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
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8. They can save more than $250,000 on a 30-year fixed $300,000 home mortgage.
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.
21. He made a subjective decision whether you were a good credit risk.
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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.”
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.
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
Editor's Notes
Churches tend to limit their teaching on financial stewardship to tithes and offerings. Tithes are 10% of financial stewardship and offerings are part of the remaining 90%, but we are to be good stewards of all of our finances. As believers, we are not dependent upon the world’s financial system, but the more we know about how the world’s financial system works, the better we can make it work for us. The objective of this series is help us become better financial stewards by learning how the world’s financial system works.
Credit Influences OUR LIVESLimits or expands our Financial stability and Buying powerImproves or harms our quality of lifeOpens or closes doors of opportunity (employment, leasing, etc.)
Financial Problems cause or at least contribute to most Divorces.
Unfortunately, CRAs are not closely supervised sometimes ignore much of the law.
Other reporting agencies purchase their information from these three, so if you can repair your credit with the Big-3, you basically repair it with everyone.
We will always need an objective quick credit scoring system.However, hard times have taken a huge toll on credit scores. Unless the credit scoring requirements are reduced, access to credit will be limited to a select few.
