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What good is a good credit score? What can it be used for?

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Presentation on theme: "What good is a good credit score? What can it be used for?"— Presentation transcript:

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2 What good is a good credit score? What can it be used for?

3 What is a good credit score?

4 Areas Covered Six Principles to a Good Credit Score Credit Report Master My Credit Buy a Car Prepare for a Loan Refinance a Loan Buy a Home Get Married Start a Family Stay on Budget Get out of Debt

5 Vantage Score While your credit report is a detailed, comprehensive document, Vantage Score shows you your credit health at a glance. Some factors influence your Vantage Score more greatly than others. Here's the breakdown: Payment History (32%) The promptness of your payments Credit Utilization (23%) The percentage of available credit that you've used Depth of Credit (13%) The length of time you've had credit Balances (15%) Your outstanding balances Recent Credit (10%) The frequency you apply for new credit Available Credit (7%) The unused funds you have readily available Combined, the above factors are good indicators of how you pay your bills and how much you rely on credit. If you do both responsibly, your Vantage Score will reflect that.

6 The Six Principles that greatly contribute to your Vantage Score include:

7 Payment History A history of late payments - even by a few days - can be potentially hurtful. Payments received beyond 30-days of the due date are considered late. When lenders report credit data to credit bureaus, they typically lump payments that are late one day in with those that are late 59 days.

8 Credit Balance Similar to the utilization issue, credit balances current and past provide insight into issues of financial liquidity and prudent borrowing. Historically maintaining high balances on key credit accounts will likely have a negative impact on a score.

9 Recent Credit A consumer that opens a number of credit accounts in a narrow timeframe may be interpreted as experiencing cash flow problems, particularly if utilization of his or her previously existing available credit is very high. In addition, a large number of credit inquiries in a short timeframe may also lower a score. However, multiple inquires for a mortgage or auto loan will be counted as only one inquiry each, enabling consumers to shop for favorable rates without fear of lowering their score.

10 Utilization Having access to credit is one consideration, and how much of that has been tapped into is another. An individual who has "maxed out" his or her credit cards and/or other lines-of-credit may not be able to obtain any additional credit or credit at the best possible terms. The lack of liquidity will deem these consumers high-risk in the eyes of lenders.

11 Depth of Credit Having a strong, long history of prudent credit use is ideal under any credit scoring model. But as important as it is to have long-term credit relationships, a diverse mix of credit accounts is also beneficial. Don’t close accounts!!

12 Available Credit Maintaining low balances on credit cards and open lines-of-credit will be a positive factor in generating a score. The typical benchmark is to keep these balances at or below 30% of the total available credit.

13 Credit Report… When lenders evaluate your credit applications, they review your credit report to get a detailed history of your credit. Your credit report includes data provided by the three major credit bureaus, TransUnion, Experian and Equifax. It features:

14 Personal Information… The personal information section of the credit report contains basic information about you, including: Your name (Including any other names you may use) Your date of birth Current address Previous addresses Employer information The data in this section is often used to verify your identity or to confirm that the information you provided for an credit application is accurate. Small variations in this data between the three bureaus are normal as each agency has its own recording procedures.

15 Summary… The Summary section provides quick, high-level insight into the accounts in all three of your three credit reports. This overview allows you to quickly compare data being reported by the three agencies and includes: Total Accounts: The total number of open and closed accounts Open Accounts: The total number of open accounts Closed Accounts: The total number of closed accounts Delinquent: The number of past due accounts Derogatory: The number of accounts that are negatively impacting your credit health Balances: The total amount of debt you owe for all open and closed accounts Payments: The total amount of all your monthly payments for open and closed accounts Public Records: The total number of public records associated with you. Includes bankruptcy filings, court judgments and tax liens Inquiries: The total number of inquiries reported in the last 2 years

