1. Maintaining Good Credit Credit Cards Managing Credit Challenges
The ABCs of Credit
Credit Scores
Establishing Credit
Maintaining Good Credit
Credit Cards
Managing Credit Challenges
These slides are derived from the Citigroup Financial Education Curriculum. However it was discontinued in January 2011.
It is advised that you complete the following steps before you present any activity:
Review the Facilitator’s Guide of the Citigroup Financial Education Curriculum, which can be found on its CD-ROM or at
For information regarding online facilitator training, please contact
3. Review the materials thoroughly and be prepared with copies of the presentation or from the lesson. Determine for yourself whether or not you are truly comfortable presenting any activity. If you are not, you should ask for assistance, team teach with a colleague who is comfortable with the material, or teach a different lesson.
4. Each of the activities in this presentation may take up to minutes.

2. A person or company to whom a debt is owed.
CREDIT DEFINITIONS
Credit
Trust given to another person for future payment of a loan, credit card balance, etc.
Creditor
A person or company to whom a debt is owed.
Write the terms “credit” and “creditor” on the board, flipchart, or blank
transparency, leaving enough space to add words or short phrases around them.
• Ask participants to define the two terms.
• Write down the responses using one-word descriptions, placing these
words around the appropriate term.
Use “Slide 1: Credit Definitions” to be sure all participants understand the vocabulary.
• Credit = Trust given to another person for future payment of a loan,
credit card balance, etc. This person is typically called the “borrower.”
• Creditor = A person or company to whom a debt is owed. This
person or company is typically called the “lender.”
Take each definition, and ask participants to identify the words they feel are
important in understanding and using credit. As the words are identified,
showcase them by underlining or some other method. The key to this
discussion is ensuring that participants recognize the impact of various words within the definitions to the successful use of credit. 2

3. THE FIVE Cs OF CREDIT C = Capacity C = Capital C = Collateral
C = Conditions
C = Character
Ask the participants whether they have heard the expression, “The Five Cs of Credit.” Explain that the five Cs represent characteristics of a person who is a good candidate to receive credit.
Ask participants to share what they think the five Cs represent, and record the
responses. If participants have trouble thinking of “C” words, encourage them to think about any things that would be important in the use of credit, and then help them transfer those terms into “C” terms.
After a brief period of discussion, use “Slide 2: The Five Cs of Credit” to define and discuss each of the five terms. A few talking points might include the following:
Capacity: Capacity to repay is the most critical of the five factors. It is the primary source of repayment — existing cash and your income. Potential lenders also will want to know about other possible sources of repayment, such as investments that can be liquidated if needed to make a repayment.
Capital: Capital is the money you personally have and is an indication of how much you have at risk should you experience job or other income loss.
Collateral: Collateral or guarantees are additional items of value you can provide
the lender. Giving a lender collateral means that you pledge an asset you own, such as your home, to the lender with the agreement that it will be the repayment source in case you can’t repay the loan. A guarantee, on the other hand, is just that — someone else signs a guarantee document promising to repay the loan if you can’t. Some lenders may require such a guarantee in addition to collateral as security for a loan.
Conditions: Conditions describe the intended purpose of the loan. Will the money be used for personal use, a car, a home, or home repairs?
Character: Character is the general impression you make on the prospective lender and is based on your credit report and credit history (your past use of credit). 3

4. 5 Cs
Capacity: Capacity to repay is the most critical of the five factors. It is the primary source of repayment — existing cash and your income. Potential lenders also will want to know about other possible sources of repayment, such as investments that can be liquidated if needed to make a repayment.
Capital: Capital is the money you personally have and is an indication of how much you have at risk should you experience job or other income loss.
Collateral: Collateral or guarantees are additional items of value you can provide
the lender. Giving a lender collateral means that you pledge an asset you own, such as your home, to the lender with the agreement that it will be the repayment source in case you can’t repay the loan. A guarantee, on the other hand, is just that — someone else signs a guarantee document promising to repay the loan if you can’t. Some lenders may require such a guarantee in addition to collateral as security for a loan.
Conditions: Conditions describe the intended purpose of the loan. Will the money be used for personal use, a car, a home, or home repairs?
Character: Character is the general impression you make on the prospective lender and is based on your credit report and credit history (your past use of credit).

