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Team D Leonard A Wilson III Javier Vargas Sunny Shiau DishonMcEwan
The purpose of this presentation is to empower students with insights to how credit reports and score works. They will also learn how to make a budget plan and they will also learn about credit cards rates. It is the goal of this presentation to be a tool students can use to help them make sound financial decisions that will promoted them to a more responsible and disciplined adult when it comes to finances.
Students who move out of their parents home out on their own do not understand how to budget their money effectively. This can cause students to work too many hours and have a negative impact on their school work. Before moving out of their parent's home, State University want to provides students and their parents with a model budget plan to manage their finances. As a result of this plan, students can work a reasonable number of hours and achieve academic success
Money management is the process of knowing where you are spending your money today, and having a well thought-out plan in place for where you want it to go in the future.
Set goals - there are three types of goals that you can set for yourself. The three different types of goals one can set up for themselves which are short-term (achievable in under a year), mid-term (achievable in two to five years), and long-term (achievable in five-plus years).
Organization - use a file cabinet for the bills for the month and year so you know where you're money is going
Use a shredder to protect yourself from identity theft if you decide to get rid of the bills.
Use a Fireproof safe for money you can use for emergency. You can also use it for important documents also such as Insurance policy documents, Copies of deeds and titles for your home, car, and other real property, Copies of previous year's income tax returns, and Originals of wills and powers of attorney.
Cut Spending Waste. This means stop wasting money on the wants you want in life and save the money for something more important. You can do this by numerous ways. Some ways are write down all the things you brought as a want, keep receipts, and monitor ATM use.
Build a Budget. Write down your income for the month and year. Write down your monthly expenses on your bills. Identify where you want to make budgetary.
Save Money. Establish an emergency fund.
There are also numerous ways for money management depending on that person situation. The situations can include living on your own as a single person, married to a spouse, married to a spouse with kids or divorced. Living as a single person. You will have monthly bills that you just have to take care of. These bills include rent, utilities bill, phone bill, food and hygiene accessory. These are just bills that are needs. Now you have to see about wants bill. These can be leisure time, cable, and etc. Living with a spouse can be different now. Now it would depend if the spouse is working or not. If the spouse is working nowthere is more money that you can save up for emergency funds. You can also have more money for leisure time. The bills can also be divided into two. If the spouse now doesn't work, you now have to see what the spouses needs are. Living with a spouse and having a kid. Now you have three people to worry about with the expenses. The children needs can be diapers, milk, clothing, and maybe day care depending if the spouse is working or not. Now it's more difficult to live. The bills are going to be more then living on your own. Now you have more needs in the family then living by yourself. Divorce is the worse now. You have to give the spouse child support on top of every other bill you would have to pay monthly. Now you can't even save for leisure time since it's going to child support. You still have to take care of children also. Bottom line is depending on your living style there is always going to be a need and a want. You just have to decide what they are in your eyes.