16 Account History… The Account History section of your credit report provides detailed information about all credit accounts that have been opened in your name. Your credit accounts are divided into the following categories: Real Estate: First and second mortgage loans are "installment" debt which means they have fixed terms and regular payments. Mortgages are "secured" debt, where your home is acting as the collateral for the loan. Credit Cards: Credit card accounts are "revolving" debt which means they have open terms and varying payments. Credit cards are "unsecured" debt, where no collateral is put up as security for the loan. Automobile: Automobile loan accounts are "installment" debt which means they have fixed terms and regular payments. Automobile loans are "secured" debt, where your automobile is acting as the collateral for the loan. Student Loans: Student loan accounts are "installment" debt which means they have fixed terms and regular payments. Student loans are "unsecured" debt where no collateral is put up as security for the loan. Other: Sometimes the exact category of an account is unknown. These could include 30-day accounts such as an American Express account.

17 Account Details Each account listed on your credit reports includes detailed information based on the most recent update to the credit bureaus from your lender. Be mindful that, in some cases, these updates aren't immediately reflected in the credit report and take time to come to the attention of the credit bureaus systems.

18 The details included are: Creditor Name: The official account name. This may differ from the larger financial institution that manages your account Account Number: An identifying number for your account. A portion of the number is hidden for your security. In the event you need to dispute an inaccuracy related to this account, this partial account number is all that is needed Condition: Whether the account is open or closed Balance: The amount you presently owe on the account Type: The account's specific type. Common types are real estate, credit card, automobile and student loans Pay Status: The account's payment status Past Due: The amount of payment overdue High Balance: The most you have ever owed on the account Terms: The number of payments you have scheduled with the lender to pay off the entirety of the loan Limits: The maximum you are approved to borrow Payment: The minimum amount you are required to pay each month on the amount Opened: The date the account was opened Reported: The last date that any information on this account was reported to a credit bureau Responsibility: Indicates who is responsible for the account Late Payments: A summary of your 30, 60, and 90 days past due payments from the last 7 years Remarks: Notes about the status or condition of your account

19 Collection Accounts… Collection accounts are accounts that are severely past due and have been transferred to an attorney, collection agency or the creditor's internal collection agency. As your debt is transferred between different agencies, you may see several records on your report for the same debt. Only one record should be marked as open at a time. All the collection records and the original debt record will expire from your credit report at the same time. Collection records use a unique summary format on your credit report: Creditor Name: The official name of the company currently collecting the debt Account Number: An identifying number for your account. A portion of the number is hidden for your security. In the event you need to dispute an inaccuracy related to this account, this partial account number is all that is needed Original Creditor Name: The name of the original creditor where you accumulated your debt. This could be an account that is listed on your credit report (such as a credit card) or an account that is not listed on your report (such as a library, video rental or cell phone company). If this creditor was a medical office, the name may be masked for your privacy Responsibility: Indicates who is responsible for the account Condition: The current status of your collection record. For example, open, closed or paid Original Balance: The amount of debt owed on the original account before it was transferred Date Opened: The date the account was transferred to the collection agency Date Reported: The date of the collection agency's last update to this account record

20 Public Information… The public information section of your credit report includes publicly available information about legal matters affecting your credit. This could include judgments against you in civil actions, state or federal tax liens and bankruptcies. There are eight types of public records that can appear on your credit report: Bankruptcy: A legal filing that relieves a person of responsibility for all or some of their debts because they are unable to pay Tax Lien: A claim filed by a local, state or federal tax agency against a person who owes back taxes Legal Item: A general filing. This is most commonly a judgment against you in civil action Marital Item: A legal filing related to a marital or divorce issue Financial Counseling: A public record indicating that a person has participated in financial counseling Financial Statement: A type of financing statement filed by a creditor against a person's property. This can be filed when a loan is secured against personal property Foreclosure: A record indicating that a mortgaged property has been taken over by the creditor because the borrower has defaulted on the loan