5. WHEN TO USE CREDIT
Can you describe a situation when it is a good time to use credit and when it is NOT a good time to use credit?
Ask for a show of hands of who uses credit.
Display “Slide 3: When to Use Credit.” Divide the group into teams of two to three. Ask half of the teams to think of when it is a good idea to use credit, and have the other half think about when it is not a good idea to use credit.
After a few minutes, call time. Ask for one example from each team. As reasons are shared, gather consensus by asking if the full group agrees. Continue until all reasons are shared. Encourage everyone to add the various reasons to their individual slides. Responses may vary but should include some of the following:
When to Use Credit
• Great to have in times of emergencies, family crisis, unexpected illness, etc.
• Could be a convenient way to manage income by keeping track of spending—provided bills are paid in full each month.
• Allows the benefit of having large items such as a home, car, and appliances while still paying for them.
When Not to Use Credit
• Can lead to spending beyond one’s means because it is so convenient and easy to use.
• If one is tempted to live on credit.
• When credit takes away the opportunity to use the income that pays off the credit, which is needed for other things.
• When there is concern that the credit cards and credit account numbers may be stolen and used by others. 5

6. When to use/ not use When to Use Credit
• Great to have in times of emergencies, family crisis, unexpected illness, etc.
• Could be a convenient way to manage income by keeping track of spending—provided bills are paid in full each month.
• Allows the benefit of having large items such as a home, car, and appliances while still paying for them.
When Not to Use Credit
• Can lead to spending beyond one’s means because it is so convenient and easy to use.
• If one is tempted to live on credit.
• When credit takes away the opportunity to use the income that pays off the credit, which is needed for other things.
• When there is concern that the credit cards and credit account numbers may be stolen and used by others.

7. QUESTIONS TO ASK BEFORE USING CREDIT
Questions may vary but should include some of the following:
1. Is this a necessity or luxury item?
2. Do I really need this good or service?
3. Can I meet my obligation to pay for it without hurting my existing cash flow?
4. Do I really understand all of the terms and obligations that I must agree to when purchasing this?
5. Do I realize that this would cost less if I paid cash?
6. Have I really thought about the consequences of making this purchase?
7. Can I repay the debt in a timely fashion to avoid finance charges?
Now that participants have a better understanding of when to use and not to use credit, ask them what questions they should ask themselves before using credit. Use Slide 4 to record the questions.
As questions are added, get consensus from the group. If everyone agrees
that the question is a good one to ask, place a checkmark to the left of it. If
there is doubt about a question, allow for discussion to establish consensus.
Questions may vary but should include some of the following:
1. Is this a necessity or luxury item?
2. Do I really need this good or service?
3. Can I meet my obligation to pay for it without hurting my existing cash flow?
4. Do I really understand all of the terms and obligations that I must agree to when purchasing this?
5. Do I realize that this would cost less if I paid cash?
6. Have I really thought about the consequences of making this purchase?
7. Can I repay the debt in a timely fashion to avoid finance charges? 7

8. WHAT IS A CREDIT SCORE?
A credit score is a number that helps a lender predict how likely an individual is to repay a loan, or make credit payments on time.
A credit score is a number that changes as the elements in a credit report change.
A credit score has broad use and impact. Your credit past is your credit future.
FICO® scores, one of the most common credit scoring systems, vary between 350 and 850.
VantageScoreSM, a new credit scoring system developed by the three credit bureaus, ranges from
Write the term “credit score” on the board, flipchart, or blank transparency.
• Ask participants to define the term.
• Debrief participants by showing “Slide 1: What Is a Credit Score?”
Talking points for Slide 1:
A credit score is a number that tells a lender how likely an individual is to repay a loan, or make credit payments on time. When a lender requests a credit report and score from a credit reporting agency, the score is calculated by a scoring model — a statistical mathematical equation that evaluates many types of information from your credit report at that agency. By comparing this information to the patterns in thousands of past credit reports, scoring identifies your level of credit risk.
There are several different credit scoring models that are used today. Examples of different models include the FICO score, which was developed by Fair, Isaac and Company, Inc. and is used by many mortgage lenders; and the VantageScoreSM, which was developed jointly by the three national credit reporting companies.
FICO scores, which are one of the most common credit scoring systems used by lenders, range between 350 and 850. With these scores, a higher number credit scoring systems consider a variety of factors, such as number of credit accounts, total credit available, amount of outstanding debt and late payment record.
The VantageScoreSM was created in 2006 as a more consistent way for the agencies to develop credit scores. In the past, each credit reporting company used its own formula to create its credit scores. The new system allows each company to use the same formula and create a more consistent credit score. The VantageScoreSM ranges from 501 to 990 and includes a rating system similar to an academic grading system (A-F grades). The higher the score, the more creditworthy a consumer is considered to be.
• Ask participants how their credit score impacts their life.
• Write down responses on flipchart paper.
• Responses may include: to get a loan, to get a job, to get an apartment, to get a mortgage loan, to get homeowner’s insurance, and to get car insurance.
Discuss the broad use and impact of credit scores. In addition to banks and lenders, there are landlords, employers, merchants, and even insurance companies that are also using credit scores.
Discuss the following example of how credit scores can impact how much you pay for car insurance:
To most, it seems that credit histories and driving records have little in common. Insurers, on the other hand, have found that using credit scores to predict how likely someone is to pay premiums has helped them cut their losses. They don’t use the same score that banks and lenders use. Instead, they use an insurance score, which is generated based on a slightly different formula. According to the American Insurance Association, having a good insurance score does not necessarily mean you are a good driver or a more responsible homeowner. however, research has shown that consumers with better insurance scores generally file fewer claims and have lower insurance losses. Insurers’ use of credit histories to determine rates is under scrutiny nationwide. 8

