1. “If you don't take good care of your credit, then your credit won't take good care of you.” - Tyler Gregory Copyright © eNestEgg Press, LLC.

2. Learning Objectives Learn how to read your credit score and understand what it means Understand how to improve your credit score Factors to consider when taking out credit Learn how to keep your credit score safe Copyright © eNestEgg Press, LLC.

3. Are you a good risk? The 5 factors that determine if you are a good risk are called the 5’c: Character- Is the attitude borrowers have toward their credit obligations. Lenders want to know you are dependable and stable. Capacity- The ability of the borrower to meet credit obligations. Your income and standing debts affect your capacity. Capital- The borrower’s amount of net worth (assets – liabilities). Lenders want to make sure you hold enough capital to cover the loan. Copyright © eNestEgg Press, LLC.

4. Are you a good risk? Collateral- The value of assets are you pledging to guarantee loan payments. If you fail to pay the loan the creditor may take what you pledge as collateral. Conditions- Are based off the current economic conditions. For example: trying to borrow during a recession may be more difficult than normal, as jobs may not be as secure. All applicants have the same rights. Race, sex, age, marital status, and other factors may not be used to determine your credit score. Copyright © eNestEgg Press, LLC.

5. How to judge creditworthiness 2 Systems are used to judge your creditworthiness: FICO: Score ranges from 350- 850. A higher number means the better the credit. What is a FICO score? What is my FICO score? How to raise your FICO score Vantage Score: Score ranges from 501 to 990. A vantage score is only used in 5.7% of the market therefore it is not as widely used as FICO. What is a Vantage score? You can get a free copy of your credit scores once a year at: Free Annual Credit Report Copyright © eNestEgg Press, LLC.

6. Credit Report A credit report is a complete record of your credit history. Credit bureaus include Equifax, TransUnion and Experian: They retrieve information from lenders on how promptly you pay your bills. They compile and judge your information off of preset criteria to determine your credit rating. The report contains your detailed credit data as well as some personal data such as your name, address, social security number, date of birth, employer and income. Only authorized personal have access to your report for business purposes. What is a credit report? Difference between a credit report and a credit score? Copyright © eNestEgg Press, LLC.

7. Your rights You have the right to know your credit score: You can request a free copy of your credit report annually. If denied credit, you have the right to know why. Therefore you can also request a copy of your credit report within 60 days of being denied for free. Copyright © eNestEgg Press, LLC.

8. Things to Remember You have the right to correct any misinformation that is on your credit report. Out of date information is deleted from your credit report after a specific amount of time, however bankruptcy is reported for 10 years and opposing data is reported for 7 years. You have the right to sue a credit bureau or a creditor that has caused you harm. Copyright © eNestEgg Press, LLC.

9. Question Cluster 1 Copyright © eNestEgg Press, LLC.

10. Things to Consider Things to ask yourself before you take out a loan: Can you still afford the monthly loan after you meet all your essential expenses? What must you give up in order to make the payments? What is your debt to income ratio: Monthly debt payments/ Net monthly income Consumer credit payments should not exceed a maximum of 20% of your net income. Copyright © eNestEgg Press, LLC.

11. Things to Consider Things to consider when shopping around for credit: Length of the loan compared to the interest cost Risk verse interest rate Ways to reduce the lender’s risk, thus reducing your interest rate: Get a variable interest rate Secure a loan with collateral Make a large down payment Take a short term loan Copyright © eNestEgg Press, LLC.

12. Things to Consider What’s the real cost of credit? Finance charge: The cost of using credit. Includes all costs such as interest expense, service charges, etc. Annual Percentage Rate (APR): It shows percentage cost of credit yearly; it is the key to comparing credit costs. Copyright © eNestEgg Press, LLC.

13. Cost of Credit Calculating the cost of credit: Most common method of calculating the cost of borrowing. It is the interest compounded on principle only, without compounding. Simple interest on the declining balance is interest that is paid only on the amount of the original principle that is not yet repaid. With add-on interest payment, interest is calculated on the full amount of the principle. Copyright © eNestEgg Press, LLC.

14. Cost of Credit Minimum Monthly Payment Trap: The minimum monthly payment is the smallest amount you can pay and remain a borrower in good standing. Many lenders encourage you to make only the minimum payment as it will take you longer to pay back the loan, accruing more interest and therefore benefiting them. It is important to avoid doing this, as the finance charges you pay on an item could end up being more than the item is worth. Copyright © eNestEgg Press, LLC.

15. Cost of Credit Minimum Monthly Payment Trap For example: You purchase a $3,000 entertainment system however you don’t have the finances to purchase it at the time, therefore you charge it to your credit card. The card has an interest rate of 18% and you decide to only make the minimum monthly payment of 1 % of your balance plus interest. At this rate it will take you 18.5 years to pay it off totaling the interest to $3,923. That means the total cost of the entertainment system would be $6,923. Chances are the system is not worth this. Investopedia Explains Copyright © eNestEgg Press, LLC.