21 Public Information… The public information section of your credit report includes publicly available information about legal matters affecting your credit. This could include judgments against you in civil actions, state or federal tax liens and bankruptcies. There are eight types of public records that can appear on your credit report: Bankruptcy: A legal filing that relieves a person of responsibility for all or some of their debts because they are unable to pay Tax Lien: A claim filed by a local, state or federal tax agency against a person who owes back taxes Legal Item: A general filing. This is most commonly a judgment against you in civil action Marital Item: A legal filing related to a marital or divorce issue Financial Counseling: A public record indicating that a person has participated in financial counseling Financial Statement: A type of financing statement filed by a creditor against a person's property. This can be filed when a loan is secured against personal property Foreclosure: A record indicating that a mortgaged property has been taken over by the creditor because the borrower has defaulted on the loan

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23 Master My Credit To master your credit, pay close attention to your credit alerts and regularly review your Vantage Score and credit report. Your Vantage Score and grade, which is a summary of your credit health. A grade of C or above will help qualify you for most credit and loan terms. The better your score, the better the interest rates available to you. To be sure your Vantage Score represents you well, confirm that the information detailed in your credit report is current and correct. If not, follow the procedures to dispute any inaccuracies. Questionable line items could be the sign of identity theft. Of course, even if all information is accurate, you can still be proactive about effectively managing your credit. For example, if your credit report contains negative records over ten years old, initiating a dispute may help remove them. Just be sure not to dispute positive records on your report. A positive account over ten years old will reflect a strong history of credit. Another opportunity for attaining mastery is in reviewing your active credit and loan accounts. Make sure you're not testing the limits of your credit cards, or carrying a debt to income ratio of over 35%. If you have more debt than you'd like, refinancing could help you lower your monthly payments. And creating a reasonable monthly budget and honoring it will help you reduce your debts. Also, be sure to reserve emergency funds in a savings account. If you need the money for a surprise expense, using it won't cost you interest. By cleansing your credit report and accounts, you'll be well on your way to mastering your credit.

24 Master My Credit…What I can do?  Research your options for refinancing.  Create a sensible monthly budget.  Dispute credit report inaccuracies and verify expired debts have been removed.  Make a list of areas of improvement.  Establish a routine of monitoring your credit alerts.  Schedule a monthly contribution to a savings account.

25 Car Buying Cars are expensive, but practicing the wisdom when buying can help make buying one more manageable. The key is to be realistic and practical. If you need to finance your car, take care of your credit before you apply — doing so may save you money. For example, if you save a mere 1% annual interest on a $20,000 loan over six years, the savings could be more than $550. Remember, generally the higher your credit score, the lower the interest rate you will be able to obtain. While financing through the dealership is often convenient, keep in mind that there are other options available. Check with local banks and credit unions, or consider a home equity loan, for better rates and terms. Review your credit report, credit score and debt accounts on an ongoing basis. Inspect them for opportunities to enhance your financial well-being by disputing inaccuracies or paying down balances. In addition to helping you prepare for a loan, looking into your credit will also help you think like a lender — and give you more insight into the approval process. When it comes to car buying, the more information you have, the better equipped you'll be to negotiate. In fact, when shopping for cars, research is essential. First, find how much car you can afford by determining what your budget allows and using a debt-to-income ratio calculator. If your debt or monthly expenses are especially high, weigh the advantages and disadvantages of adding another loan payment to your budget. It can be a good exercise to try saving your monthly payment for a few months to see if you can fit the new payment into your budget. Consider your options; it may make sense to set your sights on a less expensive car. Or maybe a used car would be a smarter decision. After all, new cars generally depreciate 10-35% during the first two years. Investigate depreciation rates on the models you're researching. Of course, if you're considering a used car, be sure you know what you're getting. Maintenance, warranty and insurance costs may outweigh the initial savings. On average a new car can cost $729 per month, including maintenance, insurance, licenses and related costs.*

26 Leasing a car is another option to contemplate. Leasing is like renting, but for a longer period of time. While leasing might not save you money over the long term, it could fitmore easily into your monthly budget. Whether buying or leasing, it pays to plan ahead. If you're going the financing route, start by thinking about your down payment. The more you pay up front, the less you pay in interest and the lower your monthly payments. Trading in a car you already own is another way to lower the total amount you have to pay. Make sure you research the current value of your trade-in ahead-of-time. If your credit is flawed because of divorce, illness, job loss, or other circumstances, it may help to explain your situation to a potential lender. If you can present a sound plan for repaying those debts, you may have a better chance of getting the loan and financing terms you're seeking. Remember, looking inward and understanding the lender's point-of-view can help you position yourself to negotiate the loan rate you deserve. And having healthy credit gives you the best bargaining power. This is a great option if you are planning on deploying within the next 2 years. You can turn-in ANY leased car with military orders, no questions asked, even if your over the mileage limit or damaged the vehicle. This only includes deployments or overseas assignments like Korea or Germany.

