Credit, Risk Assessment Score and Budgeting


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Credit, Risk Assessment Score and Budgeting

  1. 1. American Debt Counseling, Inc. Credit, Risk Assessment Score and Budgeting
  2. 2. Credit Reports & CRA’s
  3. 3. What is a Credit Reporting Agency? <ul><li>A credit reporting agency (CRA) </li></ul><ul><ul><li>gathers and maintains credit data </li></ul></ul><ul><ul><ul><li>aka credit report/credit history </li></ul></ul></ul><ul><ul><ul><li>shows payment history </li></ul></ul></ul><ul><ul><li>available to subscribers who have a “ permissible purposes” </li></ul></ul><ul><ul><ul><li>lenders </li></ul></ul></ul><ul><ul><ul><li>employers </li></ul></ul></ul><ul><ul><ul><li>landlords </li></ul></ul></ul><ul><ul><ul><li>government agencies </li></ul></ul></ul>
  4. 4. Understanding Your Credit Report <ul><li>Credit Reports Contain: </li></ul><ul><ul><li>Identifying Information </li></ul></ul><ul><ul><ul><li>Name </li></ul></ul></ul><ul><ul><ul><li>Current and former addresses </li></ul></ul></ul><ul><ul><ul><li>SSN, Date of Birth, Employers </li></ul></ul></ul><ul><ul><li>Public Record/Collection Acct Information </li></ul></ul><ul><ul><ul><li>Tax or State Liens </li></ul></ul></ul><ul><ul><ul><li>Bankruptcy </li></ul></ul></ul><ul><ul><ul><li>Foreclosure </li></ul></ul></ul><ul><ul><ul><li>Judgments </li></ul></ul></ul>
  5. 5. Understanding Your Credit Report <ul><ul><li>Credit Information </li></ul></ul><ul><ul><ul><li>Opening Date </li></ul></ul></ul><ul><ul><ul><li>High Credit or Credit Limit </li></ul></ul></ul><ul><ul><ul><li>Loan Amount </li></ul></ul></ul><ul><ul><ul><li>Monthly Payment </li></ul></ul></ul><ul><ul><ul><li>Balance </li></ul></ul></ul><ul><ul><ul><li>Past Due Amount </li></ul></ul></ul><ul><ul><ul><li>Type of Account and Rating </li></ul></ul></ul><ul><ul><ul><ul><li>O, R, I </li></ul></ul></ul></ul><ul><ul><ul><ul><li>1,2,3,4,5,7,8,9 </li></ul></ul></ul></ul><ul><ul><ul><li>Responsible Party </li></ul></ul></ul><ul><ul><ul><ul><li>Joint, Individual, Maker/Co maker </li></ul></ul></ul></ul>
  6. 6. Understanding Your Credit Report <ul><ul><li>Inquiries (Hard) </li></ul></ul><ul><ul><ul><li>Credit Inquiries </li></ul></ul></ul><ul><ul><ul><ul><li>Automobile </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Mortgage </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Credit Cards </li></ul></ul></ul></ul><ul><ul><ul><li>Employment Inquiries </li></ul></ul></ul><ul><ul><ul><ul><li>Current or future employers (EMP) </li></ul></ul></ul></ul>
  7. 7. Understanding Your Credit Report <ul><ul><li>Inquiries (Soft) </li></ul></ul><ul><ul><ul><li>Promotional Inquiries </li></ul></ul></ul><ul><ul><ul><ul><li>Pre-approved offers (PRM) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Account Monitoring (AM) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Account Review (AR) </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Consumer Copy (ECIS) </li></ul></ul></ul></ul>
  8. 8. How Long Does Information Stay On File? <ul><li>Credit Accounts </li></ul><ul><ul><li>Accounts paid as agreed </li></ul></ul><ul><ul><ul><li>Up to 10 years from DLA </li></ul></ul></ul><ul><ul><li>Accounts not paid as agreed </li></ul></ul><ul><ul><ul><li>7 years from DLA </li></ul></ul></ul><ul><li>Collection Accounts </li></ul><ul><ul><ul><li>7 years from DLA (Date of Last Activity) </li></ul></ul></ul>
