The document provides information on establishing and maintaining good credit. It discusses the importance of creditors evaluating a person's ability and willingness to repay debts through their credit rating and the "3 Cs" of character, capacity, and capital. It offers tips for establishing good credit such as taking out small loans and paying all bills on time. It also covers considerations for choosing credit, types of loan sources, and maintaining good financial habits to protect one's credit rating.

1. 7.0 OBJECTIVE
UNDERSTAND WAYS TO PROTECT PERSONAL
AND FAMILY RESOURCES.
7.02 C-students will be able to understand how to
establish credit and maintain good credit

2. ESTABLISHING CREDIT
Creditors 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. 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. 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. CONSIDERATIONS WHEN SHOPPING FOR
CREDIT
 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.  Non-preferred lenders
 May take advantage of
LOAN 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. 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. 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. 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. 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. CAUTIONS WHEN  Typically, must provide
SEEKING 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. CAUTIONS WHEN
SEEKING 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

14. 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

15. 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

16. 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

17. video link: signs of debt problems
SIGNS 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

18. 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!

19. video link: when to file bankruptcy
BANKRUPTCY…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

20. 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

21. Chapter 7 Bankruptcy
Procedure
Chapter 7---must sell most personal belongings of value, use proceeds to
repay debts
1. 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 party
2. Sale for cash (liquidation) of non-exempt assets by trustee
3. Proceeds (Cash) used to pay each creditor same %
4. Money left over, if any, returned to debtor
5. Creditors cannot sue for additional claims after filing
21

22. 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

23. 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

24. PRINCIPLES OF FINANCIAL PLANNING
FROM 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