27 Car Buying…What I can do?  Address the two big questions — new vs. used? Buy vs. lease?.  Research negotiation strategies to be prepared when you go into the dealership (For every $1,000 you drop off the manufacturer's suggested retail price, your monthly payments on a 48-month 10% loan may be $25 less).  Set a goal for a down payment of at least 10% and incorporate it into your monthly budget.  Explore auto loans at banks, not just dealerships.  Review your budget and calculate your debt-to-income ratio to help determine what you can afford, based on the cost of insurance, gas, parking and maintenance.  Read the reviews on cars that meet your needs.

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29 Prepare for a Loan Whether you're looking to finance a home, car, college education or other significant purchase, you need to prepare your credit for a successful loan application — and to receive the best possible interest rate for you. To begin, review your credit report carefully. If anything seems inaccurate or unfamiliar, file a dispute and allow time for the investigation. Review them regularly — and especially before a major purchase. Lenders will review your credit report when evaluating your loan application to determine your interest rate. With a healthy credit report you are on the path to an affordable loan. Continue your preparation by reviewing your credit score, which can help you measure the strength of your credit report. If your grade is a C or below, examine your existing debt accounts. Late payments and maxed-out credit cards can have a significant negative impact. Strive to correct problem areas by paying down debt, limiting inquiries and paying bills on time. Lenders look more favorably on debt-to-income ratios below 35%. If yours is higher, increase your payments or look for other expenses that can be eliminated. Practice plugging the new loan payment into your budget to ensure you can afford the expense. Take the time to shop around for the best deal and empower yourself with information to negotiate. A little preparation can really pay off. Mastering your credit health before applying for a loan can save you thousands in the long run.

30 Preparing for a loan….What I can do?  Review your credit report and dispute any inaccuracies.  Pay your bills on time — at least the minimum, and if possible, in full.  Avoid applying for many new credit accounts as you prepare for the big purchase.  Work to pay down your credit card balances below 35% of the limits.  Know the interest rate you deserve and shop around for the best deals.  Practice plugging your new loan into your monthly budget to see what you can afford.

31 Refinance a Loan As you work toward achieving personal financial goals, your own financial status will change and so will the economic climate. If market conditions and your credit are both favorable, it's a good time to think about refinancing mortgages and auto loans. Here's how: first, monitor your credit report and credit score to evaluate your credit health before it's reviewed by lenders. Look for opportunities to enhance your financial well-being, like disputing inaccuracies or paying down balances. If your financial habits have improved significantly since your initial loan, you may already be eligible for a lower rate. Next, determine whether refinancing is truly a sound financial decision. While the concept of switching to a lower rate is compelling, there will be fees, closing costs and other expenses obstructing your path. Read the fine print and calculate the total cost. Depending on your situation, refinancing may or may not be worth the expense. There are several reasons to refinance your home:  To lower the interest rate on your mortgage, reduce your monthly payments and overall cost  To reduce the term or length of your loan and save thousands of dollars in interest  To consolidate your debt  To determine if you should refinance there are three standard questions to ask yourself:  How much can I lower my monthly payment?  How long do I plan to stay in the house?  How much will I pay in refinancing costs? In general, it's wise to refinance if you can secure a rate at least two percentage points lower than your existing loan. However, it depends on the total savings amount and your personal goals. For example, refinancing can make sense even if the savings is only a 1% difference on a $100,000 loan — 1% equals $1,000 savings a year. Make sure you do the math. To estimate how long it will take you to break even after refinancing your mortgage, divide the total refinancing cost — including points, insurance and prepayment penalties — by your estimated monthly savings with the new loan. For example, if you currently have a $150, year mortgage loan at 6.5% and a monthly payment of $948, and you refinance to a 6% loan with a monthly payment of $899, you could reap substantial savings over the life of the loan, depending on the fees and costs. When calculating your potential savings, don't forget to factor in the cost to refinance. Mortgage application fees may range from $100- $350, origination fees typically come to 1/4th to 1% of the loan amount, and there may be attorney fees, title search and insurance, prepayment penalties and appraisal fees. Assure yourself in advance that the costs to refinance will not outweigh your savings. If you plan to keep your home longer than the amount of time it will take you to break even, then refinancing could help ease your financial path. But if you're planning on selling your home in the near future, refinancing may not be the best option for you. If you discover that refinancing may be too expensive, consider other paths. For example, if you have a large balloon payment coming due, speak with your lender about negotiating a term extension. If your adjustable rate mortgage payments are proving difficult to budget, find out if you can switch to a fixed rate loan. Researching loan products with multiple lenders will give you a better idea of which loan will meet your needs most effectively — how you can expect to benefit from either refinancing or negotiating new terms on your existing loan. Both knowledge of the available lending options and the quality of your credit can help you negotiate significant savings.

