7.02 c -establish__maintain_creditt


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7.02 c -establish__maintain_creditt

  1. 1. 7.0 OBJECTIVEUNDERSTAND WAYS TO PROTECT PERSONALAND FAMILY RESOURCES. 7.02 C-students will be able to understand how to establish credit and maintain good credit
  2. 2. ESTABLISHING CREDITCreditors lend to people who can reasonably be expected to pay them back – all questions asked relate to “ability to repay” Creditors look at credit-related information to determine if one is a good risk A creditor’s evaluation of one’s ability and willingness to repay debts is a credit rating
  3. 3. ESTABLISHING CREDIT Credit rating reflects the consumer’s credit history Credit ratings are based on 3 Cs  (review objective 6.03 housing options)  Character---a person’s reputation for being honest and their financial history  Capacity---a person’s employment history and ability to earn money  Capital---a person’s financial worth
  4. 4. HOW TO ESTABLISH GOOD CREDIT Take out a small, short term loan  Make EVERY payment ON TIME!  Pay off on time OR early  Examples:  Low limit credit card – $500 MasterCard  Car loan – may have to be co-signed by parent Pay ALL your bills ON TIME!  Rent to your landlord  Premiums to your auto insurance  Cell phone bill  Utility bill  Medical bills with doctor, hospital
  5. 5. CONSIDERATIONS WHEN SHOPPING FORCREDIT Choosing the Right  Grace period Lender  Minimum finance charge Annual fees to keep card  Any other fees Annual percentage rate  Cash advance (APR)---  Late fees  the amount  Credit limit  whether it changes  Special features and Method used to calculate services interest  Rebates, earning points,  Previous balance  free air miles  Adjusted balance  Minimum payment amounts
  6. 6.  Non-preferred lenders  May take advantage ofLOAN SOURCES people with poor credit; typically charge high interest Preferred lenders rates  Most reliable lenders  Examples: Examples:  “payday” lenders  Banks  Pawnbrokers  Credit unions  loan sharks  Savings & loan  auto title loan lenders associations  tax refund loan  Consumer finance companies*  May accommodate lower credit rating for higher APR  Insurance policy loans *-usually higher interest rate  Credit card companies **- if family, may cause tension  Private loans**
  7. 7. CREDIT DOCUMENT- THE CONTRACT Creditcontracts  Know the content of the are legal binding credit contract before signing documents that such as: allow debtors to  $ Amount of finance charges use credit to  Repairs covered obtain goods and  Add-on features  Reduction of finance charge if services. contract paid in full prior to READ the agreement ending date BEFORE signing!  Receive a copy of the contract  Who is your best  Repossession conditions advocate?  Know what you are signing!
  8. 8. JUMPSTART PRINCIPLE: YOUR CREDIT PAST IS YOUR CREDIT FUTURE What do you think this means? PSA videos on http://www.ftc.gov/freereports  PSA = Public Service Announcement Go to http://www.ftc.gove/freereports  Find information on how to obtain a credit report  What are the 3 major credit reporting bureaus?  What do they do?
  9. 9. Credit Reporting Before approving loan, loan officer or underwriter will run credit report (credit check) A credit report is like a report card of how people manage their credit Report reflecting how well a person has used credit resources
  10. 10. Credit Reporting  Provide information about employment history, credit accounts, balances, Three national credit payment patterns reporting agencies:  Equifax  Consumers should check each of the three credit  Experian reports annually to verify  TransUnion accuracy 500- poor credit score  The Fair Credit Reporting 700+ good credit score Act---can get a free copy of credit reports every 12 months  The FTC site http://www.ftc.gov/freereport s explains how to obtain the free reports
  11. 11. CAUTIONS WHEN  Typically, must provideSEEKING LOANS information related to ability to repay loan:  Income  Employment history  Residence  Credit history  Savings  The lender will likely run a credit check (report).  If approved, borrowers may have right to rescission (cancel) within three days if they choose; a provision of the Truth in Lending Act*  * How else does Truth In Lending Act protect consumers?