Food is a basic but very important biological necessity. Without the proper nutrient it could make academic projects stressful and also lead to absents due to sickness. FOOD $200
Personal hygiene is important for student self esteem as well as inter-dependency. Taking care of ones hygienically needs help make one comfortable and self confident. PERSONAL HYGIENE $10
LAUNDRY Laundry another hygienically need, a person appearance plays an important part of how they feel about themselves and around others. It also a great help as to adhere to dressing protocol according to work and school. $20
TRANSPORTATION It is without saying transportation is critical for students to get to and from destination to destination, whether it be by private or public transportation. This is a daily need, if one is using public trans-portation it’s best to get a weekly or monthly unlimited pass. $90
College student will need school supplies just like any other student. Placing this in your budget will ensure you will have the necessary tools to succeed in your studies. BASIC SCHOOL SUPPLIES $10
CELL PHONE A cell phone is a great communication device, one can always keep in contact with family, work, school and other students or study group members. Student can be keep in the loop for days they missed or inform important parties of emergency that may occur. $40
Savings is one thing that most people want to do, but without a game plan it become just idle talk. Savings is important so one came some monetary support to fall on. SAVINGS $70
Internet service, is both a need and want that serve as one of the greatest resource for academic purpose and entertainment. You have a world of information at your finger tip and can pay bills over the internet as well a shop or downloads thing your need. INTERNET service $30
Leisure time is an important want because it help keep stress and frustration down. In addition, leisure time can help recharge students focus, in-spiration and creativity toward achieving goals. LEISURE $50
CABLE Cable is another important want because it can be use for a very fast internet services as well as for entertainment. It can be use for relaxing at home or for watching the news on current events, sports, and favorite shows. $30
Credit Card Usage Recommendation 1 You should use a debit card for most of your purchases instead of credit cards because debit card don’t have interest rates and make it easier to not over extend yourself. Credit card should be a last resort or maybe for emergency emergencies not emergency “I got to have it” emergency for something you like. Don’t practice restraint, use restraint. One of the most important thing to remember is you don’t just pay back what you owe there is the INTEREST RATES you must pay. The first credit card usage recommendation is; to use your credit card wisely not frivolous. “Credit cards are the power tools of the financial world. Before you pick up the plastic, however, be sure that you understand all the potential harm they can cause. If you avoid the temptation of overspending, and pay off those balances every month, your credit card will be a powerful financial ally.” Greg Mischio - MortgageLoan.com
Credit Card Usage Recommendation 2 Paying bills is a great use for credit card due to the fact some bills may be due outside of your pay period or may be more convenient to pay online. When it come to paying month credit card bill it’s better to higher than minimum so your bill is cleared quicker. The longer it takes you pay off your balance the more money you LOSE.Below is an example showing how you losing money. Each month John and Jane are charged a 20% annual interest on their cards' outstanding balances. So, when John and Jane make payments, part of those payments go to paying interest and part go to the principal. Here is the breakdown of the numbers for the first month of John's credit card debt:
These calculations are done every month until the credit card debt is paid off. In the end, John pays $4,240 in total over 15 years to absolve the $2,000 in credit card debt. The interest that John pays over the 15 years totals $2,240, higher than the original credit card debt. Because Jane paid an extra $10 a month, she pays a total $3,276 over seven years to absolve the $2,000 in credit card debt. Jane pays a total $1,276 in interest. The extra $10 a month saves Jane almost $1,000 and cuts her repayment period by more than seven years! The lesson here is that every little bit counts. Paying twice your minimum or more can drastically cut down the time it takes to pay off the balance, which leads to lower interest charges. However, as we will see below, it's wise not to pay only your minimum or even just a little more than your minimum. It's best simply not to carry a balance at all. Do remember, $1 is $1, regardless of whether it is invested or lost. Not thinking this way can be very costly. (http://www.investopedia.com/articles/01/061301.asp?viewed=1)
Credit Card Usage Recommendation 3 In my first recommendation I mention using credit cards for emergencies, but there are other times when using credit is good. One of them times is traveling or vacation it serve as a protection tools against losing cash and being without money. Yet, another surprisingly good thing to use credit card for is purchasing fragile or electronic items (I mention these two because they are more likely to be damaged when purchased if boxed up). Your card protects you from pay for damaged goods. That is if you have the protection insurance some company offer it for free. For credit card users who are aware of the coverage and want to use it, it covers you in the event that you purchase an item using your credit card that becomes damaged on the way home or soon thereafter, becomes lost, or someone steals it. These are the typical eligibility requirements for purchase protection coverage, although once again, be sure to read your specific credit card company’s policy for the exact details of your coverage. In most cases, the credit card company will refund the amount of the purchase (as shown on your store receipt or credit card statement) back onto your credit card account, although there is almost always a maximum limit to how much money can be refunded under the insurance. Most policies will also have strict exclusions for certain types of damages to items purchased, so a purchase protection insurance policy is not a perfect solution as not all instances of damaged items will be covered, but at least it is better than no coverage! (http://www.creditorweb.com/articles/purchase-protection.html)
In Summary In summary of the first part of this presentation, the presentation give students a example of a items that should be included in a budget plan in addition to bills and how budget plan may vary depending on status. We also offered three recommended usage of a credit card. The second part of this presentation gives information of credit report and interest rates. The overall conclusion and goal of this presentation is to empower student to not waste money due to lack of knowledge. In addition it is our intention to prepare students with independent living skills to be not only a successful student, but also a successful person.