32 Refinance a Loan…What I can do?  Research other options like re-negotiating the terms of your existing loan.  Investigate rates and loan products with different lenders.  Calculate the total cost of refinancing and determine if it is the right decision for you.  Review the interest rates on all your loans periodically.  Make a list of areas for debt management improvement.

33 Buy a Home Your home is your haven, a place of comfort and calm. But investing in real estate can be stressful. Prepare for the process — and responsibility — of buying a home, so you can work towards your goal with confidence. Start by thinking deeply about your credit report, Vantage Score, and debt accounts, looking for opportunities to enhance your financial well-being. After all, taking control of your credit before applying for a home loan can save you money in the long run. Learn more about preparing for a loan. Then, when your credit is aligned, start your search for your new home. But keep your finances in focus when house hunting, and stay within your price range. Typically, most borrowers can afford an asking price of two and a half times their annual salary. To be more exact, calculate your loan to value ratio, the amount you’ll need to borrow divided by the property's value, which shows you how much house you really can afford. Rates increase significantly for loan to value ratios above 80%. To lower your ratio, look for less expensive homes, or save up for a higher down payment. However, even if you qualify for a large loan, it’s not always wise to borrow a vast amount. And remember that there are many types of mortgage loans — fixed rate, adjustable rate, short term, and long term. Each has its advantages and disadvantages. Do your research and choose the one that best fits your finances. For example, while fixed rate mortgages have slightly higher rates than other loans, your monthly mortgage payment will always remain the same — no surprises. And while adjustable rate loans start out much lower, you run the risk of having your interest rate and monthly payments increase over time. Just keep in mind that having healthy credit gives you the most flexibility to choose the loan you want.

34 Buy A Home…What I can do?  Determine your price range.  Calculate your loan-to-value ratio.  Make a list of areas of improvement.  Research the pros and cons of different mortgage products.  Dispute credit report inaccuracies.  Set a goal for a down payment and incorporate it into your monthly budget.  Establish a routine of monitoring your credit.

35 Get Married Marriage is a lifetime commitment where love, friendship and devotion intertwine with finances and partnership. Before you tie the knot, be sure that you and your spouse-to-be have a clear idea of each other's financial history, habits, priorities and goals. Most importantly, be honest with each other. Clear communication about financial matters is the best way to set expectations and prevent arguments. Be open about your income, debts and future plans — and ask your fiancé to do the same. Set goals together and develop a money management plan that you can both agree upon. If one or both of you has existing debt before the wedding, work together to create a plan for managing it. Keep in mind that past credit problems may affect future loans, and take action to resolve them. To start, review your credit reports together to get a clear picture of where you both stand. If you open a joint account or apply for a loan together, the record appears on both of your credit reports. So while combining your finances can help you qualify for more money or better rates, a negative report has consequences for both of you. For major purchases that often come along with marriage, like a home or a car, make sure you save money for a down payment before applying for a loan. Anything you can put towards the total cost up front will save you money in interest over time. Before you get to a home or car purchase, you'll probably be saving up for the Big Day. A grand wedding oftentimes becomes a grand expense. If the two of you are paying for it together, begin saving early in your engagement. Carefully consider large expenses that result in debt as you may be adding unwanted stress to your newlywed years. Ultimately, marriage is about love, partnership, commitment and working together. Do your best to communicate clearly and honestly about your finances, and practice good spending and saving habits together.

