Understanding and Using Credit Welcome I. Credit Basics What is Credit? • The benefit of being able to pay at a later date for the goods and/or services that one enjoys today • It is both privilege and a responsibility Types of Credit • Secured – Repayment is backed by some form of collateral • Car loan (secured by the car) • Mortgage (secured by the property) • Secured loan (secured by cash in a bank account) • Unsecured – Simply the promise to repay • Alternative loan, revolving credit card, personal loan Benefits of Good Credit • A person with “good credit” is someone most likely to repay a loan • Makes it more likely that you will receive the credit you want when you want it – Car rentals – Apartment rentals – Utilities and phone service • When financing education costs (particularly postgraduate education), good credit is needed to obtain an alternative student loan. Create a Good Credit History • Pay your bills on time • Keep your debt load reasonable • Understand the basics • Know the terms and conditions of all credit • Review your credit history every year Applying for Credit • Print clearly • Use your complete name • Only apply for the credit you want • Review your credit report before making a major purchase II. Recent Developments Credit Report Your Credit Report • Visit annualcreditreport.com • One free credit report per year from each reporting agency • Additional reasons for free reports – Unemployed and plan to apply for employment in the next 60 days – Denied credit within 60 days on public assistance – Denied employment or insurance in the past 60 days – A victim of identity theft Credit Reporting Agencies • Equifax, 1-800-685-1111 – www.equifax.com • Trans Union, 1-800-888-4213 – www.transunion.com • Experian, 1-888-397-3742 – www.experian.com Information on Your Credit Report • Personal Information – Name, address (current and prior), SSN, DOB, employment • Credit Information – current open accounts, closed accounts, rating and number of day(s) delinquent, timeliness of repayment, installment or open ended • Public Record Information – bankruptcy, legal judgment, property lien, warrants Information on Your Credit Report • Inquiries – Creditors and agencies who have requested your credit report • Statements of dispute Example Credit Report Fixing Errors • Document discrepancies in your credit report in a letter to the credit reporting agency, detailing: – Name, address, SSN – Account and account numbers in dispute – The information you are disputing and why – Any documentation to support your claim – A request for an updated credit report reflecting the correct information Credit Score FICO (Fair, Isaac and Company) Scoring, a.k.a. Credit Scoring • Credit scoring is a system creditors use to help determine – Whether or not to give you credit – The interest rate to charge for the credit they do give • A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt • Your credit score is based on information on your credit report, therefore, make sure your report is accurate What is Your Credit Score? • Forecast of how likely you are to repay a debt as agreed during the next 24 months – The higher the score, the better the score, the better the forecast that you will repay • Snapshot of your credit history at a particular point in time • Only includes factors related to your credit • Always changing Information Considered in Scoring Credit Scoring Does Not Consider • Race, color, religion, national origin, sex or marital status • Age • Employment history, occupation, salary • Where you live • Non-credit inquiries • Any information not found in your credit Why Credit Scoring? • More than 70% of the top 100 financial institutions use FICO scoring to make billions of credit decisions annually because it is … – Fast – Consistent – Objective – Cost Effective – Reliable and updated regularly – Strong analytical support – Support increase lending FICO Scores - Ranges and Grades • 760 and above Excellent A++ • 700 to 759 Very Good A+ • 680 to 699 Good A • 660 to 679 Above Satisfactory B • 640 to 659 Satisfactory B- • 620 to 639 Below Satisfactory C Improving Your FICO • Make loan/credit payments on time • Pay down your debt and consider charging less often • Keep balances low • Don’t close old, paid-off accounts • Don’t be afraid of credit counseling • Stay out of bankruptcy Identity Theft Identity Theft • Identity theft is the deliberate assumption of another person’s identity by using their personal information, such as date of birth, mother’s maiden name and social security number • The theft of identity is usually to gain access to their credit and commit fraud • Most identity theft is committed by people we know like friends, family, or co-workers Protect Yourself • Check financial statements promptly • Review your credit report annually • Be careful with personal information • Say NO – opt out of credit offers – minimize the number of credit cards you carry by calling 1-888-567-8688. Protect Yourself • Shred and destroy • Protect your mail • Beware of strange ATM’s • Watch “Shoulder Surfing” • Keep your eye on your card at restaurants and gas stations. Steps to Take if You Are a Victim • Place a fraud alert • Start your search • File a police report • File and complete the Federal Trade Commission • Identity Theft Affidavit (1-877-ID-THEFT) • Document everything Credit Trouble Signs of Credit Trouble • Your credit card balances are rising and your income is decreasing • Only paying the minimum monthly payment • Too many credit cards • Near, over, or at your limit Signs of Credit Trouble • Charge more than you pay monthly • Using credit for food or gas • Lost job • Receiving letters and calls on delinquent debts • Use credit cards because you have no money Steps Toward Resolving Trouble • Contact your lenders immediately • Stop using credit • Pay your bills when they are due • Consolidate • Get help from the professionals Credit Counseling Resources • National Foundation for Credit Counseling (NFCC) and its member agencies – Member agencies known as Consumer Credit Counseling Services (CCCS) – To locate, visit: www.nfcc.org or call (800) 388-2227 II. Alternative Loans Alternative Loans • Private loans to fund graduate studies • Interest Rate is based on LIBOR • A variety of graduate loan eligibility criteria • Many lending institutions • Factors to compare include: – Interest rate – Fees – Interest capitalization – Repayment terms Alternative Loan Advantages • Process is fast – As little as 5 business days to receive funds • Student is not required to file the FASFA • Loans can cover costs for fees, books, and technology • Competitive rates • Many times funds are sent directly to the student Alternative Loan Disadvantages • Variable interest rate • No cap on the interest rate • Cannot be consolidated through the federal government • No disability or death forgiveness • Borrower must be creditworthy QUESTIONS THANK YOU!
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