CreditReports What they contain and how they affect us By: Leonard A Wilson III
What kind of information does a credit report contain? Your Experian credit report contains four types of information: identifying information, credit information, public record information, and inquiries. Identifying information includes:
Your current and previous addresses
Your Social Security number
Your year of birth
Your current and previous employers
If you're married, your spouse's name
Credit information includes credit accounts or loans you have with:
Credit card issuers
Public record information includes any information that's contained in state and county court records, like:
Inquiries indicate to other credit grantors that you have applied for new credit, which could result in additional debt. Potential lenders may view multiple recent inquiries on your credit report as a sign you may be overextending yourself. www.consumerinfo.comscroll down to credit report basic Some inquiries will have abbreviation next to them. Here are some of them:
PRM: Promotional purposes. Your credit was screened for preapproved credit offer.
AM: Account monitoring
AR: Account review
The amended FCRA requires that credit bureaus list full names not abbreviation. In addition you now have the right to ask for the address, phone number of the businesses and individuals who appear on your credit report that have made inquiries. The FCRA (Fair Credit Reporting Act) does not specify the max amount of time that an inquiry can or should stay on your report, but there is a minimum of two year for employment purposes and six month for all other purposes. Why is this important, who cares? You should. Most people are misguided about how inquiries affect their credit report and score. Inquiries have a significant effect on your ability to get credit because lenders use this to gage how much credit you are trying to get by considering the number of credit-related inquiries inn your file. If there is too many inquiries, lenders will tend to believe you are applying for too much credit and will not be a responsible for that credit. In another words you will be a high risk and they will most likely deny your request for credit. A good rule of thumb is to apply for the credit you most need. Credit Scores & Credit Reports 3rd Edition by Evan Hendricks listed three main problem have when it come to credit reports. Many American do not understand how the credit report system works or how the scores are calculated. Since the 1990s evidences show inaccuracy has and still is a significant problem. The ever increasing epidemic and nightmare: IDENTITY THEFT! Credit Scores FACTA defines a "credit score" as: A numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default (and the numerical value or the categorization derived from such analysis may also be referred to as a 'risk predictor' or risk score'Ö (FCRA §609(f)(2))http://www.privacyrights.org/fs/fs6c-CreditScores.htm#2
It have been said that math formula of calculating credit score is like the secret ingredient to Coke Coca Cola or Kentucky Fried Chicken, it’s their secret. However I did find out what are calculated into the scores. Additional credit inquiry will take less than 5 points off your FICO Score It is not strange forthere to be a 50 point difference between the three reports
Payment History According tohttp://www.businessdictionary.com/definition/payment-history-analysis.htmlPayment history is the review of payment patterns within an accounting area. This is how companies identify practices that could affect certain things like collection, timing between billing and payment. They can also identify activities that are not done properly, such as the prompt delivery of a bill. Below is a list of things covered by payment history. This list can also be found athttp://www.myfico.com/CreditEducation/WhatsInYourScore.aspx
Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
Presence of adverse public records such as bankruptcy, judgements, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
Severity of delinquency (how long past due)
Amount past due on delinquent accounts or collection items
Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
Number of past due items on file
Number of accounts paid as agreed
Amount owing on specific types of accounts
Lack of a specific type of balance, in some cases
Number of accounts with balances
Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
Length of Credit History
Time since accounts opened
Time since accounts opened, by specific type of account
Time since account activity
Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
Number of recent credit inquiries
Time since recent account opening(s), by type of account
Time since credit inquiry(s)
Re-establishment of positive credit history following past payment problems
Types of Credit Used
Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
All these categories are taken into consideration to determine your FICO score (Fair Isaac Corporation (credit scoring model)). Note for some people, a given factor may be more important than for someone else with a different credit history. The importance of any factor changes as the information in your credit report changes. This affects the determining of your FICO score. Hence, it is not possible to say how important any single factor is in calculating your score. Even the percentages reported here will be different for different credit profiles. The importance is the mix of information, which varies from person to person. Income is not a factor. "A person can have a very high income and never pay their bills," said Craig Watts, public affairs manager for Fair Isaac and even though your FICO score only looks at information in your credit report, lenders look at a lot things when it come to making a credit decision. They look at how long you have been working at your present job, your income and what type of credit you are requesting. Late payments reduce your score, but establishing or re-establishing a good track record of making payments on time raise your score. This is one way to start repairing your FICO score.
