • Outstanding debt • Length of credit history • Pursuit of new credit • Types of credit in use
  • 21. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Payment History • The timely manner in which a consumer did or did not repay debt • Includes: • Several types of credit accounts • Late or missed payments • Public records and collection items
  • 22. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Payment History • Found in status column • Payment history • Sam’s Electronic World is past due • City of Anywhere is in collection • Shop ‘Til You Drop has occasional late payments • Love to Read was closed and never late • The Free Money Credit Card is paid on time • Credit score impact • Negative • Too many late accounts WHAT IS ISABELLA’S PAYMENT HISTORY? WHAT IMPACT DOES THIS HAVE ON HER CREDIT SCORE?
  • 23. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Outstanding Debt • The total dollar amount of debt currently held • Includes balances on all reported accounts • When a high percentage of debt is used, then it negatively impacts a score
  • 24. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Outstanding Debt • Total debt • Found in recent balance column • $37,325 • Available credit • Found in credit limit column • $37,546 • Impact • Negative • $37,546-$37,325 = $221 she is using almost all her available credit HOW MUCH TOTAL DEBT DOES ISABELLA HAVE? HOW MUCH AVAILABLE CREDIT IS ISABELLA USING? WHAT IMPACT DOES THIS HAVE ON HER CREDIT SCORE?
  • 25. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Length of Credit History • Length of time a consumer has held credit accounts • Includes how long ago credit accounts were established • A longer credit history will generally increase a credit score
  • 26. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 26 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Length of Credit History • Credit history • Found in date opened column • 08/05 U.S. Dept. of Education • Free Money Credit Card • Score will improve WHEN DID ISABELLA FIRST BEGIN HER CREDIT HISTORY? IF ISABELLA KEEPS HER FREE MONEY CREDIT CARD OPEN FOR ANOTHER 10 YEARS AND PAYS OFF THE BALANCE, WHAT WILL HAPPEN?
  • 27. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 27 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Pursuit of New Credit • Assesses how many accounts have been opened recently and the type of account • Includes the number of recently opened accounts as well as requests for new credit • Opening too many types of accounts in a short period of time has a negative affect
  • 28. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 28 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 New Credit • Additional credit • Shop ‘Til You Drop in August 2008 • Impact of seeking additional credit • Credit score will go down HAS ISABELLA PURSUED ANY ADDITIONAL CREDIT SINCE JANUARY 2008? IF ISABELLA ACQUIRED ANOTHER CREDIT CARD AND SHOPPED FOR AN AUTOMOBILE LOAN, WHAT WOULD HAPPEN TO HER SCORE?
  • 29. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 29 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Types of Credit in Use • Analyzes the types of credit in use • Credit cards, retail cards, mortgages, automobile loans, etc. • Variety is generally good to have
  • 30. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 30 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit in Use • Types • Credit card (revolving) • School loan (installment) • Private school loan (installment) • Store cards (revolving) • Additional forms • Mortgage • Automobile loan WHAT TYPES OF CREDIT DOES ISABELLA HAVE? WHAT ARE ADDITIONAL FORMS OF CREDIT SHE MAY SEEK?
  • 31. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 31 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Information not included in a FICO score • FICO score is only based upon credit use • Information not included is: • Personal information such as age, where you live, marital status, race, color, religion, national origin, gender • Employment information • Interest rates charged on accounts • Overall wealth (assets an individual may have) These variables may still be considered when a lender reviews a loan application.
  • 32. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 32 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Positive vs. Negative Credit Impact Positive • Informs the lender a consumer is: • Financially responsible • Less risk • Benefits to the consumer • Lower interest rates • Access to additional credit Negative • Informs the lender a consumer is: • Not financially responsible • May be a higher risk • Impact on the consumer • May pay higher interest rates • May not be able to qualify for credit • May limit employment opportunities IS ISABELLA A POSITIVE OR A NEGATIVE RISK? WHY?
  • 33. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 33 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity - What You Do Makes a Difference 1. Instructor will read a scenario 2. Determine if the scenario will have a positive or negative impact on an individual’s credit report 3. Move to the side of the room representing your selected answer 4. Be prepared to explain “why”
  • 34. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 34 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • Joey rented a TV TV from “The Best Deal” rent to to own store during college • The TV was neither returned nor paid for as stated in the contract Credit report impact: Negative Joey owes the store the money which was agreed upon in the contract May be responsible for additional fees He may be referred to collections
  • 35. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 35 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • Sally pays the total amount due due on her credit cards cards each month Credit report impact: Positive An excellent habit for building a positive report
  • 36. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 36 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • Fernando rented a DVD from Busting Bronco Rental Rental and never returned returned the movie Credit report impact: Negative Fernando is responsible for the movie replacement Could be reported to collections
  • 37. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 37 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • Cassie has received three three parking tickets throughout the the past year and has not paid them Credit report impact: Negative Cassie has probably already been referred to collections Will owe for the parking tickets and additional fees
  • 38. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 38 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • Sam acquired a a loan from Buy Buy More Credit Credit Union for for $1,000 to purchase a motorcycle. He He paid the loan loan back in full and on-time Credit report impact: Positive Demonstrated the ability to responsibly use credit
  • 39. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 39 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • Corey’s credit card bill is paid in monthly installments. However, it is due on the 15th and usually paid paid a few days days late Credit report impact: Negative Although Corey is paying his bill, he is doing so late!