9. Notice: No mention of salary!!!!
WHAT MAKES UP A TYPICAL
CREDIT SCORE?
Notice: No mention of salary!!!!
Ask participants whether they know what factors make up a credit score. As participants name each of the five components listed below, write it on flipchart paper and then discuss it using the following talking points.
Show “Slide 2: What Makes Up a Typical Credit Score?”
Different credit scoring models may use slightly different formulas to determine what makes up a credit score. however, the following information from Fair, Isaac and Company offers a useful guide for understanding how credit scores are compiled.
Talking points:
• Payment History accounts for 35% of your credit score — Some of the factors included in this category are: account payment information; the presence of adverse public records such as bankruptcy, judgments, or lawsuits; how long payments are past due; and the amounts that are past due.
• Amounts Owed account for 30% of your credit score — Some of the factors included in this category are: how much you owe on your accounts, the number of accounts with balances, and the proportion of balances to total credit limits.
• Length of Credit history accounts for 15% of your credit score — Some of the factors included in this category are: the time since accounts were opened and the time since account activity.
• New Credit accounts for 10% of your score — Some of the factors included in this category are: the number of recently opened accounts and the number of recent credit inquiries.
• Types of Credit used account for 10% of your score – Some of the factors included in this category are: the number and types of accounts that you have open (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)
Source: Fair Isaac and Consumer Federation of America, 2005 9

10. IMPROVING YOUR CREDIT SCORE
Pay bills on time.
Get current and stay current.
Don’t open a lot of new accounts too rapidly.
Correct mistakes.
Shop for loan rates within a focused period of time.
Keep balances low on revolving credit.
Pay off debt.
Check your credit report.
Divide the group into teams of two to three. Ask the teams to think about ways to improve their individual credit scores. Have them write down their suggestions.
After a few minutes, call time. Display ”Slide 3: Improving Your Credit Score.” Ask the teams whether they came up with any of the suggestions listed on the slide.
• Pay bills on time. The best thing you can do to improve your score is to pay your bills on time. You can begin to improve your credit history immediately by making at least the minimum payments on time. Delinquent payments and collections can have a significant negative impact on your score.
• If you have missed payments, get current and stay current. The longer history you have of paying your bills on time, the better your score will be.
• If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age or the length of time you have the account. People who have had accounts for longer periods of time and have paid them on time tend to have higher scores. Additionally,
if you open up several new accounts rapidly, it will appear that there is a risk of you utilizing all of this new credit. Thus, this additional credit could lower your score.
• Correct mistakes. Your credit score is a reflection of the information in your credit report. If your credit report contains negative information, it will negatively impact your credit score regardless of whether or not the information is accurate. Review your reports from all three credit bureaus for accuracy once a year, as well as several months before applying for a loan. If you discover inaccuracies in your report, follow the procedure to correct the information.
• Do your rate shopping for a loan within a focused period of time. Some scores, such as FICO scores, distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. For example, some scores count all rate inquiries for car loans or mortgage loans in a two-week period as one inquiry.
• Keep balances low on credit cards and other “revolving credit.” High outstanding debt can negatively affect a score.
• Pay off debt rather than moving it around. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
• Remember, it’s okay to request and check your own credit report. When you request your own report, it is considered a consumer inquiry. This won’t affect your score, as long as you order your credit report directly from one of the credit-reporting agencies or through an organization authorized to provide credit reports to consumers.
Now that participants have a better understanding of how to improve their credit scores, ask them whether they learned anything new about strategies to improve their credit scores. 10

11. TYPES OF CREDIT Cash Credit: Receiving money as a loan.
Sales Credit: Buying goods and services now with the promise to pay for them in the future.
Secured Credit: Requirement to promise something of value to guarantee repayment of credit.
Revolving Credit: A predetermined line of credit that is constantly renewed as it is repaid.
I.O.U.: A written promise to pay a debt.
Single Payment Credit: Buying goods and services now with the promise to pay “in full” at a predetermined time.
Installment Credit: Buying goods and services with the agreement that payment will be made at fixed intervals over a period of time, with each payment carrying interest charges.
Other Types of Credit: Utility bills, rent, and similar payments that can negatively impact your credit if not paid.
Consider providing copies of this handout, which can be found in the Citigroup Financial Education Curriculum:
“Credit”, p.39.
Use “Slide 1: Types of Credit” to build an awareness of the different types of credit available to consumers.
Cash Credit: Receiving money as a loan.
Sales Credit: Buying goods and services now with the promise to pay for them in the future.
Secured Credit: Requirement to promise something of value to guarantee repayment of credit.
Revolving Credit: A predetermined line of credit that is constantly renewed as it is repaid.
I.O.U.: A written promise to pay a debt.
Single Payment Credit: Buying goods and services now with the promise to pay “in full” at a predetermined time.
Installment Credit: Buying goods and services with the agreement that payment will be made at fixed intervals over a period of time, with each payment carrying interest charges.
Other Types of Credit: Utility bills, rent, and similar payments that can negatively impact your credit if not paid.
• Caution participants that lenders often have unique names for their credit options, so participants will not always see these exact terms. Therefore, it is their responsibility to know the descriptions and ask questions prior to making any commitment.
• Hold up sample applications to illustrate the types of available credit. Do not distribute at this point; a sample application will come into play later in the activity. 11

