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Managing Your Credit


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Managing Your Credit

  1. 1. Managing Your Credit Isaias Sarmiento Financial Literacy/IDA Coordinator Quincy Community Action Programs
  2. 2. What is credit? <ul><li>Credit means you are using someone else’s money to pay for things. It also means you are making a promise to repay the money (the debt) to the person or company that loaned you the money (with interest most of the time). </li></ul>
  3. 3. What is secured debt? <ul><li>When you buy something like a car, jewelry, appliances, or a home, that debt is “secured” by the item you purchased. If you don’t make the payments, the lender has the right to take back the property, or foreclose on the debt. </li></ul>
  4. 4. What is unsecured debt? <ul><li>Unsecured debt is not tied to any purchase item you may possess. For example, credit card debt is unsecured. When you charge something on a credit card, the financial institution that issued the credit card can’t take back that vacation, dinner, suit, or dress. </li></ul>
  5. 5. What are the costs associated with credit cards? <ul><li>Annual fees </li></ul><ul><li>Balance transfer fees </li></ul><ul><li>Cash advance fees </li></ul><ul><li>Over-the-limit fees </li></ul><ul><li>Late payment fees </li></ul><ul><li>Returned payment fees </li></ul><ul><li>Purchasing fees </li></ul><ul><li>Foreign transaction fees </li></ul><ul><li>Interest charges </li></ul>
  6. 6. Reading a Credit Card Offer <ul><li>Interest Rate and Interest Charges </li></ul><ul><li>Fees </li></ul><ul><li>Other information </li></ul>
  7. 7. Smart Credit Card Use <ul><li>Remind yourself that credit cards are loans. </li></ul><ul><li>Only apply for credit you need. </li></ul><ul><li>Make a list of all of your debts: Issuer, Balance, Interest rate, Due dates </li></ul><ul><li>Tackle each debt one at a time. </li></ul><ul><ul><li>Pay off debt with the highest interest rate OR the debt with the lowest balance. </li></ul></ul>
  8. 8. Smart Credit Card Use <ul><li>Pay cash. </li></ul><ul><li>Mail payments at least 5 business days before due date. </li></ul><ul><li>If you move, notify creditors at least 30 days before you move. </li></ul><ul><li>Save money while paying down debt (to get into the habit of saving). </li></ul>
  9. 9. Smart Credit Card Use <ul><li>Don’t constantly apply for new credit cards, especially just before applying for a big loan. </li></ul><ul><li>Check your credit card statement against your receipts at least every month. </li></ul><ul><li>Pay off credit cards every month. </li></ul>
  10. 10. Smart Credit Card Use <ul><li>Avoid “maxing out” credit cards. </li></ul><ul><li>Keep track of bills and past due notices. </li></ul><ul><li>Spend less than you earn. </li></ul><ul><li>Look for ways to decrease expenses and increase income. </li></ul>
  11. 11. Credit Reports <ul><li>Why should you get your credit report? </li></ul>
  12. 12. When Can You Get Your Credit Report for FREE? <ul><li>Once every 12 months, from each credit reporting agency. Get your report from . </li></ul><ul><ul><li>Equifax </li></ul></ul><ul><ul><li>TransUnion </li></ul></ul><ul><ul><li>Experian </li></ul></ul>
  13. 13. When Can You Get Your Credit Report for FREE? <ul><li>You are denied credit, employment, insurance, or rental housing based on info on your report AND you ask for your report within 60 days of receiving notice of denial. </li></ul><ul><li>You are unemployed and plan to look for a job within 60 days. </li></ul><ul><li>You are receiving public assistance. </li></ul><ul><li>Your report is inaccurate because of fraud, including identity theft. </li></ul>
  14. 14. What’s in Your Credit Report? <ul><li>Identifying Information </li></ul><ul><ul><li>Your name </li></ul></ul><ul><ul><li>Current and previous address </li></ul></ul><ul><ul><li>Birth date </li></ul></ul><ul><ul><li>Social Security number </li></ul></ul><ul><ul><li>Current and previous employers </li></ul></ul>
  15. 15. What’s in Your Credit Report? <ul><li>Public records </li></ul><ul><ul><li>Bankruptcies </li></ul></ul><ul><ul><li>Foreclosures </li></ul></ul><ul><ul><li>Tax Liens </li></ul></ul><ul><ul><li>Monetary court judgments </li></ul></ul><ul><li>Collection accounts </li></ul>
  16. 16. What’s in Your Credit Report? <ul><li>Credit accounts (car, mortgage, lines of credit, credit cards, student loans) </li></ul><ul><ul><li>Date opened and closed </li></ul></ul><ul><ul><li>Payment history </li></ul></ul><ul><ul><li>Balance </li></ul></ul><ul><ul><li>Credit Limit or loan amount </li></ul></ul><ul><ul><li>Payment terms </li></ul></ul><ul><ul><li>Account status: open vs. closed </li></ul></ul><ul><ul><li>Account type: Individual, Joint, authorized user </li></ul></ul><ul><ul><li>Age of account </li></ul></ul>
  17. 17. What’s in Your Credit Report? <ul><li>Inquiries </li></ul><ul><ul><li>Organizations that obtained copy of report </li></ul></ul><ul><ul><li>How often consumer applied for credit in past 2 years </li></ul></ul><ul><ul><li>Pre-approved credit offers </li></ul></ul>
