Please contact a Financial Readiness Specialist at Army Community Service. Our services are free and confidential.
Credit in and of itself is not bad. How we use or abuse credit can get us into trouble. You may need to use credit at times in your life, for example, purchasing a home, obtaining a college education, and purchasing big ticket items. While convenient, today the debit card can be used for many of the purchases that credit cards were typically used. If you get into the habit of saving for future purchases and emergencies you will rely less on credit, and that is a good thing.
Avoid using credit to purchase things that will not last as long as you will be paying for them, for example, dinner, vacations. People spend an average of 10 – 15% more when using plastic instead of cash. Make sure you are spending for the right reasons and that emotions are not involved. Make sure you are not paying your monthly expenses with credit cards. This is a habit that can lead to financial ruin.
Your credit score can effect how much you pay in interest, insurance rates, cell phone and utility deposits. Employers also look at your report.
There are several things that go into calculating your score. They are not all weighted the same, some are given more importance than others. Payment history and amount owed effect your score more than credit history length, new credit and types of credit. It is important to make your payments on time and to not use too much credit.
A good score can save you money. Review your report and look at your score. Dispute anything that is inaccurate in your report. Address any negative accounts. Clean up your history, if need be, and make sure your future use of credit will help your report and score instead of hinder.
There are various types of information on your credit report. You will want to make sure all the information is accurate.
We suggest that you request one report at a time, every 4 months so you can monitor your credit all year long. You may want to pull all three if you feel there are many errors or you suspect identity theft. Not all companies report to all three of the credit bureaus so there may be some variations from report to report.
The only way you can get accurate negative information off of your account is time.
It is important to make sure your credit report is accurate. If not, dispute any incorrect information. It may seem minor but if it is effecting your score you will want to correct it.
If you have too much debt, your score will be effected. Anything above 20% may be difficult to manage but also sends warning signs to creditors.
If one or more of these signs pertain to you, you may want to re-evaluate your budget and spending habits.
These examples are more severe. Set up an appointment with a financial counselor at ACS. You will want to address the issue as soon as possible. The longer these habits continue the more difficult it will be to get yourself out of the situation.
The Financial Counselors at ACS will work with you. There are many FREE or low cost solutions to taking control of your finances so you are not drowning in debt but on your way to financial freedom.
Most creditors focus on the last two years when looking at your credit. If your credit is not what you would like it to be, begin working on it now. The sooner the better. Cleaning up credit is a long process that can take months, even years.
Live on less than you make. Have an emergency fund for those unexpected expenses. Avoid using credit whenever possible. You can not get rich by using credit.
Credit Scores and Reports
Credit Scores & Reports
Wise Use of CreditO It’s about behavior, not dollars!O To purchase assets O Home O EducationO For convenienceO To take advantage of salesO Emergencies (convenience)O “Big Ticket” items
Unwise Use of CreditO To purchase consumablesO Impulse buyingO Spending for statusO Retaliatory spending (couples)O Spending to feel goodO Everyday living expenses
Credit ScoresO What Is A Credit Score? O The score given to an individual to determine their credit worthiness. FICO and Vantage.O Who checks your credit score? O Credit Card Companies O Lenders O Insurance Companies O Employers O Cell Phone and Utility Companies
How Your Score Is CalculatedFICO® scores are calculated based on your ratingin five general categories:2)Payment History3)Amounts Owed4)Length Of Credit History5)New Credit6)Types Of Credit Used
What’s A Good Score?O FICO Scores Range From 300 – 850O Recent changes in the economy have changed what lenders view as a very good score.O In the eyes of most lenders, FICO credit scores above 760 receive the best rates. 700-759 are considered very good.
Your Credit ReportO A credit report is a report containing a detailed credit history of an individual.O What’s On Your Credit Report? O Personal Information (Name, SSN, Etc.) O Public Records & Collection Accounts (Bankruptcies, Foreclosures, Etc.) O Your Credit History & Current Obligations O Credit Inquiries
How To Check Your Credit Report & ScoreO You are entitled to 1 free credit report a year from each of the 3 major credit bureaus.O To request your free credit report visit www.annualcreditreport.comO You can also request your credit score. A small fee may apply.
Credit ReportsO Accurate Negative Information O Pay up and wait O Two years for inquiries and payments O Seven years for most information O Ten years for bankruptcies O Criminal Convictions—no limit O The seven-year period starts from the date that the event took place
Credit ReportsO Correcting Wrong Information 1. Inform one of the Credit Reporting Agencies: Equifax, Transunion, or Experian in writing. Dispute forms included on websites. 2. Credit Reporting Agency investigates, usually within 30 days. 3. Credit Reporting Agency provides you with written results and a copy of Credit Report. 4. Credit Reporting Agency sends notices to the other two Agencies. 5. If not resolved, you can have a statement of dispute included in your file. Also, tell creditor that you disputed an item. *You have the right to put a statement of up to 100 words on your Credit Report*
Debt: How Much is Too Much? Calculate your debt-to-income ratio Debt toInco Hand me Ratio out
Warning SignsO Not paying off each monthO Making only minimum paymentsO Gradually more income committed to debt repaymentsO Falling behind on paymentsO Using cash advances to meet monthly living expenses
Other IndicatorsO Little or no money in savingsO Dependent on second job to make ends meetO Paying over 20% of net income per month to creditorsO At or near credit limits most of the time
Critical PointO Rotating bills (paying some this month, some next month)O Using credit to pay creditO Being denied additional creditO Dishonesty with spouse about debtsO Use of consolidation loans to reduce payments
Recovering from DebtO Take Charge! Construct a budget and spending plan, prioritize debtsO Construct a “power payment” planO Talk to Your Creditors
Improving Credit ScoresO Pay Bills On Time (Get current, stay current)O Pay Off Debt – Don’t Move It AroundO Don’t Close Unused Credit Cards As A Short-Term Strategy To Raise Your ScoreO Don’t Open New Credit You Don’t Need.
SummaryO Keep your budget up-to-dateO Calculate your Debt-to-Income RatioO Plan purchasesO Shop for creditO Check credit report annuallyO Build wealth, not debt