12. What are other sources of credit?
Banks
Credit
Unions
Retail
Stores
Finance
Companies
Savings & Loan
Associations
Internet
Stores
Ask for a show of hands of participants who have applied for credit.
• Ask them how stressful they felt it was to apply for credit, on a scale of 1 to 5, with 1 being low and 5 being high.
• Informally encourage participants to share some of their experiences.
• In discussions such as this, be careful not to pass judgment on any
contribution made by participants.
Ask those participants who have applied for credit to share where they went to obtain credit. Allow for a few responses to establish a participatory
environment and then move to the next step.
Use “Slide 2: Sources of Credit” to identify places that an individual
can go to obtain credit.
• The slide lists six sources. Encourage participants to add additional sources.
• Be careful not to pass judgment on sources that are recommended.
• Responses will vary but should include some of the following: consumer finance companies, insurance policies, check-cashing stores, family and friends.
• Before moving on, ask the question at the bottom of the slide, “What sources should a person avoid when seeking credit?”
• Next, you will discuss the dangers of loan sharks, cash advances from credit cards, pawnbrokers, and other such operations. These sources provide credit with particularly high interest rates and make it difficult, if not impossible, to build wealth.
What are other sources of credit?
What sources of credit should be avoided? Why? 12

13. STEPS TO TAKE TO AVOID ABUSIVE LENDING
Have you shopped around for the best deal?
Do you feel the lender pressured you to take the loan?
Do you understand the terms of the loan?
Ask the questions:
• Are all credit sources reliable?
• Should all credit sources be trusted?
Encourage discussion. Take care to avoid too many “war stories” from participants.
Tell participants that they will soon look at a sample credit application. Beforehand, though, they will become aware of warning signs of unfair lending practices that may or may not be readily visible. They want to be aware of these dishonest practices before they get into trouble with one of them.
Display “Slide 3: Steps to Take to Avoid Abusive Lending.” Cover the content with participants so that they are aware of what to watch out for and what to do if they are targeted. These steps can also be applied to predatory lending.
1. Have you shopped around for the best deal?
Rates, fees, costs, etc. vary depending on the financial institution, the type of loan, your credit history, your ability to repay, etc. Call around to several financial institutions, explain what you want, and discuss interest rates, fees, options, etc., that are available.
2. Do you feel the lender pressured you to take the loan?
A loan is abusive if the lender charges more than a reasonable amount for your loan. Many times, the lender uses aggressive sales techniques to pressure the individual. A “good deal” today should be a “good deal” tomorrow. Talk to people you trust and ensure that the rate promised to you verbally is the same rate printed on the loan document itself.
3. Do you understand the terms of the loan?
NEVER sign any agreement that you do not understand. If you do not receive a satisfactory answer to your question, ask someone you trust to review the document and give you advice. BEFORE you agree to any loan, read the fine print; make sure you understand all of the terms and conditions of the loan.
After the discussion, encourage participants to check carefully for such practices before agreeing to any type of credit. 13

14. COMMON PARTS OF A CREDIT APPLICATION Reason for Loan
Personal Identification Information
Employment Information
Mortgage/Rental Information
Documentation Required (for some applications)
Current Debts
Credit References
Collateral (for some applications)
Bank References
Signature and Date
Display “Slide 4: Common Parts of a Credit Application and Sample Credit Application.”
• Explain that the group will use the slide to compare and discuss
information on typical credit applications.
• Emphasize that the information may be located in different physical spaces on different applications. The placement is the creditor’s choice, and is not mandated by law.
Move through the slide by identifying each section and allowing participants sufficient time to locate the information on the sample application (on the second page of the slide).
• Respond to questions they raise and encourage discussion. 14

15. QUESTIONS TO ASK WHEN APPLYING FOR CREDIT
What is the annual fee?
What is the annual percentage rate (APR)?
When are payments due?
What is the minimum payment required each month?
Is there a grace period?
Are there other fees associated with the credit, such as minimum finance charges?
What is the credit limit?
What are the penalties for late or missed payments?
What are the terms and conditions of the credit? What else is included in the fine print?
Stress that although all creditors are required to provide the applicant with
information about the loan, it is also the applicant’s responsibility to ask
questions before making any commitment.
• Use “Slide 6: Questions to Ask When Applying for Credit” to
emphasize those types of questions.
• Ask participants whether additional questions should be asked. Add
those questions to the list. 15

16. Maintaining Good Credit
Overview
Debt to income thermometer
Credit process
Credit reporting agencies
Credit safeguards for consumers
Credit reports, ratings and scores
Establishing a credit history
Review the topics for discussion in this activity:
Debt to income thermometer
Credit process
Credit reporting agencies
Credit safeguards for consumers
Credit reports, ratings and scores
Establishing a credit history 16