  18. 18. What’s in Your Credit Report? <ul><li>Hard Inquiry (these affect your credit score) </li></ul><ul><ul><li>Applications for a new credit card. </li></ul></ul><ul><ul><li>Requests to activate a pre-approved credit card offer. </li></ul></ul><ul><ul><li>Activations of new cell phone contracts. </li></ul></ul><ul><ul><li>Opening a new bank checking or savings account at some institutions. </li></ul></ul><ul><ul><li>If multiple credit inquiries are done by auto or home lenders within a short time, then it would only count as 1 inquiry. </li></ul></ul>
  19. 19. What’s in Your Credit Report? <ul><li>Soft Inquiry (does not affect your score) </li></ul><ul><ul><li>Credit report and score that you request yourself. </li></ul></ul><ul><ul><li>Initial credit checks by credit card companies that want to solicit you for a pre-approved credit card. </li></ul></ul><ul><ul><li>Initial credit checks by mortgage companies to pre-approve you for a loan. </li></ul></ul><ul><ul><li>Credit background checks by a potential employer. </li></ul></ul><ul><ul><li>Periodic credit checks by your insurance or credit card company to keep tabs on you. </li></ul></ul>
  20. 20. What’s NOT in Your Credit Report? <ul><li>Race </li></ul><ul><li>Religion </li></ul><ul><li>Medical history </li></ul><ul><li>Personal lifestyle </li></ul><ul><li>Political preferences </li></ul><ul><li>Criminal record </li></ul><ul><li>Any other information not related to credit </li></ul>
  21. 21. Disputing an Item on a Report <ul><li>Contact the creditor or credit bureau. </li></ul><ul><li>Write a letter of dispute. </li></ul><ul><li>Creditor/credit bureau must respond to you within 30 days. </li></ul><ul><li>If you disagree with finding, you can submit a 100-word explanation. </li></ul>
  22. 22. What is a credit score? <ul><li>A number generated by a computer model to predict how likely an individual is to repay a new loan. </li></ul><ul><li>The score is based on experience with millions of consumers. </li></ul><ul><li>A computer model assigns points to information on a credit report. </li></ul>
  23. 23. Why are credit scores used? <ul><li>Fast </li></ul><ul><li>Objective </li></ul><ul><li>Assigns risk to the borrower (the lower the score, the riskier the borrower) </li></ul>
  24. 24. What is a good credit score? <ul><li>It depends on the scoring model and the lender. </li></ul><ul><ul><li>FICO model’s score range: 300 to 850 </li></ul></ul><ul><ul><li>Vantage model’s score range: 501 to 990 </li></ul></ul><ul><li>Check with the lender for clarification on how the credit score relates to the final decision. </li></ul><ul><li>Example: Making payments on time adds points to your score. Charging the maximum amount available on a credit card reduces points from your score. </li></ul>
  25. 25. FICO Score <ul><li>What determines a FICO score: </li></ul><ul><li>Payment history - 35% </li></ul><ul><li>Amounts owed - 30% </li></ul><ul><li>Length of credit history - 15% </li></ul><ul><li>New credit - 10% </li></ul><ul><li>Types of credit used - 10% </li></ul><ul><li>C opyright © 2001-2007 Fair Isaac Corporatio n </li></ul><ul><li> </li></ul>
  26. 26. VantageScore <ul><li>Introduced in March 2006 to compete with FICO. </li></ul><ul><li>The 3 credit bureaus use same scoring system. </li></ul><ul><li>Idea is to replace proprietary scores of the 3 credit bureaus. </li></ul><ul><li>Scores range from 501 to 990. </li></ul><ul><li>Letter grade- A, B, C, D, F- assigned to score. </li></ul><ul><li> </li></ul>
  27. 27. How to Improve Your Credit History <ul><li>Check your reports on a regular basis </li></ul><ul><li>Dispute errors on credit report. </li></ul><ul><li>Pay bills on time. </li></ul><ul><ul><li>(At least pay the monthly minimum, but you should be paying more.) </li></ul></ul><ul><li>Pay down debt. </li></ul>
  28. 28. When debts are out of control… <ul><li>First, call creditors to try to negotiate lower interest rate or payment plan. </li></ul><ul><li>Access good credit counseling organizations. </li></ul><ul><ul><li>American Consumer Credit Counseling </li></ul></ul><ul><ul><li>Money Management International </li></ul></ul><ul><li>Avoid credit repair companies. </li></ul>
  29. 29. Credit Repair Companies <ul><li>No one can remove accurate information from your credit report. </li></ul><ul><li>It can take several years to repair your credit. </li></ul><ul><li>No one can create a new identity for you. </li></ul><ul><li>Legitimate companies provide a service BEFORE requesting payment. </li></ul>
  30. 30. Debt Management Plan (DMP) <ul><li>A DMP is NOT credit counseling. </li></ul><ul><ul><li>You deposit money each month with credit counseling agency. </li></ul></ul><ul><ul><li>Your creditors may agree to lower your interest rate or waive certain fees. </li></ul></ul><ul><ul><li>You must make regular, timely payments. </li></ul></ul><ul><li>American Consumer Credit Counseling and Money Management International offer DMP. </li></ul>