  • 40. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 40 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • Kari bought a car and financed it though the “Drive Bigger and Better” Better” promotion • Payments are automatically removed from her checking account • Money is always in in the account Credit report impact: Positive All payments were made in time Having automatic withdrawals with the money in the account is a good practice
  • 41. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 41 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • In the past three months, Tammy has applied for credit cards at these establishments: • Tarmore, Wally World, JcMoney, Credit report impact: Negative This is too many inquiries for new credit at one time from a variety of types of stores
  • 42. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 42 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • Jessica has several types of of credit cards • Each of her credit card balances are at the maximum level Credit report impact: Negative A variety of types of credit may be good, however, Jessica’s balances are at the maximum level
  • 43. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 43 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Activity Action: • It is 12 months after graduation and Jon has not started paying his student loan back because he has not not found a job • He has not contacted the loan loan company Credit report impact: Negative Jon is delinquent on the account. If he contacts the loan company, they may be able to work with him
  • 44. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 44 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Positive Credit Practices Positive Practice good banking techniques, such as keeping a a checkbook balanced, managing accounts online, and not and not bouncing any checks Pay bills consistently and on time Maintain reasonable amounts of unused credit Apply for credit sparingly, thus keeping credit inquiries to Check credit reports annually and search for errors
  • 45. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 45 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Negative Credit Practices Negative Having non-sufficient funds (NSF) when writing checks, checks, also known as bouncing checks Routinely paying late on credit cards, utility, and cell- phone bills Maxing out limits on credit cards Numerous credit applications in a short period of time
  • 46. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 46 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 When Credit is not established • Although the following are all positive financial habits, no credit is established when: • Credit is never used • Accounts are not in own name • Cash is paid for all major purchases • Phone and utility bills are paid on time • It only negatively impacts a score if payments are late
  • 47. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 47 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Building credit history • Important for consumers to build a credit history to be able to purchase items on credit • For example – house, vehicle • Having no credit history may be just as challenging to a consumer as having a negative history
  • 48. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 48 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 2009 CARD Act Changed how young adults receive certain types of credit To receive a credit card: • Generally must be 21 years of age or older UNLESS • Show documentation of sufficient income • Have a co-signer
  • 49. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 49 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Establishing Credit • Strategies to build credit include acquiring and positively managing small lines of credit • Co-signer • Secured Credit card • Require a cash security deposit to ensure payment of the card • Small loan from financial institution If someone is a co-signer on a an account, they are equally as responsible and their credit report is impacted. DOES ISABELLA HAVE ANY CO-SIGNERS? WHAT IMPACT DOES HER ACTIONS HAVE ON THEM?
  • 50. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 50 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Requesting A Credit Report • One free credit report annually from each of the three credit reporting agencies • Credit scores are available for a small fee Access the website: annualcreditreport.com Calling toll free: 1-877-322-8228 Send a written request: Annual Credit Report Request Service PO box 105281 Atlanta, GA 30348-5281
  • 51. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 51 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Annualcreditreport.com annualcreditreport.com - Only government sponsored Web site Other sites may be fraudulent or charge a fee
  • 52. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 52 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Mistakes in Credit Reports • Important to check each credit report annually to correct mistakes • Two common errors • Fraud (identity theft) • Mistaken identity • When a lender reports a transaction on the wrong person’s credit report
  • 53. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 53 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Fair Credit Reporting Act • Gives consumers the right to review and correct their report • If a person is denied credit, they have the right to request their credit report from the credit reporting agency • If within 60 days it is free of charge
  • 54. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 54 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Correcting Errors on Credit Reports Write a letter • To the credit bureau that has the incorrect information and/or the information provider Bureau has 30 days to investigate • If investigation is not completed within this time, the information must be dropped from from the credit file
  • 55. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 55 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Correcting Errors on Credit Reports Incorrect information must be corrected • Consumer can request the corrected report be sent to sent to any creditors who viewed the incorrect report Negative information on a credit report • Usually removed after seven years • Bankruptcy is removed after ten years
  • 56. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 56 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Credit Repair Agencies • Offer to help a consumer “fix” his/her negative credit report • According to the Better Business Bureau (BBB) and the Federal Trade Commission (FTC): • Consumers can do just as good of a job repairing their credit report errors as a fee based debt repair agency • Be cautious of debt repair agencies promising instant help because there is no immediate fix for negative credit
  • 57. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 57 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 Advice Isabella was given From Angie • Credit ratings improve as people get older and income increases • Isabella’s credit score will improve when she: • Moves to a better side of town • Gets a better interest rate on loans • Is promoted From George • Shopping around too much for credit is not good because it increases inquiries • Opening new accounts, even if not used, provides evidence of credit worthiness • Close old accounts, including those with loans not paid on time to wipe the slate clean WAS THE ADVICE GOOD? WHY OR WHY NOT?
  • 58. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 58 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 • Will Isabella receive her dream job? • What advice would you give Isabella to improve her credit report and score? • What should she do immediately? • What recommendations would you suggest she employ in the near future? CREDIT REPORT DETECTIVES ADVICE
  • 59. © Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 59 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona 1.4.2.G1 ANY QUESTIONS?

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