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Credit Counseling & Repair The National Economics Department Financial Freedom Campaign NAACP The National Economics Department Financial Freedom Campaign.

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Presentation on theme: "Credit Counseling & Repair The National Economics Department Financial Freedom Campaign NAACP The National Economics Department Financial Freedom Campaign."— Presentation transcript:

1 Credit Counseling & Repair The National Economics Department Financial Freedom Campaign NAACP The National Economics Department Financial Freedom Campaign NAACP

2 Agenda What is Credit? Pros & Cons Types of Credit Understanding Financial Institutions Importance of Building Credit Credit Building V.S. Non Credit Building What is Predatory Lending Understanding Credit Scores & Credit Reports

3 What is CREDIT? Credit: Money you borrow and plan to repay. It allows you to make a purchase without having to pay the entire price at once. Interest: Is the cost of borrowing money.

4 Know the FACTS Pros Credit Costs $$$Credit =TemptationEasy to lose track Cons Helpful for Emergencies Its ConvenientIncreased purchasing power

5 Types of Credit Revolving Credit: Allows you to borrow money at any time up to a set limit. The most common types are credit cards. Installment Credit: A loan that must be repaid over a specific period of time. This type of credit is common for larger purchases such as a home, car, or education. Non-installment or Service Credit: Allows you to pay for a used service at a later date usually without an interest charge. (i.e. A utility bill)

6 Types of Credit Continued Secured Credit: Requires you to provide something of value to guarantee that you will repay your debt. It is usually used for installment loans. If you fail to repay, the lender takes your item as repayment Unsecured Credit: Does not require a guarantee (collateral)

7 Understanding Financial Institutions Financial Institutions: Establishments that provide services, such as investments, loans and deposits. Some offer Depository Services, which means that you are able to open a checking and savings account Federal Deposit Insurance Corporation (FDIC) & National Credit Union Share Insurance Fund (NCUSIF) = Government backed insurance for your funds Financial Institutions: Establishments that provide services, such as investments, loans and deposits. Some offer Depository Services, which means that you are able to open a checking and savings account Federal Deposit Insurance Corporation (FDIC) & National Credit Union Share Insurance Fund (NCUSIF) = Government backed insurance for your funds

8 The Importance of Building Credit TO GET HAVE NOT ALREADY ESTABLISHED Its hard TO GET credit if you HAVE NOT ALREADY ESTABLISHED a credit history. RESPONSIBLE Without a history, Lenders cant tell if you are RESPONSIBLE with your money (by paying your bills on time, etc.) or not. NECCESSARY Building credit is NECCESSARY to proving your creditworthiness. TO GET HAVE NOT ALREADY ESTABLISHED Its hard TO GET credit if you HAVE NOT ALREADY ESTABLISHED a credit history. RESPONSIBLE Without a history, Lenders cant tell if you are RESPONSIBLE with your money (by paying your bills on time, etc.) or not. NECCESSARY Building credit is NECCESSARY to proving your creditworthiness.

9 Ways To Build Your Credit Apply for a secured credit card – Your credit card limit will match the amount you have deposited into an account. Use a co-signer – The co-signers good credit will serve somewhat like an insurance for your credit behavior Use retailer programs – (i.e. Gas Station Cards, etc) They are generally easier to qualify for and can help you to establish a credit record. Get a credit card with a reputable credit building institution – An institution that will protect and help you to grow your money.

10 Credit Building Lending MissionCredit Building Advantages Banks These for-profit financial institutions are the largest source of deposits and credit in the economy. Protects your money The money you deposit in a bank is 100% insured (up to $250,000) by the Federal Deposit Insurance Corporation (FDIC) which means if anything ever happens to the bank, your money will be returned to you Helps increase your money Generally, when you open a deposit account with a bank, you earn money called interest Banks offer different interest rates on accounts, but the longer you keep your money in your account, the more interest your account earns Offer helpful services i.e. Special Savings Plans for College, or Special Rates on a Car loan, etc. Bank accounts make you think twice about how you spend your money Having to make a trip to the bank, write checks, or use the ATM becomes a conscious decision to spend Your moneys there when you need it, but by thinking about your purchase, you can save more, ultimately, by making wiser decisions

11 Credit Building Lending MissionCredit Building Advantages Credit Unions These nonprofit cooperative financial institutions exist to serve their members financial needs. Credit Union benefits include the following: Typically offer free accounts with no minimum balance requirements. Interest rates on savings, certificates of deposit, and some checking accounts are often higher than those offered by banks. Also, interest charged for loans and credit are often lower. In fact, some credit unions are regulated such that the interest rate on loans and credit cards must not exceed a certain rate.

12 Non- Credit Building Lending MissionCredit Products & Terms Alternative Finance Services These for- profit businesses make consumer and commercial loans. They focus on servicing customers with poor credit histories Alternative Finance Services usually charge higher interest rates and more fees then Traditional Lenders. Loans are often short term Common Examples: Payday Loans Car Title Loans Tax Refund Anticipation Loans

13 What is Predatory Lending?

14 Predatory Lending Cont. Take the following steps to avoid predatory lenders Turn away loan offers from anyone who calls you on the telephone, comes to your door or send you s without invitation. Be wary of high pressure sales pitches, such as claims that an offer is only good for a limited time Consult with a local nonprofit or consumer credit counseling agency whenever possible Avoid loans that include extras that you do not need Try to read all documents before signing Investigate Interest Take the following steps to avoid predatory lenders Turn away loan offers from anyone who calls you on the telephone, comes to your door or send you s without invitation. Be wary of high pressure sales pitches, such as claims that an offer is only good for a limited time Consult with a local nonprofit or consumer credit counseling agency whenever possible Avoid loans that include extras that you do not need Try to read all documents before signing Investigate Interest

15 Ask yourself…. I need want I s this purchase a need or a want? D D o I really need the item right now, or can I wait until I have the cash? H H ow much do I have to pay to borrow this money? H H ow will this credit payment affect my household budget each month? W i W ill I still have this item when I finish paying for it? S hould I go home and sleep on my decision before using my credit to make a purchase?

