The document discusses the importance of credit and maintaining a good credit score. It provides information on how credit scores are calculated based on payment history, credit utilization, length of credit history, and credit inquiries. It also offers tips on building credit, monitoring credit, applying for loans, and strategies for improving one's credit score such as paying bills on time, maintaining low credit utilization, and keeping old credit accounts open. The document advocates using credit strategically as a tool to borrow money cheaply and potentially earn interest.

1. A Lifetime of Leverage - Understanding Credit Knowledge and Tools on The Keys to the Financial Kingdom Nick Wolff, Region VI Staff

2. Overview How banks evaluate you for credit Credit score elements Credit monitoring Building credit How you should use credit Money making ideas

3. Why Should I Care? Your financial limit is determined by credit Costs of borrowing (Car, Home, etc.) can be substantially higher Example: Score of 650 could be $250/month more than one with 750 Other non-debt expenses (i.e. Insurance rates) can be greater Employers look at your credit score when hiring Your financial flexibility is impacted

4. LEVERAGE

5. Leverage Lever allows you to amplify the impact of your efforts You can use it to either make you poorer or richer much more quickly If you are seeking to become wealthy, you need to learn to use leverage

6. 5 C’s of Credit Character – History of making your payments; Personal Reputation Capacity – Cash flow shows you can pay Capital – Net Worth; Sell to pay debt Collateral – Securitize the debt Conditions – Environment

7. What is your Credit Score 3 Digit Number that helps lenders determine the probability you won’t pay your bills/debts They probably don’t know you personally 350 to 850 3 Providers – Credit Reports Transunion Experian Equifax Fair Issac (FICO) – Agency that creates Credit Score

8. Approximate Score Ranges Category Score % Default Very Low Risk 720+ <1% Low Risk 680 to 720 1 to 2% Moderate Risk 600 to 680 2 to 5% High Risk 500 to 600 5 to 15% Very High Risk Under 500 15%

9. Who Reports Credit cards Banks – Lines of credit or auto loans Student loan lenders Some utility companies Anyone else you owe money to CAN report. Most only do so if you do not pay Some only report to one bureau

10. Components of Credit Score Payment History (about 40 to 45%) Utilization (about 30 to 35%) Age of Credit Lines (about 15%) Recent attempts to obtain credit – inquiries (about 10%)

11. Payment History Your record of keeping your promises Greatest impact is usually the past 2 years Most items are removed from report within 7 to 10 years Bankruptcy is 10 years Keep bad items old

12. Utilization Types of credit – Banks like to see diversity Revolving Installment – (Student Loans, Auto) Securitized or Mortgage Utilization – Outstanding Balance / Limit Primarily based on revolving balances Credit Score drops beyond 50% and drops more severely beyond 90% Student loans & health care bills have relatively low impact

13. Age of Credit Lines Lenders like to see a track record Only comes with time Don’t close the oldest accounts unless you’re paying to keep them open Use each card every 6 months

14. Seeking more credit Lenders assume if you are seeking more credit you are having financial problems If you seek more credit, do so in chunks (all in one day) Inquiries stay on record for 2 years

15. Credit Scores 3 Scores based on the 3 credit reports Credit cards and installment loans lend on the high score Mortgages lend on the middle score www.annualcreditreport.com Free report annually www.myfico.com Buy credit scores – about $45 to $50

16. Get to know your banker!

17. Questions?

18. Credit Monitoring Consider using a credit monitoring service Monthly fee: $10 to $20/month Free access to all 3 credit reports Estimates of FICO score (FAKO) daily Notifies you of changes immediately Allow you to freeze report if you suspect identity theft Provide tools & recommendations on how to improve your score Identity theft insurance

19. True Credit Report

20. True Credit Report

21. Every service uses a different algorithm Another service gives me scores of 730, 780 and 781, respectively. (FAKO)

22. Applying for New Credit Know the answer before you ask Review your credit report & scores Don’t be unrealistic in what you ask for Correct errors on your report. Approximately ¼ of all Americans have at least 1 error on their credit reports. Some people say the maximum credit you can be extended is 5 times your annual income