36 Getting Married…What I can do?  Be honest with your spouse and discuss your financial goals and dreams.  Allocate part of your monthly budget to saving for a down payment on a home or other large purchases.  Make a list of creative ways to manage wedding expenses.  Agree on how much each individual will contribute to ongoing fixed expenses and to saving. Discuss joint checking and savings accounts.  Develop a money management plan together that meets both your needs.  Determine if a prenuptial agreement is needed.

37 Start a Family Bringing new life into the world is exceptionally exciting. It can also be daunting, when you consider the impact to your home economics. But with some simple financial planning, you can help you effectively prepare for the needs of your growing family. Now is the time to re-evaluate your monthly budget. In fact, create two: one for pre- baby and one for post-baby. Your pre-baby budget should shift more money than ever to reducing debt payments and increasing savings. Regularly review your credit score, credit report and debt accounts, looking for ways to improve your financial footing. And while maintaining and managing your budget and debt payments is often not easy, doing it now will pay off after your little one arrives. Your post-baby budget should include all your baby-related expenses, including childcare and college savings. Consider that one of you may be working less — or not at all. Be sensible about what your baby really needs. And be creative. Your friends and family members may be able to offer you a trove of gently used items that their children have quickly outgrown. Since shopping for your baby will no doubt be tempting, try using cash and keeping the credit cards at home. You can factor spending money into your budget, setting aside the cash in advance, and you won't accumulate new debts. Debt can have lasting effects on your credit card rates, mortgage rates, and eventually student loan rates — when your little one is all grown up and heads off to college. Remember, you're managing your credit not just for you but also for your entire family's financial future.

38 Starting a Family…What I can do?  Make a list of the essentials and the "nice to haves" for your baby and focus on the essentials first.  Research the cost of childcare and discuss which options are right for your family.  Re-evaluate your monthly budget, allocating more money to reducing debt payments and increasing savings.  Together with your partner create a baby budget in advance of having the baby.

39 Stay on Budget Maintaining your financial health requires commitment and discipline. And much like going on a diet, adhering to a budget isn't easy. Before dividing your dollars, consider your short and long term financial goals. If there's something specific you're looking to buy or accomplish in the future, you'll want to set aside the funds to help you finance it in addition to saving for the unknown. Also consider your Vantage Score, credit report, and your debt accounts. By paying close attention to your credit alerts and regularly reviewing your credit health, you can monitor how your debt is affecting your overall financial health and your ability to obtain affordable loans. If your credit is suffering from excessive debt, a portion of your budget should be devoted to reducing your outstanding balances. If much of your debt is attributed to overuse of credit cards, it may be a good time to clean out your wallet. In fact, a wallet cleanse can be done every few months. Look through each pocket and remove old receipts, extra credit cards, and items that should be kept safely at home, like your Social Security card. The process is good protection against identity theft, and it improves your financial focus on the go. Once you've picked about two or three cards to keep using, your wallet is better equipped to match your budget. And don't apply for new cards even if there's a great offer at the register. Not only will you have another statement to manage, you'll have even more temptation to spend. Similarly, craft your budget with cash in mind. If you're going shopping, stop by the ATM and withdraw the exact amount you need. That way you're less inclined to make an impulse purchase a blow to any budget. It's also wise to reduce spending on luxury items and try clipping coupons for extra savings. But don't make your budget overly strict. Leave realistic room for entertainment and occasional treats. The more balanced your budget, the easier it'll be to adhere to it. After all, a wisely designed budget makes your financial management easier, not more stressful. Your new budget will help you trim your debt and achieve your future goals.