16. Question Cluster 2 Copyright © eNestEgg Press, LLC.

17. Keeping your credit secure How to protect your credit: Inform your credit card company if your card is lost or stolen Shred papers that contain personal information Do not share your personal information or passwords with anyone Review your monthly bank and credit card statements Close any accounts if you suspect any identity thief has occurred Use secure browsers when surfing the web Keep records of all online transactions Copyright © eNestEgg Press, LLC.

18. Keeping your credit secure Steps to take when your identity is stolen: 1. Contact the credit bureaus and ask the fraud department to create a fraud alert. 2. Contact your creditors and ask if any accounts in your name have been tampered with or fraudulently opened. 3. File a police report and keep a copy on file for your records. Copyright © eNestEgg Press, LLC.

19. Keeping your credit secure Co-signing a loan: What it means? Cosigning on a loan means guaranteeing another’s debt Keep in mind the lender would not require a co-signer if the borrower was a good risk, therefore it is probably risky for you to co-sign. Before you co-sign think about it: Can you afford it if the borrower defaults on the loan? If the borrower fails to pay the co-signer is liable for the full amount in addition to any fees. Failed payments can affect the cosigner’s credit score. Copyright © eNestEgg Press, LLC.

20. Keeping your credit secure Billing mistakes- What to do when you suspect that your credit card bill is wrong. First notify your creditor in writing, include all information that may support your case. Also pay the portion of the bill that is not in question. The creditor is required to acknowledge your letter within 30 days, and either adjust your account if a mistake was found or inform you of why your bill is correct within two billing periods. A creditor is not allowed to threaten or damage your credit rating while you’re negotiating a billing dispute. They also cannot take any action to collect the money in question until your complaint has been answered. Copyright © eNestEgg Press, LLC.

21. Keeping your credit secure Defective goods- What steps you can take when you receive a defective good. Say you purchase a product and when it arrives you find it is defective. Try to get the store to replace, repair, or allow you to return the product. If the store does not allow you to do any of these things you have the right to tell your credit card company to stop payment for the product as you have made a sincere attempt to resolve the problem. Copyright © eNestEgg Press, LLC.

22. Keeping your credit secure Steps to make when you have a complaint about consumer credit: First: File complaint with the creditor Second: File a complaint with the government Lastly: If the following steps fail to work sue the creditor Copyright © eNestEgg Press, LLC.

23. Question Cluster 3 Copyright © eNestEgg Press, LLC.

24. Bankruptcy Signs you may have a debt problem: Your exceed your credit card limits You only pay the minimum balance each month or have trouble paying this minimum balance Your credit card balance increases every month You are denied credit as a result of your credit score Your using your saving or borrowing money to pay off old debts or pay for necessities Your missing your loan payments, or paying late Copyright © eNestEgg Press, LLC.

25. Bankruptcy What to do if you realize you have a debt problem: Contact Consumer Credit Counseling Services (CCCS) This nonprofit organization educates you about credit, provides debt counseling, helps establish a spending or debt consolidation plan, and can negotiate reduced interest rates for you. Contact a financial institution or consumer protection office for a list of financial counseling services. If a member contact your credit union, university or military base as they often provide nonprofit counseling services. Copyright © eNestEgg Press, LLC.

26. Bankruptcy What is Bankruptcy? Bankruptcy is the process of distributing your assets among creditors. It should be a last resort as it is detrimental to your credit rating. Effects of Bankruptcy: May make obtaining credit more difficult. It tends to be easier for chapter 13 filers than chapter 7 files, as chapter 13 repaid at least some debt opposed to chapter 7 who made no attempt to repay. Copyright © eNestEgg Press, LLC.

27. Bankruptcy Chapter 7 Bankruptcy: Straight bankruptcy Most files are this type Most of the debtor’s assets with the exception of a few (example home, vehicle etc.) are sold to pay off creditors. It is more difficult to qualify for a chapter 7 than a chapter 13 bankruptcy. Chapter 13 Bankruptcy: Wage earner plan The debtor keeps all or most of their property, but they are required to make regular payments for up to five years to a trustee who then distributes the money to the creditors. Copyright © eNestEgg Press, LLC.

28. Bankruptcy Things you are likely to not owe after bankruptcy: Credit card charges Medical bills Retail store charges Unsecured loans Things you are likely to still owe: Student loans Taxes & fines Child support and alimony Money owed from unruly acts Copyright © eNestEgg Press, LLC.

29. Question Cluster 4 Copyright © eNestEgg Press, LLC.