1. Do Now10/30 & 10/31 Chapter 17 SLID E 1 Respond to the following in your notebook: As a teenager, you would like to get started in establishing a good credit history. Based on your personal situation and the businesses and banks in your area, prepare a plan that you might follow in getting started using credit.

2. Agenda10/30 & 10/31 Chapter 17 SLID E 2 Do Now: Establishing Good Credit Discussion Chapter 17 – Credit Records and Laws Activity: Research and Presentations Closure:  What are some things you can do to maintain a good credit rating?  Why might a credit report be requested by individuals and businesses?  What should you do if you believe there is an error on your credit card statement?

3. Closure10/30 & 10/31 Chapter 17 SLID E 3  What are some things you can do to maintain a good credit rating?  Why might a credit report be requested by individuals and businesses?  What should you do if you believe there is an error on your credit card statement?

4. 17.1 17.1ESTABLISHING GOOD CREDIT 17.2 17.2EVALUATING CREDIT AND LAWS Credit Records and Laws 17

5. Lesson 17.1 Establishing Good Credit Chapter 17 SLID E 5 GOALS Discuss the purpose of credit records. Describe the concept of creditworthiness. Explain how to get started using credit.

6. Credit Records Chapter 17 SLID E 6 Before granting you credit, a creditor will check into your past credit performance:  Did you pay your bills on time?  How much total credit did you receive?  How much do you owe now and how large are your payments?

7. Credit History Chapter 17 SLID E 7 Your credit history is the complete record of your borrowing and repayment performance. This record will provide answers to these questions and thus help the creditor determine your ability to pay new debts.

8. Your Credit File Chapter 17 SLID E 8 Every person who uses credit has a credit history on file at a credit bureau. A credit bureau is a business that gathers, stores, and sells credit information to other businesses.

9. National Credit Bureaus Chapter 17 SLID E 9 TransUnion Experian Equifax

10. Credit Report Chapter 17 SLID E 10 A credit report is a written statement of a consumer’s credit history, issued by a credit bureau to businesses. You can order a copy of your credit report online at the credit bureau’s web site or by writing to the bureau. When you are denied credit, you can get a free credit report if you ask within 30 days of being denied.

11. Services Available Related to Your Credit Files Chapter 17 SLID E 11 Credit guard services Credit freezing services

12. How Information Is Gathered Chapter 17 SLID E 12 Credit bureaus gather information from businesses, called subscribers, that pay a monthly fee to the credit bureau for access to this information. Each subscriber supplies information about its accounts with customers including:  Names  Addresses  Credit balances  On-time payment record Credit bureaus also gather information from many other sources.

13. How Information Is Used Chapter 17 SLID E 13 When someone applies to a business for credit, the business (subscriber) asks the credit bureau for the applicant’s credit report. Information in the credit report is then used as the basis for granting or denying credit.  Usually credit grantors (banks and retail businesses), employers, landlords, and insurance companies have an interest in credit reports.  Before entering into a financial agreement with someone, they want evidence that the person is financially responsible.

14. Types of Information Stored Chapter 17 SLID E 14 Public information becomes part of your credit record. Examples of activities that result in public information:  Failing to pay your property taxes  Filing for bankruptcy  Filing for divorce  Applying for a marriage license  Announcing the birth of a child  Announcing a job promotion  Being involved in a lawsuit Information you provide on a credit application becomes part of your credit record.

15. Creditworthiness Chapter 17 SLID E 15 Before potential creditors will grant credit to you, they must determine whether you are a good risk— that you are creditworthy. A person who is considered creditworthy usually meets five basic qualifications, called the five Cs of credit:  Character  Capacity  Capital  Conditions  Collateral

16. Character Chapter 17 SLID E 16 Will you repay the debt? Character is a responsible attitude toward honoring obligations, often judged on evidence in the person’s credit history. Creditors often use stability as a measure of character as well.

17. Capacity Chapter 17 SLID E 17 Can you repay the debt? The financial ability to repay a loan with present income is known as capacity. Before lending you money, creditors want to make certain that your income is sufficient to cover your current expenses each month plus the payments on the new loan.

