Presentation on theme: "Credit Made Simple Presented by the Financial Aid Office and the Medical Alumni Association."— Presentation transcript:
1 Credit Made SimplePresented by the Financial Aid Office and the Medical Alumni Association
2 What is credit?“Credit” is a promise to pay later, under designated terms, for goods and servicesYour “credit” means your credit file, or credit reportThere are three credit reporting agencies: Equifax, Experian, and TransUnionEach agency keeps a separate credit file for you, and each may have different informationEach agency has its own scoring model and its own score for you, but all scores range roughly from
3 What is a credit report?A credit report is the collection of your credit history and records maintained by a credit reporting agencyThe report includes personal identifying information, as well as a history of your credit usage and paymentsNegative information (such as late payments) stays on for seven years, except bankruptcy - which can stay on your credit report for up to 10 yearsGet your credit report for free atAlso get a free credit report if you are turned down for credit.
4 How to Read a Credit Report This example is from Equifax and is available on their website.Every credit report will look different!The personal information section lists your name, social, date of birth, addresses, employer, and any consumer statements.It is common to have errors and misspellings in this section of your credit report.
5 SummaryThe summary section shows all of your accounts, listing the total balances and how many accounts are past due.
6 SummaryThe summary section will give a list of your accounts and their information in short format.Your credit report may also have a more detailed summary section, where accounts are listed by status: Open, Closed, In good standing, Past Due, etc.
7 Account DetailYour credit report will then show details for each credit account that you have, whether it’s open or closed. The account details show the type of loan, your balance, loan terms, payment amounts, and payment history.Closed accounts will continue to show on your credit report for seven years.
8 Revolving Account Detail Revolving accounts, such as credit cards, will show the current balance, the “high credit” (highest balance ever held), and the credit limit.It is not unusual for your payment history to be missing for some months. A payment status of “NR” (Not Reported) is fine.
9 InquiriesAfter your account information, your credit report will show all of the inquiries about you.There are two types:Hard inquiries: Inquiries into your credit history as a result of you attempting to obtain credit.Soft inquiries: Not caused by you seeking credit. Could be a promotional inquiry from a credit company, or one of your existing creditors monitoring your credit report.
10 Other informationYour credit report will also list any collections and public records such as judgments, bankruptcies, and liens.
11 Errors on your credit report If you find an error:Contact the creditor and ask them to fix itThey have 30 days to respondFile a dispute with the credit bureauSend the credit bureau documentation when possibleIf it’s corrected, the bureau must send you a copy of your new reportIf it’s not, the bureau must tell you who investigated the error, and you can add a statement to the reportMortgage companies can use a rapid rescoring service to correct errors
12 What is a credit score?In theory, it is an estimate of the likelihood you will pay your debtFormula was created by the Fair, Isaac CompanyThe majority of scores range from , yours will be different at each reporting agency
13 What determines my score? The exact formula is a secret, but this is the overall breakdown:Estimate your credit score:
15 Why do I need good credit? Your credit history is one of the things a lender looks at when evaluating an application for credit, along with your income, assets, and other debtA good credit history makes it easier to get new credit when you need itHaving good credit will get you the best interest rates on new credit, including mortgages and car loansGenerally a score over 720 will get you the best ratesMany landlords and employers check creditUtility companies and insurance companies may check your credit
16 How can I build my credit? Build good credit by paying your bills on time.If you have no credit history, there are several ways to begin:Get a credit card (use it wisely!)May have to start with a secured credit cardA debit card or check card won’t do itGet added as a joint owner to your parents’ or spouse’s existing credit cardApply for a credit card at a local storeHave your parents or spouse co-sign for a credit card or loan – keep in mind, this legally obligates them to pay the loan back if you don’t!