23. Applying for Credit Cards Look at credit score “ No-doc” or “stated” income Will verify with your profession Sometimes auto loans too Want to see 2 years of continuous employment

24. Applying for Mortgages Look at Credit Score – Middle Score “ Full Doc” 2 months of paycheck stubs 2 years tax returns Savings account statements 2 years of W-2’s 2 years of addresses

25. Couples Know both of your scores You can apply for credit as a couple Combined income Use the lower of the scores Use the credit reports of both It might be cheaper to just be held by one person

26. Questions?

27. How Do I Raise My Score?

28. How to Raise Your Score Payment History – Pay your bills on time! Pay your bills the day you receive them. Auto deduct your minimum payment Open more credit accounts to lessen impact of bad accounts Call lenders and ask them to take bad items off

29. How to Raise Your Score Utilization Work the numerator Pay off revolving credit lines Convert revolving credit lines to installment loans Work the denominator – “App Spree” Get more credit Do not get yourself into trouble Carry credit at providers that do not report Carry credit in a business entity. (Don’t report on your credit and don’t care about utilization)

30. How to Raise Your Score Age of credit lines Do not close your old accounts Open accounts as a joint account holder of another’s credit accounts (NOT authorized user) Patience – It’ll come in time

31. How to Raise Your Score Seeking more credit (Inquiries) Don’t apply for credit often Inquiries Soft – Do not impact your score Hard – Lower score Some say 3 points per inquiry Less impact if inquiries are within a day or two Bumping This is smallest component

32. Questions?

33. Financial Management Credit cards – Minimum 1 to 2 percent of balance (20 year amortization) Auto Loan – Based upon amortization (2 to 5 (6) years) Student Loans – Based upon amortization Mortgage – Based upon amortization HELOC – May be interest only

34. Building Credit

35. You can build credit Be Sure You Want To Do This Keep high credit scores Demonstrate responsibility with ever growing credit lines Charge up to ½ the limit, pay off in 3 months Ask for increases – Every 6 months Some say cap at about 5 times annual income

36. App Spree Be sure this is right for you!!!

37. What if I Get Into Trouble? NEVER miss a mortgage payment If you stop paying a car loan, they can take your car All credit cards report – but no security Some utilities report – but can turn power off Student loan lenders report, but can help you with other programs (forbearance or change payment plans) Call your lenders. They want to work with you. Keep lines of communication open. Don’t ignore problems. They don’t go away.

38. What if I am REAL trouble? Have lenders put you on a payment plan Get a credit counselor or financial advisor Increase your income – Get another job Sell your stuff Last resort – Bankruptcy (10 years)

39. How You Should Use Credit Credit is a tool Buy today and pay tomorrow Easy access Financial safety blanket Don’t buy junk with credit cards. If you do, don’t maintain a balance

40. How You Should Use Credit Use them for convenience Use them for rewards Use them to build a credit history Use them for leverage Use them to make money

41. Credit Arbitrage Pull out big bucks from credit line at 0% Put money in money market savings accounts Make payments from savings account when needed Pay off credit line at end of incentive Keep interest 2 to 4% free money – Infinite ROI

42. How I Use Credit Private Lending – Be the Bank! Borrow $25,000 on credit card (incentive 2% for 12 months) Total Cost: Bank fee $75 Lend it at 12% Interest rate spread: 10% Net interest earned: $2,500 Rate of return: 3,333%

43. My Credit Profile High Score: 767 Middle Score: 747 Total Available Credit Personal: 175,350 Business: 118,800 Utilization Personal: 46% Business: 36% Net income from credit lines: $670.50 / month Active Seeker of Credit and “Bumper”

44. Summary Good credit is the key to the financial kingdom Credit is an excellent tool if used well You can make borrowing cheap (and profitable if you want to) You have tools to increase your credit score

45. Thank you for your ongoing service to Alpha Phi Omega!