1 Credit Reports: Our Students and What They Need to Know. Presented by Renee Gullotto, EdFund and Sun Ow, Great Lakes Higher Education 2 What we’ll learn today • What’s on a credit report • What is a credit score based on • How to “clean up” credit • Identity Theft • Credit Card Law Changes and Public Law 111-24 • How to entice your students to attend a credit workshop 3 Understanding Credit • What is a credit report? • Checking your credit report • What’s in a credit score? • Credit risk • Benefits of good credit 4 What is a Credit Report? • History of your ability to manage credit Similar to a transcript • Lenders report your: Payment history Amount borrowed Credit limits Delinquencies 5 What’s in Your Credit Report? • Summary of key information Personal information Credit history Public records Inquiries 6 Checking Your Credit Report 1 • 79% of credit reports have errors • Check report annually – Name – Address – Birth date – Social Security number – Accuracy of accounts 1National Association of State Public Interest Research Groups, 2004 Survey Credit Report Purpose • Provides a history of your credit use to current and prospective lenders • Allows lenders to assess risk of extending credit or lending money to you • Used for all forms of credit, including private student loans, apartment rental, etc. 13 The purpose of a Credit Score • Probability of paying new loan • Grades of loans A: the most creditworthy borrower B: the average borrower Subprime: highest risk borrower • More information www.myfico.com 14 What Determines Your Score? Source: www.Myfico.com 15 Credit Score Distribution Source: www.Myfico.com Credit Score Score = Indicator of Risk Source: www.Myfico.com 16 17 Buying a Car Source: www.Myfico.com 18 Buying a House Source: www.Myfico.com 19 Securing Good Credit • Pay bills on time • Pay before due date ▫ Automatic payments • Pay down outstanding balances • Check credit report periodically • Protect your identity 20 Low Credit Risk • Stable class schedules • Steady employment • Consistent payments • On-time loan payments • Responsible student loan management 21 High Credit Risk • Late payments • High balances • Unpaid accounts • Excessive number of open accounts • Many recently opened accounts Charging $100 a Week Minimum End of Period Balance Payment 1st month $400 $12 1 year $4,713 $146 5 years $2,232 $69 10 years $877 $21 19 years $7 $7 Payments based on 3 percent minimum payment. Interest rate is 18 percent. No additional charges made in years 2-19 23 The Benefits of Good Credit • Establish and build good credit history • More apartment/house choices • Open a checking account • Better job opportunities • Fast loan decisions • Increased purchasing power ▫ Little or no money down on cars ▫ Lower interest rate ▫ Save money Credit Repair • You cannot “repair” poor credit - derogatory credit remains on your report for up to 10 years - avoid paying for “credit repair” services that guarantee to fix poor credit • You can correct inaccurate information - dispute incorrect credit information - update personal information • You can improve credit behavior - pay off credit cards in full monthly - make payments on time - don’t have too many open lines of credit 25 Feeling the Crunch? • Contact creditors • Create a spending plan • Limit credit card use • Opt out of pre-approved offers • 888.5OPTOUT (888.567.8688) • Ask for a free credit report • 877.322.8228 • www.annualcreditreport.com 26 Getting your Free Credit Report • www.annualcreditreport.com • 877.322.8228 • One free report from Equifax TransUnion Experian • All three at once or one every four months How to Report Fraud • File a police report. • Contact your creditors or bank immediately to close accounts. Keep a record of all calls. • Each Credit Bureau offers a service that will notify you whenever a new credit card is opened in your name. • Contact Federal Trade Commission (877)438-4338 Preventing Credit Fraud • Sign new credit cards immediately • Store credit cards in secure place • Limit # of cards you carry • Do not write PIN on your cards • Do not print SSN on checks • Shred any mail with your account # before throwing away • Notify card issuers immediately if billing statement is incorrect or if you don’t receive your statement • Monitor your credit report regularly Other tips • Use USPS mailbox & not home mailbox to send letters • Stop mail when on vacation • Request special delivery for check orders • Keep your purse or wallet in a secure place • Carry limited # cards and checkbook with you • Place a fraud alert if you suspect something Keys to Using Credit Successfully • Identify your spending habits • Understand the fine print • Manage credit wisely • Have only one card • Pay balance in full each month • Ask for help at the first sign of trouble 31 The Credit Card Accountability Responsibility and Disclosure Act of 2009 • Signed into law on May 22, 2009 • Amends the Truth in Lending Act and Covers: ▫ Protection of Credit Card Holders ▫ Limits on Fees and Interest Charges ▫ Application of Credit Card payments ▫ Rules Regarding Monthly Statements ▫ Consideration of Ability to Repay ▫ Late Payment Deadlines and Penalties ▫ Protection of Young Consumers ▫ Credit Cards and College Students ▫ Prepaid Cards, Gift