17. DEBT-TO-INCOME THERMOMETER
Explain that it is not difficult for anyone to become overwhelmed by debts,
especially with the rising costs of groceries, housing, gasoline, and clothing.
All of these are very basic costs but don’t include providing for emergencies
or even the opportunity for a special dinner, a trip to the movies, etc.
Display “Slide 1: Debt-to-Income Thermometer.” Walk participants through each stage of the debt-to-income thermometer, explaining how to determine whether or not you may have too much debt. Refer to the following example of a family with an annual income of $40,000. Explain that this is an example only and actual effects vary depending on a variety of circumstances. These scenarios should include housing payments.
Annual household income: $40,000
Debt Percent Comment
If their annual debt is: $24, % Danger
$16, % High
$12, % Fair
$8, % Good
$6, % Great 17

18. THE CREDIT PROCESS CREDIT HISTORY • CREDIT BUREAU CREDIT REPORT
CREDIT SCORE
CREDIT RATING
Continue to the next topic by explaining that credit is often discussed from the creditor’s viewpoint—what will protect the creditor when granting credit to individuals. Despite this, consumers have historically received substantial protection.
Use “Slide 2: The Credit Process” to introduce the idea that many things in the credit process are interrelated when it comes to an individual’s credit records.
• Ask participants whether they recognize the terms on the slide.
• Keep Slide 2 where participants can see and refer to it.
CREDIT HISTORY
• History of an individual’s record of paying debts.
• Reflects “The Five Cs of Credit” (Capacity, Capital, Collateral, Conditions, Character).
• One’s credit behavior affects one’s ability to get credit into the future.
CREDIT BUREAU
• A business that collects information on the credit history of individuals and sells that information to potential creditors, employers, and insurance companies.
• Receives information from various places where individuals do business.
CREDIT REPORT
• Financial information collected by businesses and used by lenders to determine
creditworthiness of individuals.
• Contains personal and employment history on an individual.
• Includes payment history of all debts by an individual.
• Credit reporting companies do not make the decision about creditworthiness; they only supply the information. Lenders make the decisions.
• Individuals, potential employers, and potential landlords can contact credit reporting companies for a copy of their credit report.
• Credit Reporting Companies:
• Equifax
• Experian EXPERIAN
• TransUnion
CREDIT SCORE
A numerical rating based on credit report information that represents a person’s level of creditworthiness.
CREDIT RATING
• A ranking, generally between A and F, given to an individual by a credit reporting agency, specifically as it relates to an individual’s ability to pay debts.
• Reflects past performance in paying debts.
• Projects future performance in paying debts.
• Positive rating may allow an individual to receive favorable consideration in loans and credit cards, such as lower interest rates. 18

19. SAMPLE CREDIT REPORT
Consider providing copies of the credit report handout, which can be found in the Citigroup Financial Education Curriculum: “Credit”, pp. 53.
Display “Slide 3: Sample Credit Report.” Move through the sample report, discussing the purpose of the following areas on the report:
• Individual personal information (name, address, birth date, Social Security Number, etc.)
• List of creditors
• Date credit opened with each creditor
• Most recent reporting date
• Type of credit received from each creditor
• Credit limit
• High balance
• Current balance
• Status of payment (never late, missed payments, etc.) Stress that errors do happen; therefore, participants should maintain oversight of their credit reports. If they find an error, which is not uncommon, they should have it corrected as soon as possible. 19

20. CREDIT SAFEGUARDS FOR CONSUMERS
Truth In Lending Act
Consumers must be fully informed about cost and conditions of borrowing.
Fair Credit Reporting Act
Protects the privacy and accuracy of information in a credit report. Makes an individual’s credit files available to him or her.
Equal Credit Opportunity Act
Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance.
Fair Credit Billing Act
Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts.
Fair Debt Collection Practices Act
Prevents abuse by professional debt collectors; applies to anyone employed to collect debts. Generally does not apply to banks or other businesses collecting their own debts.
Display “Slide 4: Credit Safeguards for Consumers.”
• Move through the slide, and review the legal protections that consumers have when using credit.
• Encourage everyone to keep the slide as a reference for future credit use.
Truth In Lending Act
Consumers must be fully informed about cost and conditions of borrowing.
Fair Credit Reporting Act
Protects the privacy and accuracy of information in a credit report. Makes an individual’s credit files available to him or her.
Equal Credit Opportunity Act
Prohibits discrimination in giving credit on the basis of sex, race, color, religion, national origin, marital status, age, or receipt of public assistance.
Fair Credit Billing Act
Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts.
Fair Debt Collection Practices Act
Prevents abuse by professional debt collectors; applies to anyone employed to collect debts. Generally does not apply to banks or other businesses collecting their own debts. 20