  9. 9. How Long Does Information Stay On File? <ul><li>Bankruptcy and Judgments </li></ul><ul><ul><li>Chapter 7 – Liquidation of debts </li></ul></ul><ul><ul><ul><li>reported for 10 years </li></ul></ul></ul><ul><ul><li>Chapter 13 - Reorganization or Repayment </li></ul></ul><ul><ul><ul><li>reported 7 years </li></ul></ul></ul><ul><ul><li>Lawsuit or an unpaid judgment </li></ul></ul><ul><ul><ul><li>reported for 7 years </li></ul></ul></ul><ul><ul><ul><li>or until the statute of limitations runs out, whichever is longer </li></ul></ul></ul>
  10. 10. How Long Does Information Stay On File? <ul><li>Tax Liens </li></ul><ul><ul><li>Paid IRS Tax Liens </li></ul></ul><ul><ul><ul><li>7 years from date paid </li></ul></ul></ul><ul><ul><li>Unpaid IRS Tax Liens </li></ul></ul><ul><ul><ul><li>indefinitely </li></ul></ul></ul><ul><li>Student Loans </li></ul><ul><ul><li>Defaulted Student Loans </li></ul></ul><ul><ul><ul><li>indefinitely </li></ul></ul></ul><ul><ul><ul><li>cannot be included in bankruptcy </li></ul></ul></ul>
  11. 11. How Do I Get A Copy of My Credit Report? <ul><li>Contact the three major credit reporting agencies: </li></ul><ul><ul><li>Equifax </li></ul></ul><ul><ul><li>Experian </li></ul></ul><ul><ul><li>Trans Union </li></ul></ul>
  12. 12. What Does It Cost? <ul><li>You’re entitled to a free credit report if: </li></ul><ul><ul><li>Your application has been denied for </li></ul></ul><ul><ul><ul><li>credit </li></ul></ul></ul><ul><ul><ul><li>insurance </li></ul></ul></ul><ul><ul><ul><li>employment </li></ul></ul></ul><ul><ul><ul><ul><ul><li>AND </li></ul></ul></ul></ul></ul><ul><ul><li>You request your report within 60 days of receiving the notice of the adverse action. </li></ul></ul>
  13. 13. Ways to Obtain a Free Copy? <ul><li>You’re also entitled to a free copy of your credit report once a year if: </li></ul><ul><ul><li>You're unemployed and plan to look for a job within 60 days, </li></ul></ul><ul><ul><li>You're on welfare, or </li></ul></ul><ul><ul><li>Your report is inaccurate because of fraud. </li></ul></ul>
  14. 14. Ways to Obtain a Free Copy? Cont. <ul><li>Go to </li></ul><ul><li>To access this website you will need your address, social security number etc. </li></ul><ul><li>Once access has been granted you will be able to separately access each CRA. </li></ul><ul><li>Transunion and Equifax allow registration which will keep information for 30 days. </li></ul>
  15. 15. How Do I Correct Errors on My Credit Report? <ul><li>Get a copy of your credit report </li></ul><ul><ul><li>Highlight the error's </li></ul></ul><ul><ul><li>Write a letter of dispute that includes an explanation of the error's </li></ul></ul><ul><ul><li>Locate and photocopy </li></ul></ul><ul><ul><ul><li>documents to show items reported incorrectly </li></ul></ul></ul><ul><ul><li>Send everything to CRAs </li></ul></ul><ul><ul><ul><li>highlighted copy of your credit report, </li></ul></ul></ul><ul><ul><ul><li>your letter of dispute, </li></ul></ul></ul><ul><ul><ul><li>and a copy of any additional information </li></ul></ul></ul>
  16. 16. What Is The FICO ® Credit Score, Anyway?
