This document provides information about credit, credit reports, credit scores, and maintaining good credit. It defines credit and explains how credit reports and FICO credit scores are calculated. Key factors that influence credit scores are payment history, amount of debt, credit history length, recent credit applications, and credit mix. The document advises paying bills on time, keeping balances low, and carefully managing credit applications and accounts to maintain good credit over time.

1. Financial literacy CREDIT

2. Terms of use Families and lives are destroyed from a lack of knowledge about personal finances. This is one of a series of Microsoft PowerPoint 2007 presentations intended to inform people about financial subjects from a Christian perspective. They are a work in progress created, distributed and Copyright © 2009 By James C. Johnston 1364 Cordova Ave, Ft Myers, FL 33901 239.332.0028 All Rights Reserved Use is subject to the following limitations: You may try it for free; You may not modify it without the advance written permission of the author; You may give copies to others, as long as there is no charge for doing so; If you find any mistakes or omission, or have suggestions, please share them with the author so that I may make appropriate corrections and additions; and, If you find them useful and feel moved to do so, you can make some financial contribution in recognition of the value of the time and effort that went into their creation and distribution, and to encourage updating and improving them. Be Blessed!

3. Credit is . . . . your ability to borrow money or obtain goods by paying little or no money at the time of purchase.

4. Credit is a resource It might be compared to the water at the bottom of a well. It’s nice knowing that you can draw upon when you need it. But it is bad when it’s used up.

5. terminology . . . . The “Extension of Credit” is the provision of resources (such as money) by one (the “creditor,” “lender”, “mortgagee” or “lessor”) to another (the “debtor,” “borrower” “mortgagor” or “lessee”) without the other paying in full at time of delivery, resulting in the creation of an obligation (the “debt”, “indebtedness”, “mortgage” or “lease”) either to repay the money or return the resources (or material(s) of equal value) at a later date.

6. Why do you need credit? Buy a home or rent an apartment Get a job Get telephone service Finance an automobile Spread out payments for expensive items Qualify for insurance Get a loan at preferred rates Obtain a credit card

8. They can save more than $250,000 on a 30-year fixed $300,000 home mortgage.

10. Your credit report

11. What is a credit report? A record your loans, credit cards, payments and outstanding debts. Lenders report your credit usage to companies called “Credit Reporting Agencies” (“CRAs”).

12. What is in a credit report? Current and past payment information On-time and late payments Outstanding credit limits and balances Information from public records Names of companies who have asked for a copy of your report Most information stays on your credit report for up to 7 years – some for as long as 10 years.

13. Who can get a copy of the report? You Those who can prove a legitimate need Banks Credit card companies Landlords or real estate companies Employers

14. How can you get a copy? www.annualcreditreport.com You’ll need to provide this information: Full name Social Security number Addresses for past 2-5 years Telephone number Birth date

15. Accuracy The Fair Credit Reporting Act (FCRA) of 1971 regulates credit-reporting agencies (CRAs). It creates rules CRAs are required to follow in putting together your credit report. Information about “you” must be verified as accurate before it goes in your credit reports.

16. More on accuracy If “reasonable procedures” have not been correctly followed, verified inaccuracies must be removed from your credit reports. The Big-3 credit reporting agencies are Experian (formerly TRW), Equifax and Trans Union.

17. Your fico score Your Credit Is Measure By . . .

19. Gave him your tax returns, financial statement and a list of credit references.

20. He looked you in the eye.

21. He made a subjective decision whether you were a good credit risk.

23. Enter “fico” FICO is an acronym for “Fairs Isaas Credit Organization,” the company that developed the current system for credit rating. Five primary factors are used to calculate a FICO score, although the exact formula is a secret. While the formula is a secret, informed people have made “educated guesses.”

25. Total amount of debt outstanding.

26. 15%

27. Length of time you’ve been a credit user (a longer history is better if you made timely payments).

28. 10%

29. Very recent history - your efforts to obtain loans or credit lines in the past few months.

30. 10%

32. 7 Years

33. Inquiries

34. 2 Years

35. Public Records

37. The Higher the better FICO scores range from 300-850 Historically, 680 or more makes you a “prime borrower” Less than 680 makes you a “sub-prime” borrower Below 550 it is difficult to borrow money With a FICO score >750 a home mortgage interest rate will, on average, be 4% lower than someone with a FICO score of 500 - thousands of dollars difference over the life of a mortgage.

38. Factors under your control The longer you have a particular credit card the better (it takes time to develop a credit history) Pay your bills on time Keep your account balances below 50% of your available credit Be careful about co-signing or guarantees Avoid excessive inquiries

39. How “Inquiries” count HARD INQUIRIES - Inquiries by potential creditors (including credit cards you apply for) count against you. SOFT INQUIRIES - Credit reports you pull yourself or from a consumer site do not count. Marketing inquiries also fall in this category. When applying for Home Mortgage or Auto Loans, FICO counts multiple inquiries during a 30-day period as just one inquiry.

40. Re-Building & keeping good credit

41. Rebuilding good credit It takes time and patience to establish good credit. Each person’s situation is different and lenders have wide-ranging requirements.

42. Pay on time A recent history of on-time payments on all of your credit accounts reported to a major credit bureau is the best way to improve a credit score. Six to twelve months of on-time payments can build a score of 600 with no other history. Six months of on-time payments toward a loan can increase a score 50-100 points.

43. Ways to rebuild good credit Apply for a credit card or small loan Find a co-signer if necessary Get a secured credit card Use a Debit Card

44. Keeping your good credit Get a copy of your credit report at least once a year and review it carefully. Pay your bills on time. Apply only for credit that you really need. If you divorce or separate, make sure that joint accounts are closed. Close unneeded accounts (with caveats).

45. Closing credit card accounts Closing and consolidating cards can adversely affect your score, and here's why – suppose that: You have 4 credit cards with $5,000 limit each. You owe $1,000 on each (20% of your available credit). You transfer the balances of 3 of the cards to one card and close the other 3. You still owe $4,000 and it is within your $5,000 credit limit. But, now you are using 80% of available credit.

46. Credit problem warning signs Living from paycheck to paycheck Skipping, making late or minimum payments Credit card balances at or near credit limits Not knowing how much you really owe Using cash advances to pay bills Having credit cards declined Increasingly larger monthly payments

47. Resources Nat’l Foundation Credit Counseling - www.nfcc.org NFCC Debt Advice - www.debt advice.org/ Mapping Your Future - http://www.mapping-your-future.org/features/dmbudget.html Bankrate - www.bankrate.com College Is Possible - www.collegeispossible.org For Students www.practicalmoneyskills.com www.myfico.com www.annualcreditreports.com www.transunion.com www.equifax.com www.experian.com