21. THE FAIR AND ACCURATE CREDIT TRANSACTION ACT
One of the primary objectives behind the Fair and Accurate Credit Transaction Act (the FACT Act) is to help consumers fight the growing crime of identity theft. The following are some highlights of the Act.
Free credit reports
Fraud alerts and Active Duty alerts
Truncation: credit cards, debit cards, Social Security Number
Red flags
Disposal of consumer reports
Credit scores
Display “Slide 5: The Fair and Accurate Credit Transaction Act.“
Discuss the following points:
• One of the objectives of the Fair and Accurate Credit Transaction Act (the FACT Act) is to help combat identity theft.
• This act provides consumers with a free credit report each year. Credit
scores are available for a fee.
• Consumers who have been victimized by identity thieves can place an alert in their credit file so creditors will be cautious about issuing new credit.
• Over the next few years, account information, such as complete account numbers, will no longer be printed on receipts.
• Financial institutions are adopting procedures to spot identity theft.
• Policies have been developed for businesses to properly dispose of consumer reports. 21

22. THINGS TO DO TO ESTABLISH AND MAINTAIN GOOD CREDIT
What can everyone do to establish and maintain good credit?
Always pay your bills on time.
• Have checking and savings accounts that are current.
• Avoid late fees.
• Get a copy of your credit report every year. Check to make sure it is
accurate, and report any problems with it immediately.
• Do not live off credit or be tempted to use credit to spend beyond your means.
• Use credit card numbers only when you are sure the transaction is secure.
Use “Slide 6: Things to Do to Establish and Maintain Good Credit” as a closure.
Responses may vary but should include items such as:
• Always pay your bills on time.
• Have checking and savings accounts that are current.
• Avoid late fees.
• Get a copy of your credit report every year. Check to make sure it is
accurate, and report any problems with it immediately.
• Do not live off credit or be tempted to use credit to spend beyond your means.
• Use credit card numbers only when you are sure the transaction is secure. 22

23. Credit Cards Overview Types of credit cards Shopping for a credit card
Costs of credit
Review the topics for discussion in this activity:
• Types of Credit Cards
• Shopping for a Credit Card
• Costs of Credit 23

24. TYPES OF CREDIT CARDS Private Label Issued by a single source
Can only be used at a single source
Examples: Department Stores, Gasoline Companies
General Label
Can be used in many places
Examples: Bank Card, Major Credit Card
Use “Slide 1: Types of Credit Cards” to explain the difference between the two types of cards.
• Be prepared to cite local examples of department store cards and gas cards. have specific examples of bank and major credit cards that your audience will know, such as MasterCard, Visa, Discover, and American Express.
• Consider the audience, and if appropriate, ask the participants to look at the credit cards in their wallets to determine whether they have the two kinds of credit cards. 24

25. SHOPPING FOR A CREDIT CARD
DECISIONS, DECISIONS...
ANNUAL FEE?
APR?
COMPUTATION METHOD?
GRACE PERIOD?
FINANCE CHARGE?
CREDIT LIMIT?
CARD INCENTIVES?
Ask for a show of hands of who has a credit card. Ask the following questions:
• Why do you have a credit card?
• When did you decide to use a credit card?
• Has a credit card been good or bad for you? Why?
• How did you get a credit card?
• Would you recommend a credit card to others? Why?
Ask those who have credit cards to share the questions they asked the lender before accepting a credit card. Responses will vary, but research tells us that the majority of individuals never ask critical questions about the use of a credit card before accepting its use.
Use “Slide 2: Shopping for a Credit Card” to illustrate some of the
many topics that should be discussed before accepting a credit card. The
definitions will be covered later in the activity. For now, ask for general
definitions from participants. 25

26. QUESTIONS TO ASK WHEN SHOPPING FOR A CREDIT CARD
Annual fee
Annual percentage rate (APR)
Minimum payment
Computation method
Grace period
Finance charges
Card incentives
Display “Slide 3: Questions to Ask When Shopping for a Credit
Card.”
• Define the terms and have participants determine what questions they should ask when shopping for a credit card.
• Encourage participation with this exercise, as it will be extremely helpful to all individuals who accept credit cards.
• Encourage participants to write their questions in the space provided
and to use them as a reference if they shop for a credit card. Sample
questions can include the following:
- Annual Fee: How much is the annual fee and when is it charged?
- APR: What is the APR and can it increase?
- Minimum payment: When is it due?
- Computation method: How is it calculated?
- Grace period: Is there a grace period and how long is it?
- Finance charges: When are they charged?
- Card incentives: What are the restrictions on incentives?
Ask participants to share advice on how to keep credit cards safe. Even
participants who do not have credit cards can provide advice. 26