16 The Credit Score A Credit Score: is used to predict how likely an individual is to repay a new loan based on the financial institutions experience with consumers. – There are various computer models used. In general the computer model assigns points to information on a credit report A FICO Score: The credit scores used by the credit bureaus are produced from a software developed by the Fair Isaac and Company.

17 U.S. Credit System Public RecordsCreditors Collection Agencies Credit Bureaus/Inquiries Data Furnishers TransUnionEquifax Experian

18 The FICO Score: Factors that influence credit 35% 35% Payment History 30% 30% Amounts Owed 15% 15% Length of Credit History 10% 10% New Credit 10% 10% Type of Credit in Use

19 Racial Credit Score Disparities

20 Racial Disparities in Credit Scores Fair Isaac: The percentage of individuals from high minority areas with relatively low credit scores was twice as large as the share of individuals from other areas Federal Reserve: Fewer than 40% of consumers who lived in high- minority areas had credit scores over 701, while nearly 70% of consumers who lived in mostly white neighborhoods had scores over 701 Harvards Joint Center for Housing: Median credit score for whites in 2001 was 738, but for Blacks it was 676 and Hispanics it was 670 Freddie Mac: Blacks were three times as likely and Hispanics twice as likely to have FICO scores below 620 as whites Fair Isaac: The percentage of individuals from high minority areas with relatively low credit scores was twice as large as the share of individuals from other areas Federal Reserve: Fewer than 40% of consumers who lived in high- minority areas had credit scores over 701, while nearly 70% of consumers who lived in mostly white neighborhoods had scores over 701 Harvards Joint Center for Housing: Median credit score for whites in 2001 was 738, but for Blacks it was 676 and Hispanics it was 670 Freddie Mac: Blacks were three times as likely and Hispanics twice as likely to have FICO scores below 620 as whites

21 The Credit Report: Explored Credit Report: A record of how you have paid your credit card debt and other loans. It reflects the following: – How much debt you have – If youve made your payments on time – Whether or not youve paid back your loans

22 The Credit Report: Explored Credit reports are complied by national credit reporting agencies called credit bureaus There are three Credit Bureaus: – TransUnion – Equifax – Experian

23 Credit Report: Explored Note: There are multiple credit scores available for you. Different scoring models are used with different institutions (Vantage Scoring System v. FICO Scoring system). The FICO score is the most commonly used one, as it is the one used by the three credit bureaus.

24 The Credit Report: Explored Information typically included: Indentifying Information – Name, Address, Social Credit Information – Dates opened, credit limits Public Record Information – Bankruptcy, Foreclosures Inquiries – Others who looked at report Indentifying Information – Name, Address, Social Credit Information – Dates opened, credit limits Public Record Information – Bankruptcy, Foreclosures Inquiries – Others who looked at report Common errors on the report Duplicate Information Uninvited Inquiries Items that should no longer be listed on your credit report

25 Want GOOD Credit??? Tip 1: Pay your bills on time Tip 2: Contact your lenders immediately if you foresee a payment problem Tip 3: Borrow at a minimum Tip 4: Do not overdraft accounts Tip 5: Understand loan terms/agreements before signing

26 Protecting Your Finances Keep the original copies of your documents in a safe place. Keep your important computer files safe. Make copies of all of your important documents. Keep a copy of your important papers in safe, or storage that is secure and outside of the home, in case of an emergency Monitor your accounts regularly

27 Recognizing Credit Repair Scams

28 YOUR RIGHTS Each of the nationwide consumer reporting companies Equifax, Experian, and TransUnion is required to provide you with a free copy of your credit report once every 12 months, if you ask for it. Each of the nationwide consumer reporting companies Equifax, Experian, and TransUnion is required to provide you with a free copy of your credit report once every 12 months, if you ask for it. It doesnt cost anything to dispute mistakes or outdated items on your credit report. It doesnt cost anything to dispute mistakes or outdated items on your credit report. No one can legally remove accurate and timely negative information from a credit report No one can legally remove accurate and timely negative information from a credit report Each of the nationwide consumer reporting companies Equifax, Experian, and TransUnion is required to provide you with a free copy of your credit report once every 12 months, if you ask for it. Each of the nationwide consumer reporting companies Equifax, Experian, and TransUnion is required to provide you with a free copy of your credit report once every 12 months, if you ask for it. It doesnt cost anything to dispute mistakes or outdated items on your credit report. It doesnt cost anything to dispute mistakes or outdated items on your credit report. No one can legally remove accurate and timely negative information from a credit report No one can legally remove accurate and timely negative information from a credit report

29 Where To Get Help Annual Credit Report: Experian: Equifax: TransUnion: National Foundation For Credit Counseling: Federal Trade Commission: Choosing a Credit Counselor Department of Justice: List of Credit Counseling Agencies- Better Business Bureau: See if there are any alerts on the organization you are considering Association of Independent Consumer Credit Counseling Agencies:


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