Low Risk Medium Low Risk Medium Risk Medium High Risk High Risk or Sub-prime
What Are Interest Rates? By Javier Vargas
What Are Interest Rates? By: Javier Vargas Like anything else in economics, there's a few competing definitions of the term interest rate. The Economics Glossary defines interest rate as: "The interest rate is the yearly price charged by a lender to a borrower in order for the borrower to obtain a loan. This is usually expressed as a percentage of the total amount loaned." In day to day conversation we tend to hear references to "the interest rate". This is somewhat misleading, as in an economy there are dozens if not hundreds of rates interest between borrowers and lenders. The differences in rates can be due to the duration of the loan or the perceived riskiness of the borrower. To learn more about the different types of interest rates, see what’s the Difference Between all the Interest Rates in the Newspaper? Nominal Interest Rates vs. Real Interest Rates Note that when people discuss interest rates, they're generally talking about nominal interest rates. A nominal variable, such as a nominal interest rate, is one where the effects of inflation have not been accounted for. Changes in the nominal interest rate often move with changes in the inflation rate, as lenders not only have to be compensated for delaying their consumption, they also must be compensated for the fact that a dollar will not buy as much a year from now as it does today. Real interest rates are interest rates where inflation has been accounted for. This is explained in more detail in Calculating and Understanding Real Interest Rates. How Low Can Interest Rates Go? Theoretically nominal interest rates could be negative, which would imply that lenders would pay borrowers for the privilege of lending money to them. In practice this is unlikely to happen, but on occasion we do see real interest rates (that is, interest rates adjusted for inflation) go below zero. To learn more, see: What happens if Interest Rates Go To Zero?
Calculating and Understanding Real Interest Rates. Ihave a couple of questions about the real interest rate I was hoping you could answer: I have the following consumer price index (CPI) and nominal interest rate data: CPI Data Year 1: 100 Year 2: 110 Year 3: 120 Year 4: 115 Nominal Interest Rate Data Year 1: -- Year 2: 15% Year 3: 13% Year 4: 8% How can I figure out what the real interest rate is for years 2, 3, and 4? I’m offered the following deal: I lend $200 to a friend at the beginning of year 2 and charge him the 15% nominal interest rate and he pays me back the $230 at the end of year 2. If I agree to this deal will I be made better or worse off? [A:] Thanks for your great questions! First we’ll look at what the real interest rate is and then we’ll see how to calculate real interest rates. What is the Real Interest Rate? In the article “What’s the Difference Between Nominal and Real?” we learned that “a real variable, such as the real interest rate, is one where the effects of inflation have been factored in. A nominal variable is one where the effects of inflation have not been accounted for.” An example shows how real interest rates work: Suppose we buy a 1 year bond for face value that pays 6% at the end of the year. We pay $100 at the beginning of the year and get $106 at the end of the year. Thus the bond pays an interest rate of 6%. This 6% is the nominal interest rate, as we have not accounted for inflation. Whenever people speak of the interest rate they're talking about the nominal interest rate, unless they state otherwise. Now suppose the inflation rate is 3% for that year. We can buy a basket of goods today and it will cost $100, or we can buy that basket next year and it will cost $103. If we buy the bond with a 6% nominal interest rate for $100, sell it after a year and get $106, buy a basket of goods for $103, we will have $3 left over.