  17. 17. FICO ® Credit Score <ul><li>What is a FICO ® Score? </li></ul><ul><ul><li>A generic risk score used by lenders, developed by Fair, Isaac Corporation in conjunction with Equifax, Experian and TransUnion. </li></ul></ul><ul><ul><li>Predicts how likely you are to repay your debt; if you qualify for the loan; and what your interest rate will be. </li></ul></ul>
  18. 18. FICO ® Credit Score <ul><li>CRA Product Names </li></ul><ul><ul><li>Equifax---------------- BEACON ® </li></ul></ul><ul><ul><li>Experian-------------- Experian/Fair Isaac Risk Model </li></ul></ul><ul><ul><li>TransUnion---------- EMPIRICA ® </li></ul></ul>
  19. 19. FICO ® Credit Score <ul><li>Score Ranges </li></ul><ul><li>300 to 900 </li></ul><ul><ul><li>The higher the score the better the credit </li></ul></ul><ul><ul><li>The lower the score the riskier the credit </li></ul></ul>
  20. 20. FICO ® Credit Score Interest Rate <ul><li>What a Difference a Score Makes! </li></ul><ul><ul><li> Score APR </li></ul></ul><ul><ul><li>720-850 5.604% A+ </li></ul></ul><ul><ul><li>700-719 5.729% A </li></ul></ul><ul><ul><li>675-699 6.267% B </li></ul></ul><ul><ul><li>620-674 7.417% C </li></ul></ul><ul><ul><li>600-619 8.531% D </li></ul></ul><ul><ul><li>500-599 9.289% F </li></ul></ul>
  21. 21. What a FICO ® Score Considers <ul><li>Five types used to calculate a FICO ® score . (Each type counts as a percentage of a total FICO ® score) </li></ul><ul><ul><li>Payment history= 35% </li></ul></ul><ul><ul><li>Amounts owed= 30% </li></ul></ul><ul><ul><li>Length of credit history= 15% </li></ul></ul><ul><ul><li>New credit= 10% </li></ul></ul><ul><ul><li>Types of credit in use= 10% </li></ul></ul>
  22. 22. What A FICO ® Score Does Not Consider <ul><li>Race, color, religion, national origin, sex and marital status </li></ul><ul><li>Age </li></ul><ul><li>Employment </li></ul><ul><ul><li>salary </li></ul></ul><ul><ul><li>occupation </li></ul></ul><ul><ul><li>title </li></ul></ul><ul><ul><li>employer </li></ul></ul><ul><ul><li>date employed </li></ul></ul><ul><ul><li>employment history </li></ul></ul><ul><li>Residence </li></ul>
  23. 23. What A FICO ® Score Does Not Consider <ul><li>Reported child/family support obligations </li></ul><ul><li>Interest rate on existing accounts </li></ul><ul><li>Consumer/CRA Inquiries </li></ul><ul><li>Information not found in credit report </li></ul><ul><li>Information not proven to be predictive of future credit performance </li></ul><ul><li>Participant in credit counseling </li></ul>
  24. 24. Tips For Improving Your FICO® Score <ul><li>Pay bills on time </li></ul><ul><li>Bring past due accounts current and keep them current </li></ul><ul><li>Keep balances low </li></ul><ul><li>Contact creditors immediately if problems arise </li></ul><ul><li>Pay debt off – don’t move it around </li></ul><ul><li>Don’t open several new accounts </li></ul><ul><li>Don’t have excessive inquiries </li></ul><ul><li>Use caution when closing accounts </li></ul>
  25. 25. Credit Repair Companies <ul><li>Everything a credit repair company can do legally, you can do yourself ! </li></ul><ul><ul><li>Credit repair companies charge money—sometimes lots of money </li></ul></ul><ul><ul><li>No one can legally remove accurate negative information from a credit report </li></ul></ul><ul><ul><li>If you decide to work with a company, research its offer carefully </li></ul></ul>