Certificates and Gift Cards 32 Protection of Credit Card Holders • Written notice of increase in APR, fees and finance charges 45 days prior to change. • Notice of Right to Cancel in clear & concise manner. • Closure/cancellation of account by consumer shall not constitute a default and will not trigger an obligation to pay in account in full. • Limits on Interest Rate, Fee and Finance charge increases on outstanding balances. • Interest Rate Reduction- specific rules that must be considered before creditor reduces rates. TILA Sections 127, 171 33 Protection of Credit Card Holders • Annual rate, fee or finance charge may not be increased for the first year • Promotional annual rate may not be increased for at least 6 mos. from the beginning date the promo rate takes effect. • TILA Sec.172 34 Limits on Fees and Interest Charges • Opt-in is required for Over-The-Limit Tranactions if fees are imposed. ▫ Consumer must be informed of the fee amount. ▫ Customer has to elect that their credit line be extended to cover in excess of credit limit. ▫ Customer must be notified of the right to revoke their election. ▫ Amount of fees must be reasonable- late fees, over the limit fees and penalty fees/charges ▫ TILA Sec. 127 35 Application of Credit Card Payments • Payments in excess of the minimum payment are to be applied to the card balance with the highest interest. • If card issuer makes a change that causes a delay in crediting a payment over a 60 day period, no late fee or finance charge may be applied. TILA Sec. 164 36 Rules Regarding Statements • Payment date must be the same each month • If the payment due date is a day the creditor does not receive or accept payments, the creditor may not treat a payment received on the next business day late for any purposes. • TILA 127 37 Consideration of Ability to Repay • A card issuer must consider the consumers ability to make required payments under the terms of the account prior to: ▫ Opening an account ▫ Increasing the credit limit on an account. ▫ TILA Sec 150 38 Payoff Timing Disclosures • The billing statement must have the following information in a prominent location: ▫ A statement that making only the minimum will increase the interest you pay. ▫ The number of months to pay the entire balance ▫ Total cost to consumer, including interest and principal payments. ▫ Monthly payment amount required to eliminate the balance within 36 mos. ▫ A toll free number to obtain credit counseling. ▫ TILA Sec 127 (b)(11) 39 Requirements on Late Payment Deadlines and Penalties • Late payment deadline is required to be disclosed in conspicuous location and must include: ▫ The date payment is due ▫ The date the late fee is charged ▫ Amount of late fee. The statement “If one or more late payments on a credit card account may result in an increase in interest rate.” TILA 127 (b)(12) 40 Requirements on Late Payment Deadlines and Penalties Brick and Mortar: If the creditor maintains branches or offices that accepts payments, the date the payment is made must be used for determining whether a late fee or penalty may be imposed. TILA 127(b)(12) 41 Extensions of Credit to Underage Consumers • Credit cards may not be issued to, accounts opened by or on behalf of a consumer under the age of 21 unless a written application that meets application requirements is obtained. • Application Requirements for consumers under 21 shall require: ▫ A co-signer indicating joint liability until the consumer turns 21. ▫ The consumer to submit financial information showing a means to repay obligation. TILA 127(C) 42 Issuance of Credit Cards to Certain College Students • No credit increase may be made to accounts that have a co-signer due to the consumer being under the age of 21 unless: ▫ The co-signer approves the increase in writing ▫ Assumes joint liability for the increase ▫ TILA Sec 127(p) 43 Privacy Protection for College Students • An institution of higher education must publicly disclose any contract for the purpose of marketing a credit card. • Card issuer or creditors may not offer tangible items as an inducement to students to apply for credit card offers if the offer ▫ Is on campus ▫ Near the campus or ▫ At an event sponsored or related to campus ▫ TILA 140 44 Privacy Protection for College Students • Congress believes colleges should consider adopting the following policies: ▫ Card issuers that market credit cards on campus should notify the institution of the location the marketing will take place. ▫ The number of locations that marketing of credit cards takes place should be limited. ▫ Credit card and debt education/counseling sessions should be offered as a regular part of any orientation program for new students. TILA 140 45 General Use Prepaid Cards, Gift Certificates and Store Gift Cards • It is unlawful to sell or issue a gift certificate, store gift card, or general use prepaid card that has an expiration date unless: ▫ Expiration date is at least 5 years from the date the certificate was issued. ▫ Card funds were last loaded to a store gift card or general-use prepaid card and ▫ Terms of expiration are clearly stated. *Credit Card Act Overview and information obtained on EDFUND.org 46 How to Get the Students To Attend Credit Workshops- Ideas… 47 Thanks for coming!