Now we know what the real interest rate is we’ll look at how you can calculate it. How Do I Calculate the Real Interest Rate? Before we start making the calculations we need to introduce some notation: Notation
i: is the Inflation Rate
n: is the Nominal Interest Rate
r: is the Real Interest Rate
To calculate the real interest rate, we need to know the inflation rate (or expected inflation rate, if we’re making a prediction about the future). From the data given we don’t have the inflation rate, but we can calculate it from the CPI data: Calculating the Inflation Rate We need to use the following formula: i = [CPI(this year) – CPI(last year)] / CPI(last year). So the inflation rate in year 2 is [110 – 100]/100 = .1 = 10%. We do this for all three years and get the following: Inflation Rate Data Year 1: -- Year 2: 10.0% Year 3: 9.1% Year 4: -4.2% Now we can calculate the real interest rate. The relationship between the inflation rate and the nominal and real interest rates is given by the expression: (1+r)=(1+n)/(1+i). However for low levels of inflation we can use the much simpler Fisher Equation to calculate the real interest rate: FISHER EQUATION: r = n –i Using this simple formula, we can calculate the real interest rate for years 2 through 4: Real Interest Rate (r = n –i) Year 1: -- Year 2: 15% - 10.0% = 5.0% Year 3: 13% - 9.1% = 3.9% Year 4: 8% - (-4.2%) = 12.2% So the real interest rate is 5% in year 2, 3.9% in year 3, and a whopping 12.2% in year 4.
Dishon’s General Analysis By DishonMcEwan
Credit Cards and Interest Rates The article “Strategies Used by Credit Cards Companies” provides information on some of the strategies used by credit card companies to lure in customers. The article explains that credit card companies use lower fixed rates to attract new customers. Some even offer zero percent interest rates on purchases the first years as long as the customer makes payments ever month. Another strategy they use is reward programs. Every time a customer uses the card they get reward points towards other purchases. I chose this article because it provides the exact information I was looking for. The article hit my main two points. Credit card strategies and interest rates that come with them. To article provides a person who is looking for a new card on what type of offers that are out there.
Credit Reports The article “Why is a Good Credit Score Important for Students?” provides information on why college students should work on the credit score as soon as possible. The biggest factor to me is the fact that a lot of employer look at credit scores to determine your level of responsibility. You go to college so you can get a good job and you wouldn’t want your credit history in the way of that. Also a good credit score will help you get the things you want and need once you a graduate. When buying a house, a car or any other luxury item your credit score will be checked. I chose this article because it provides the exact information I was looking for. The article provides information for students how to maintain a good credit score. From paying the minimum payments to checking your credit report just to know how your credit is. The article also provides benefits of having and maintaining a good credit score. The article stresses its importance and reaches out to the reader.
Money Management The article “A Few Tips on Money Management” provides things to look out for when trying to manage your money. First, determining your needs to necessities is a good step in money management. Next, use your monthly income as a way to limit what your necessities and luxury items are. The articles suggest you save 10% of your monthly income. The article also suggests you avoid using credit cards as much as possible. I chose this article because it provided exactly the information I was looking for. The article provides steps on how to manage your money. The article tells you how much you should save. The article also tells you should plan ahead your expenses based upon your monthly income. The most important thing is to determine your needs and not go over your limit.
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