  26. 26. Payday Loans <ul><li>Payday Loans </li></ul><ul><ul><li>Personal check in exchange for cash </li></ul></ul><ul><ul><li>Held 15 days </li></ul></ul><ul><ul><li>Fees range from $30 and up </li></ul></ul><ul><ul><li>Rollovers </li></ul></ul><ul><ul><ul><li>Additional Fees added </li></ul></ul></ul>
  27. 27. <ul><li>Be Patient </li></ul><ul><li>the Payoff Is Worth It! </li></ul>
  28. 28. The True Cost of Credit Card Debt
  29. 29. The True Cost of Paying the Minimum Payment! <ul><li>(For all details, see credit card disclosures) </li></ul><ul><li>EXAMPLE </li></ul><ul><li>$2,000 X 2% (minimum monthly payment %) = $40.00 </li></ul><ul><ul><li>$40.00 $2,000.00 </li></ul></ul><ul><ul><li>- 30.00 Finance Charge Amt to Principal - 10.00 </li></ul></ul><ul><ul><li>$10.00 Amt to Principal New Balance $1,990.00 </li></ul></ul>How does interest work? A. Average Daily Balance $2,000 Maxed-0ut Credit Card! B. Annual Percentage Rate 18% APR Or 1.5% per month C. Minimum Payment Percentage 2% of balance 2% x $2000 = $40 E. Finance Charge $30.00 1.5% x $2000
  30. 30. The True Cost of Paying the Minimum Payment!
  31. 31. The True Cost of Paying the Minimum Payment!
  32. 32. The True Cost of Paying the Minimum Payment!
  33. 33. Stretching Your Dollars
  34. 34. <ul><li>What is a budget/spending plan? </li></ul><ul><ul><li>Your budget/spending is the foundation for your financial success. </li></ul></ul><ul><ul><li>It’s what you can do within your income. </li></ul></ul><ul><ul><li>It’s not about denying yourself. </li></ul></ul>Budget/Spending Plan
  35. 35. Budget/Spending Plan <ul><li>What Do I Do First?: </li></ul><ul><ul><li>Get Organized </li></ul></ul><ul><ul><ul><li>File box </li></ul></ul></ul><ul><ul><ul><li>Jar </li></ul></ul></ul><ul><ul><ul><li>Shoe box </li></ul></ul></ul><ul><ul><ul><li>Large manila envelope </li></ul></ul></ul>GET AND SAVE RECEIPTS
  36. 36. Budget/Spending Plan <ul><li>Next, create the budget/spending plan by: </li></ul><ul><ul><li>using money management software </li></ul></ul><ul><ul><li>using a paper a budget form </li></ul></ul><ul><ul><li>using a budget workbook </li></ul></ul><ul><li>Then, complete the budget/spending plan </li></ul><ul><li>in detail: </li></ul><ul><ul><li>be honest with yourself. </li></ul></ul><ul><ul><li>it won’t work if your budget doesn’t truly reflect how you spend. </li></ul></ul>
  37. 37. Developing A Spending Plan <ul><li>Expense Categories </li></ul><ul><ul><li>Fixed (Examples of Fixed Expenses) </li></ul></ul><ul><ul><ul><li>Child care </li></ul></ul></ul><ul><ul><ul><li>Rent/mortgage </li></ul></ul></ul><ul><ul><ul><li>Installment payments </li></ul></ul></ul><ul><ul><ul><ul><li>Car, home and personal-type loans </li></ul></ul></ul></ul><ul><ul><ul><li>Insurance premiums </li></ul></ul></ul><ul><ul><ul><li>Tithes </li></ul></ul></ul>
  38. 38. Developing A Spending Plan <ul><ul><li>Flexible (Examples of Flexible Expenses) </li></ul></ul><ul><ul><ul><li>Food </li></ul></ul></ul><ul><ul><ul><li>Utilities </li></ul></ul></ul><ul><ul><ul><li>Gas </li></ul></ul></ul><ul><ul><ul><li>Home phone/cell phone </li></ul></ul></ul><ul><ul><ul><li>Car maintenance </li></ul></ul></ul><ul><ul><ul><li>Credit card payments </li></ul></ul></ul><ul><ul><ul><li>Personal/Medical Needs </li></ul></ul></ul>