  12. 12. CAUTIONS WHENSEEKING LOANS Always “read the fine print” and know the terms of loans before signing   watch for issues like balloon payments Consider if this would be wise or unwise use of credit Remember that, once signed, borrowers are bound by the terms of the agreement Consumers can apply for loans in person, online, over the telephone or in writing
  13. 13. WHAT DO YOU THINK? How can having bad credit negatively affect a person? If bills are not paid, what items can be repossessed? If bills are not paid, what items can be foreclosed? If bills are not paid, what items can be turned off? http://whatsmyscore.org/contgest/videos.php
  14. 14. MAINTAINING GOOD CREDIT Evaluate the need to borrow  Can the purchase be avoided, delayed or bought on lay- away? Identify and use the right type of credit for the intended purchase Shop for the best terms Know how you will pay it back before you borrow Only use the amount of credit that you can afford to repay Meet all the terms of credit contracts and agreements Keep accurate records of charges, statements, and payments Consult creditors immediately if you cannot pay on time Resolve billing errors promptly
  15. 15. JUMPSTART PRINCIPLE: Don’t borrow money that you can’t repay! Create a tip sheet/brochure on:  Credit card use  Establishing and maintaining good credit  Getting out of debt  Knowing when and why to borrow
  16. 16. video link: signs of debt problemsSIGNS OF A DEBT PROBLEM Consumers find  Relying on credit cards to themselves stressed and purchase day-to-day constantly worrying over items like groceries and their finances fast food Having no savings  Relying on credit cards to Having reached the credit pay monthly bills limit on most of their  Opening new credit card credit cards accounts in response to Skipping payments on reaching the credit limit some bills in order to pay on others others  Regularly receiving Using cash advances on contacts from one credit card to pay creditors/collection another agencies trying to collect unpaid debts
  17. 17. STRATEGIES FOR GETTING OUT OF DEBT video link: tips for getting out of debt Actively deal with the problem; ignoring it will only make it worse  Stop using credit; focus on repaying the Get help from trained debt owed people---a credit counselor or credit  Contact creditors counseling service immediately, let them know your situation, Develop a spending plan ask to have credit that includes living terms adjusted expenses and debt repayment funds  Get credit card with “teaser” rate Learn to live within your budget!  Pay bills automatically through EFTs! video link: credit counseling  Spend smarter!
  18. 18. video link: when to file bankruptcyBANKRUPTCY…A LAST RESORT Legal relief or forgiveness from repaying certain debts Try to deal with debts using ALL MEANS available before filing for bankruptcy Bankruptcy carries serious, long-term consequences--- part of one’s credit report for ten years!  Chapter 7---must sell certain personal belongings, use proceeds to repay debts  Chapter 13---can retain most personal property, but must propose a repayment plan, go to credit counseling, receive financial management education, and be employed
  19. 19. BANKRUPTCY EXCLUSIONS No Bankruptcy Forgiveness for:  Taxes owed including fines & penalties  Court ordered debt  Alimony  Child support  Liability from lawsuits  College loans video link: filing personal bankruptcy
  20. 20. Chapter 7 Bankruptcy ProcedureChapter 7---must sell most personal belongings of value, use proceeds to repay debts1. File the following with the US District Court: a. List of all creditors and amounts owed b. List of all property owned c. Statement about financial affairs d. List of current income and expenses e. Trustee is selected-independent party2. Sale for cash (liquidation) of non-exempt assets by trustee3. Proceeds (Cash) used to pay each creditor same %4. Money left over, if any, returned to debtor5. Creditors cannot sue for additional claims after filing 21
  21. 21. CHAPTER 7: PROPERTY- EXEMPT &NON-EXEMPT Exempt Property – can keep  Up to $7500 equity in home  Up to $1200 in vehicle  Up to $500 in jewelry  Up to $750 in tools of trade  Up to $200 per item of household goods, max $4000  Rights to social security benefits  All amounts in excess, subject to sale for cash Nonexempt property- cannot keep everything else included in liquidation and distribution to creditors, examples:  Bank Accounts  Stocks  Bonds 22
  22. 22. CHAPTER 13 BANKRUPTCY Extended Time Payment Plan or Reorganization Applies to individuals with regular income (currently working)  Trustee handles future earnings of debtor  Trustee handles payment of bills  Unsecured debts less than $250,000 and/or secured debts of less than $750,000  Submit reasonable plan for repayment of debts within three years  May be extended to five years 23
  23. 23. PRINCIPLES OF FINANCIAL PLANNINGFROM THE JUMP$TART COALITION Map your financial future Money doubles by the “Rule of 72” Your credit past is your credit future Start saving young Stay insured Budget your money Don’t borrow what you can’t repay Don’t expect something for nothing High returns equal high risks Know your take-home pay Compare interest rates http://www.jumpstartco alition.org/files2010/20 Pay yourself first 10_J$_Calendar.pdf