17 How to improve your credit There is no quick fix!Get a copy of your credit reportLook at what is helping and what is hurting, and check for errorsPay off your debtPay all of your bills on time, even if it’s just the minimum paymentDon’t apply for new creditUse no more than 30% of your available credit
18 How to hurt your credit Pay Late Lose touch with your lenders Late payments remain on your credit report for seven years. Bankruptcies remain for ten years.The later the payment, the more it hurtsLose touch with your lendersFail to correct mistakes on your reportClose old accountsFail to pay traffic and parking tickets and finesCo-sign for a loanSettle a debt for less than you owe
19 Things that don’t matter Demographic information on your credit reportYour race, gender, or ageYour job, salary, or geographic areaInterest rates on existing accountsConsulting a credit counseling serviceChecking your own creditPromotional and other “soft” inquiriesMultiple inquiries for a mortgage or car loan within days: shop around!Getting married
20 Credit Cards You only need one to build your credit Use it and pay it off every month (your usage is still reported to the credit bureaus)Avoid annual fees if possibleAvoid fees and rate increases for going over the limit or paying lateIf you do carry a balance: Try to negotiate better ratesSafer than carrying cashMight cause you to spend moreRead the fine print for both terms and protections you might not know about
21 2009 Credit Card Leglisation Credit card companies must wait until you’re at least 60 days late to impose a penalty interest rateRegain previous rate by paying on time for 6 monthsNo other retroactive rate hikesNo more rate hikes for being late on another accountMust give 45 days’ notice before raising rates on new balancesMust send out bill at least 21 days before due datePayments made by 5 p.m. on due date are on timeIf payment date is on a weekend or holiday, next day is considered on-timeLate fee no more than $25 (unless late twice in 6 months)
22 2009 Legislation, cont’dMust credit payments to highest-rate debt firstNew limits on increasing the minimum amount dueBorrowers can now decide whether to be allowed to go over their credit limit, only 1 over-limit fee per cycle, and the fee cannot exceed the amount over the limitNon-penalty fees may not equal more than 25% of the limitInactivity fees have been bannedNo more than one fee per transgressionStudents under 21 with no income need co-signerNew rules regarding gift cards (like Visa gift card)
23 Keep in mind:Only payments over the minimum go to highest-rate debt firstCredit card companies have to get money somehowLook out for new feesNew transparency laws only help if you read your mailRead everything, OPT OUT to changesSwitch cards if necessary – shop around
24 Student Loans Stafford loans have no credit check PLUS loans require a basic credit checkUVA School (need-based) loans have no credit checkStudent loans show on your credit report as an installment loan, similar to a mortgage or car loan, but their existence generally doesn’t help or hurtWhile you’re in school, amount due is “0”Paying late can hurt your scoreOnce you’re in repayment, will help build historyThese loans will affect your debt-to-income ratio once you’re in repayment
25 Using credit to your advantage Your goal should be to pay no interestMany credit cards offer “points” or “miles” or cash-back for every purchaseGood credit can get you a better rate on your car insuranceGood credit may mean you do not have to pay a deposit to your utility companiesUsing a credit card, especially on large purchases, protects youUsing a credit card may help you with budgeting – or it may hurt you!
26 Credit Pitfalls Beware: Easy credit High credit limits and interest ratesFree stuff and discounts for signing upLow- or no-interest promotional offersFees: overlimit fees, late fees, annual fees, new made-up feesBanks are looking to make up for lost debit card revenueBills may be due soon when you get them in the mailNever pay late – borrow from family if necessary
27 What to do if you’re in trouble Contact your creditor immediatelyMake a budget, with a plan to pay off your debts: Good credit begins with a good budgetCome talk to your financial aid counselorIf you need a credit counselor, find someone accredited with no or low up-front fees, likeYou may need a credit counselor if:You can’t even pay the minimums on your credit cardsYou’re consistently late on your regular billsYour efforts to work with your creditors have failedYou are being harassed by collection agenciesYou may be able to negotiate a payment schedule or a lower interest rate.
28 Identity Theft“Identity theft” is when someone uses your accounts, or uses your personal information to obtain credit accountsCommon ways identity thieves get info:Phishing scamsSkimmers on ATMs or other card-reading devicesPhone scamsFinancial documents in your trash or mailStealing your purse or walletYou are not liable for the damage caused by an identity thief, but fixing it can take a lot of time and energy.
29 How to prevent identity theft Shred sensitive documentsGet your bills by and pay bills onlineNever respond to phone or requests for informationNearly all legitimate companies will request information by regular mail. If you have any concerns, contact the company directly.Carry only necessary documents in your purse or walletUsually it’s not worth paying a monitoring service unless you have reason to believe you are at risk
30 Steps to takeIf you think someone has your information, or if you are a victim of identity theft:Review your credit reportPlace a fraud alert on your credit reportEquifax: ,Experian: ,TransUnion: ,Close the affected accountsFile a complaint with the local policeFile a complaint with the FTC:
31 Resources The Federal Trade Commission: www.ftc.gov/credit Opt out of unsolicited credit card offers: OPTOUT ( )Personal Finance on CNN Money: money.cnn.com/pfPlanning on MSN Money: money.msn.com/credit-and-debt/Glossary of credit terms:help.equifax.com/app/answers/detail/a_id/241/noIntercept/1/kw/terms
32 The Financial Aid Office For help with budgeting, credit, or any financial concerns, come by the Financial Aid Office any time, Monday-Friday, 8-5.Dennis (A-H)Margaret (I-R)Nancy (S-Z)