  39. 39. Developing A Spending Plan <ul><ul><li>Luxury </li></ul></ul><ul><ul><ul><li>New Clothes </li></ul></ul></ul><ul><ul><ul><li>Going out to eat </li></ul></ul></ul><ul><ul><ul><li>Entertainment/Recreation </li></ul></ul></ul><ul><ul><ul><li>Gifts </li></ul></ul></ul>
  40. 40. Budget/Spending Plan <ul><li>Savings included in your budget: </li></ul><ul><ul><li>Three types of savings: </li></ul></ul><ul><ul><ul><li>Emergency Reserve </li></ul></ul></ul><ul><ul><ul><ul><li>Three months of living expenses in the event </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>laid-off </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>medical reasons </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>divorce </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Short-term </li></ul></ul></ul><ul><ul><ul><ul><li>Vacation, special occasion, special purchase </li></ul></ul></ul></ul><ul><ul><ul><li>Long-term </li></ul></ul></ul><ul><ul><ul><ul><li>Down payment on a home </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Buying a new car </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Retirement </li></ul></ul></ul></ul>
  41. 41. Budget/Spending Plan <ul><li>Review: </li></ul><ul><ul><li>Put in writing </li></ul></ul><ul><ul><li>Keep it simple </li></ul></ul><ul><ul><li>Stick to major categories </li></ul></ul><ul><ul><li>Review plan and make changes </li></ul></ul><ul><ul><li>Keep records and receipts </li></ul></ul><ul><ul><li>Buy what you “need” </li></ul></ul><ul><ul><li>Allow for relaxation/entertainment </li></ul></ul><ul><ul><li>Save what is left </li></ul></ul>
  42. 42. Credit Counseling
  43. 43. Credit Counseling <ul><li>Are you Knee-Deep In debt? </li></ul><ul><li>Do you have more month than money? </li></ul><ul><ul><li>When debt becomes overwhelming: </li></ul></ul><ul><ul><ul><li>Talk with your creditors. </li></ul></ul></ul><ul><ul><ul><li>Consult with a certified credit counselor. </li></ul></ul></ul>
  44. 44. Credit Counseling <ul><li>What can a certified credit counselor do? </li></ul><ul><ul><li>Review your finances and help you set up a budget. </li></ul></ul><ul><ul><li>Review your credit situation. </li></ul></ul><ul><ul><li>Look at the possibility of a Debt Repayment Plan (or debt management plan, aka DMP). </li></ul></ul>
  45. 45. Credit Counseling <ul><li>How does DMP work? </li></ul><ul><ul><li>May reduce interest rates and fees. </li></ul></ul><ul><ul><li>Helps you begin making consistent, on-time payments </li></ul></ul><ul><ul><ul><li>payments made to the counseling agency. </li></ul></ul></ul><ul><ul><li>You will see results over time </li></ul></ul><ul><ul><ul><li>Credit Score/Credit History begins to improve. </li></ul></ul></ul>
  46. 46. Credit Counseling Review <ul><li>Is there a fee for their services? </li></ul><ul><ul><ul><li>What are they? </li></ul></ul></ul><ul><li>What services does the agency offer? </li></ul><ul><ul><ul><li>Budget/Credit Counseling </li></ul></ul></ul><ul><ul><ul><li>Debt Repayment </li></ul></ul></ul><ul><ul><ul><li>Credit Report Review </li></ul></ul></ul>
  47. 47. Credit Counseling Review <ul><li>Is the agency truly accredited and, if so, by whom? </li></ul><ul><li>Are the counselors certified and, if so, by whom? </li></ul>
  48. 48. Have A Nice Day!