27. COSTS OF CREDIT
How much can credit cost? If you make only the minimum payment for an item, here are some examples of what you might actually pay and how long it will take you to pay it.
While participants are thinking about getting a credit card, it’s important that they also think about how they will pay for the items they purchase with a credit card. Display “Slide 4: Costs of Credit” to show participants how much an item could cost if they make only the minimum payments. Point out that “true cost” and time can be less than indicated in the chart if they make larger payments or pay the full balance; or the “true cost” and time can be greater if they miss payments.
*Assumptions:
1. No additional sales 2. Customer is paying minimum due only (assuming 2.5% of payment rate for interest calculation). 3. Payment is made on time. 4. Minimum is the positive amortization scenario, maximum of financial charge + late fee + 1% and $20, with a floor of 1.5%.
Discuss default pricing as another cost of credit. Most credit card companies
have what is called “default pricing”, the terms of which are disclosed in all
credit card agreements. Default pricing goes into effect when a customer
defaults on the agreement, for example, by failing to pay the minimum
amount due by its due date. It can result in the credit card company raising
the interest rate (or APR) on that customer’s account. Failing to make at
least minimum due payments on time can reflect negatively on one’s credit
score and can ultimately cost the customer more when using credit.
Encourage the students to always read credit agreements before signing
them. If they have any questions, they should either ask the credit card
company to clarify or ask someone they trust. And, as always, emphasize the importance of making timely payments. 27

28. Managing Credit Challenges
Overview
Warning signs of credit abuse
Credit card reductions
Correcting credit errors
Resources and assistance
Review the topics for discussion in this activity:
Managing Credit Challenges
• Warning signs of credit abuse
Credit card reductions
Correcting credit errors
• Resources and Assistance 28

29. MEASURING THE SERIOUSNESS OF CREDIT TROUBLE SIGNS
Rate how serious you think each of the following trouble signs is.
1 = Not Serious = Very Serious
Trouble Signs
Display “Slide 1: Measuring the Seriousness of Credit Trouble
Signs.” Review the slide to make sure everyone understands the directions. Some terms may be unfamiliar to participants. Discourage any discussion at this point, but encourage participants to do their best in estimating the level of seriousness.
• Facilitators should note that all of the trouble signs should be marked 4. The task’s objective is to emphasize that all trouble signs are serious and there are no lesser degrees of trouble signs.
• Allow participants a few minutes to complete the slide.
• Call time, and then move through the items listed in the chart as you ask for responses. Encourage participants to support their responses with reasons.
• Ask participants for additional trouble signs. Responses will vary.
• When all items have been covered, explain that it was not a trick activity but rather designed to show that all trouble signs are critical and should be treated with utmost seriousness.
Explain that since everyone has some familiarity with credit problem
trouble signs, it would be important to discuss each so that such signs are
recognizable.
Delinquent Payments
Default Notices
Repossessions
Collection Agencies
Lien
Garnishment
Others? 29

30. WARNING SIGNS OF DEBT PROBLEMS
Delinquent Payments
Default Notices
Repossessions
Collection Agencies
Judgment Lien
Garnishment
Explain that since everyone has some familiarity with credit problem trouble signs, it would be important to discuss each so that such signs are recognizable.
Display “Slide 2: Warning Signs of Debt Problems.”
• Move through the categories, and provide a brief explanation.
• Encourage discussion.
1. Delinquent Payments
Written notices that credit payments are overdue.
2. Default Notices
If delinquent payments are not acknowledged, written notices are sent from the creditor warning that more serious steps will be taken if credit is not paid.
3. Repossessions
When the creditor takes back an item that has been purchased, because of nonpayment.
4. Collection Agencies
When a creditor has not received any response to written notices of nonpayment, the account can be turned over to a business that specializes in collecting unpaid debts.
5. Judgment Lien
When a creditor has received no response from previous attempts to collect a debt, the creditor may be able to obtain a court order placing a claim on property or other types of security owned by the individual to recover the costs of the debt.
6. Garnishment
If the borrower does not pay the credit bills, the creditor may be able to obtain a court order requesting that an employer deduct a percentage of the employee’s paycheck and send it to the creditor before the paycheck is given to the employee.
Ask the participants to raise their hands if they believe that the minimum payment due is the only amount due on their credit card balance. Respond by letting them know that this is FALSE.
You actually owe the full balance and you’ll owe interest on any portion of the balance that you don’t pay.
Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment. While paying the minimum amount due keeps your credit history clean, it also costs you more.
Many national banks and credit card issuers are increasing their monthly payment requirements. This industry-wide change comes at the recommendation of industry regulators and is intended to help customers pay down their balances more quickly. Credit card issuers work with regulators on a regular basis to ensure that their practices are in the best interest of consumers. This change in the minimum payment due is an example of that. Minimum due requirements vary from 2% to 4%.
If you only pay the minimum amount due each month, you will not only pay more in finance charges but it will take you longer to pay off the debt. 30

31. CREDIT CARD REDUCTIONS
Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment.
Paying the minimum amount due keeps your credit history clean, but it also costs you more.
Display “Slide 3: Credit Card Reductions” and walk participants
through the example. Note that the example shows how much money you
can save by increasing the amount of the fixed monthly payments you make.
In the example, if you make fixed monthly payments of $105, it would take
you a little over three years to be rid of your debt. However, if you pay only the minimum each month, your first payment would be $55, but your subsequent payments would decrease slightly each month and thus delay the payoff of the debt. In that instance, it would take you more than 13 years to be rid of your debt.
Explain that it is important to take charge of your credit by paying more than the minimum payment and by regularly monitoring your credit report. Errors do occur in credit reports, so it is important to review your report at least once a year. 31