18. Capital Chapter 17 SLID E 18 Do you have sufficient assets to support the debt? Capital refers to financial assets (bank accounts, investments, and property) you possess that are worth more than your debts. When you add up all that you own (assets) and subtract all that you owe (liabilities), the difference (net worth or capital) should be sufficient to ensure payment of your debt.

19. Conditions Chapter 17 SLID E 19 What affects your ability to repay the debt? There may be “external” conditions that affect your ability to repay a debt. Therefore, creditors want to know the following:  How secure is your job?  How secure is the firm for which you work?  How is the employment situation in your geographic location and in your occupation?

20. Collateral Chapter 17 SLID E 20 What assets are pledged to support the debt? Collateral is property pledged to assure repayment of a loan, such as the house, car, or furniture being purchased. Collateral protects creditors, making them more willing to lend to you. If you do not repay your debt as agreed, they can sell the collateral to collect on the debt.

21. Getting Started with Credit Chapter 17 SLID E 21 Begin with a savings account. Open a checking account. Open a store credit account.  Many stores will allow you to open a small account with a responsible adult as a cosigner.  A cosigner is someone who promises to pay if the borrower fails to pay. Get a small loan. Apply for a credit card.

22. Lesson 17.2 Evaluating Credit and Laws Chapter 17 SLID E 22 GOALS Describe credit ratings and a point system used for evaluating credit. Outline the contents of a credit report. Discuss major credit laws and explain how they protect consumers.

23. Evaluating Credit Chapter 17 SLID E 23 Credit bureaus evaluate each consumer based on his or her credit history, amount of credit, and ability to take on additional debt. There are two major classifications used to evaluate consumers:  Credit rating  Credit score

24. Credit Rating Chapter 17 SLID E 24 Your credit rating is a measure of creditworthiness based on an analysis of your credit and financial history. This process rates consumers according to how reliably they pay back money borrowed or charged.  Excellent credit rating  Good credit rating  Fair credit rating  Poor credit rating

25. Credit Score Chapter 17 SLID E 25 Credit bureaus as well as some larger creditors have point systems on which credit ratings are based. In a point system, the credit bureau assigns points based on factors such as amount of current debt, number of late payments, number and types of open accounts, current employment, and amount of income. When your points are added up, they result in a credit score that tells potential creditors the likelihood that you will repay debt as agreed. The higher your score, the greater the chance you will be a good credit risk.

26. Credit Score Chapter 17 SLID E 26 Your FICO score How errors are made Credit inquiries Improving your FICO score (continued)

27. Credit Reports Chapter 17 SLID E 27 Credit files are updated continuously.  Information stays in the file for seven years.  Bankruptcy information stays in the file for ten years. Credit reports are requested for credit applications, employment applications, and insurance reasons.

28. Credit Reports Chapter 17 SLID E 28 Formats vary, but credit reports contain sections similar to these:  Summary of information  Public record information  Credit information  Account detail  Requests for credit history  Personal information (continued)

29. Credit Laws Chapter 17 SLID E 29 Consumer Credit Protection Act  It is also known as the Truth-in-Lending Law.  It requires lenders to fully inform consumers about all costs of a credit purchase before an agreement is signed. Fair Credit Reporting Act  It gives you the right to know what is in your file and who has seen your file.

30. Credit Laws Chapter 17 SLID E 30 Fair Credit Billing Act  It requires creditors to resolve billing errors within a specified period of time. Equal Credit Opportunity Act  It was designed to prevent discrimination in the evaluation of creditworthiness.  Discrimination is treating people differently based on prejudice rather than individual merit. (continued)

31. Credit Laws Chapter 17 SLID E 31 Fair Debt Collection Practices Act  It was designed to eliminate abusive collection practices by debt collectors.  A debt collector is a person or company hired by a creditor to collect the overdue balance on an account. (continued)

32. Closure10/30 & 10/31 Chapter 17 SLID E 32  What are some things you can do to maintain a good credit rating?  Why might a credit report be requested by individuals and businesses?  What should you do if you believe there is an error on your credit card statement?