40 Staying on Budget…What I can do?  Allocate a realistic amount of your budget to entertainment and other discretionary spending.  Create a spreadsheet to track your spending on luxury items.  Cleanse your wallet transferring extra credit cards and your Social Security card to a safe place at home.  Make a list of your financial goals.  Dispute credit report inaccuracies.  Pick two or three credit cards to keep using.  Pick a day to clip coupons from the newspaper and mark it on the calendar.  Allocate money in your budget to saving for the unknown.

41 Get out of Debt The adage 'all things in moderation' applies to many aspects of life — and debt is certainly one of them. Gaining control of your debt and paying it down can have a positive impact on your ability to obtain affordable loans with lower interest rates. Debt can be classified as good or bad. 'Good' debt is money you have borrowed for secure, long-term gains such as student loans or a reasonable mortgage. 'Bad' debt is money borrowed on credit cards or retail cards, or high monthly payments for unnecessary expensive items. Good Debt: A house you can afford Education and enhancing your skills Large items, as long as total payments for debt is under 35% of your budget Better To Save Up For: Luxury items such as boats, cameras, jewelry Entertainment items, such as TV's, entertainment systems, non-essential furniture or accessories Vacations The first step toward controlling your debt is to ground yourself in reality by regularly reviewing your credit report, credit score and debt-to-income analysis. While reviewing your report, look for problem areas — like maxed-out cards or late payments. Analyze your debt-to-income ratio; your goal should be to reduce this ratio to a healthy level of 35 percent or less.

42 Get out of Debt Next, organize your debts and determine which should be paid off first. Credit card debt and small loans should be paid before low-rate student loans and home loans. Answering "yes" to any of the following questions can help you figure out which accounts need your immediate attention. Do you have any debts with rates over 8%? Are there accounts above 35% of their credit limit? Do you have any debts that are close to being paid off? Do you have any debts with high annual fees? Start executing your pay-off strategy, tackling high-interest credit card debts first. Call your credit card companies and try to negotiate favorable terms and lower interest rates. Then transfer your balances to the cards with the best terms and lowest rates, making sure to account for transfer fees. To avoid harming your credit score, try to keep each card's balance under 35% of its total line of credit. If you have credit card debt that is too large to handle with your income alone, consider taking out a personal loan from your bank to cover it. Your bank can probably give you a much lower rate and a more manageable payment schedule. After taking control of your credit card and small debts, evaluate major loans, like your auto loan and mortgage. There may be an opportunity to consolidate some of your other debts into these larger ones. Also consider your refinancing for mortgages or major purchases like auto loans — shopping around at banks and other lending institutions for the best rates and lowest fees.

43 Get out of Debt Once you've organized your debts, create a monthly budget to manage your spending and loan repayments. Calculate how much of your income you can direct towards repaying your debts, and allocate those funds first to the debts with the shortest terms and highest interest rates. Take advantage of technology to help keep you on track, like using an online calendar to mark the due dates and the payment amounts you calculated for each bill. Also, sign up for automatic bill payment through your bank to make sure you stick to your schedule. Finally, keep watch for your credit alerts and stay on top of your progress. Set aside time each month to review your progress and celebrate milestones. With time and perseverance, you will prevail over your debt.

44 Getting out of Debt…What I can do?  Set aside some time each month to review your progress and make necessary adjustments.  Sign up for automatic bill payment.  Investigate your bank's personal loan options.  Transfer your credit card balances to less expensive cards.  Determine which debt should be paid off first.  Create a monthly household budget. Consider consolidating your smaller debts into your auto or home loan.  Mark due dates and payment amounts on a calendar and arrange for reminders.  Negotiate lower interest rates and better terms on your credit cards.  Research refinancing for your auto and home loans.

45 Summary Six Principles to a Good Credit Score Credit Report Master My Credit Buy a Car Prepare for a Loan Refinance a Loan Buy a Home Get Married Start a Family Stay on Budget Get out of Debt

46 References For free credit report: All information referenced from:

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