32. CORRECTING CREDIT ERRORS
Circle the incorrect items on your credit report.
Write a letter to the reporting agency, telling them which information you think is inaccurate. Provide supporting documentation.
Send all materials by certified mail.
Send a similar letter to the creditor whose reports you disagree with.
The reporting agency will conduct an investigation.
If negative information is accurate, it can stay on your report for 7-10 years.
Display “Slide 4: Correcting Credit Errors,” which describes the steps to take to correct errors and includes a sample dispute letter. Tell participants to take notes on Slide 4 and refer to them if they find errors in their credit report.
Make a copy of your credit report and circle every item you believe is incorrect.
2. Write a letter in English to the reporting agency (the address will be printed on
the report). Tell the consumer reporting company, in writing, what information you think is
inaccurate. Include copies (NOT originals) of documents that support your position. Explain each
dispute and request an investigation to resolve the issues.
3. Send all materials by certified mail, return receipt requested, so that you can
prove the packet was received.
4. Send a similar letter of dispute to the creditor whose reports you disagree with.
5. The reporting agency will initiate an investigation, contacting your creditors to
verify the accuracy of the information. If the creditor cannot verify that the entry is correct, it
must be removed. When the investigation is complete, the agency must send you a free copy of
your report if changes were made.
6. If the investigation uncovers an error, you have the right to ask that a corrected
version of your credit report be sent to everyone who received the report during the past six
months.
7. If an investigation doesn’t resolve your dispute with the consumer reporting
company, you can ask that a 100-word statement of the dispute (either written by you or the
consumer reporting company) be included in your file and in future reports. The credit-reporting
agency must include this explanation in your report each time it sends it out.
8. Keep in mind that when negative information in your report is accurate, only the passage of
time can assure its removal. Accurate negative information can generally stay on your report for
seven years. Bankruptcies can remain on a credit report for up to ten years. 32

33. CORRECTING CREDIT PROBLEMS
Take responsibility for actions.
Communicate with creditors.
Debt Consolidation
Credit Counseling
Bankruptcy
Unfortunately, sometimes the negative information in a report is not due to an error. If this is the case, there is nothing you can do to remove the negative information if it is accurate. However, there may be some credit problems that need to be corrected.
Display “Slide 5: Correcting Credit Problems.”
• Move through the steps and provide a brief explanation.
• Encourage discussion.
Take responsibility for actions.
Examine spending patterns; recognize ways to correct bad habits. Establish a plan of action for getting out of debt, and stick with it.
Communicate with creditors.
Contact creditors to let them know there are temporary financial problems; request an adjustment in payment schedule.
Debt Consolidation
. Consolidate, or merge, several debts into one new loan with manageable payments.
. Do not continue to take on more debt.
. Beware of unscrupulous debt consolidators. Shop around for the best deal.
Credit Counseling
Get professional guidance from trained individuals. Credit counselors will work with an individual to get him or her out of debt and establish a sound financial management plan. See the appendix of this curriculum for information on credit counselors.
Bankruptcy
Bankruptcy should be the last step for anyone; a person files with the court to be released from debts. Filing for bankruptcy seriously affects one’s ability to obtain credit in the future.
• Chapter 7: Most serious of the two types of bankruptcy; when the property of a debtor is sold, and the money obtained is used to pay off creditors.
• Chapter 11: When the debtor is allowed to keep property, but develops a plan of action that the court approves for repaying debts.
• Chapter 13: In this type of bankruptcy, the debtor keeps all of his or her property and makes regular payments on the debt after filing for bankruptcy. 33

34. Correcting Credit Problems
Take responsibility for actions. Examine spending patterns; recognize ways to correct bad habits. Establish a plan of action for getting out of debt, and stick with it. Communicate with creditors. Contact creditors to let them know there are temporary financial problems; request an adjustment in payment schedule. Debt Consolidation . Consolidate, or merge, several debts into one new loan with manageable payments. . Do not continue to take on more debt. . Beware of unscrupulous debt consolidators. Shop around for the best deal. Credit Counseling Get professional guidance from trained individuals. Credit counselors will work with an individual to get him or her out of debt and establish a sound financial management plan. See the appendix of this curriculum for information on credit counselors. Bankruptcy Bankruptcy should be the last step for anyone; a person files with the court to be released from debts. Filing for bankruptcy seriously affects one’s ability to obtain credit in the future. • Chapter 7: Most serious of the two types of bankruptcy; when the property of a debtor is sold, and the money obtained is used to pay off creditors. • Chapter 11: When the debtor is allowed to keep property, but develops a plan of action that the court approves for repaying debts. • Chapter 13: In this type of bankruptcy, the debtor keeps all of his or her property and makes regular payments on the debt after filing for bankruptcy.