What is this thing called CREDIT?? (And how not to totally wreck it)

Credit vs. Debit

About credit What are some different kinds of credit? Some things you should know about: interest Payments Credit limit Credit score

What’s a credit score?

Advantages of credit able to buy need items now don’t have to carry cash creates a record of purchase more convenient than writing cheques consolidates bills into one payment emergencies earn airmiles, aeroplan points, etc.

Disadvantages of credit interest (increases cost of purchases) may require additional fees financial difficulties may arise if one loses track of how much has been spent each month increased impulse buying may occur Can impact your future buying abilities

The Three c’s of credit Character - will you repay the debt? From your credit history, does it look like you possess the honesty and reliability to pay credit debts? Have you used credit before? Do you pay your bills on time? Do you have a good credit report? Can you provide character references?

The three c’s of credit Capital - what if you don’t repay the debt? Do you have any valuable assets such as real estate, savings, or investments that could be used to repay credit debts if income is unavailable? What property do you own that can secure the loan? Do you have a savings account? Do you have investments to use as collateral?

The Three c’s of credit Capacity - can you repay the debt? Have you been working regularly in an occupation that is likely to provide enough income to support your credit use? Do you have a steady job? What is your salary? How many other loan payments do you have? What are your current living expenses? What are your current debts? How many dependents do you have?

How to build a credit history Establish a steady work record Pay all bills promptly Open a chequing account and don’t bounce cheques! Open a savings account and make regular deposits Apply for a small loan using your savings account as collateral Get a co-signer on a loan and pay back the loan as agreed

Types of credit Single payment Installment Consumer loans Revolving credit Student loans

Scenario 1 Credit score goes: DOWN Why? Falling behind on payments or making late payments How can you fix it? Make payments in full, on time, from now on. Check your credit score periodically. If you can’t make payments, consider selling or trading your SUV for something more affordable.

Scenario 2 Credit score goes: Up Why? Charging a bill and then paying it off demonstrates responsibility with credit How can you fix it? Not needed! Good for you, keep it up.

Scenario 3 Credit score goes: Up Why? Paying it back ahead of time demonstrates responsible use of credit and lowers your credit utilization ratio (the percentage of available credit you’re using) How can you fix it? Not needed! Good for you, keep it up

Scenario 4 Credit score goes: DOWN Why? Charging up to your credit limit increases your credit utilization ratio—it shows you’re using a higher percentage of available credit. How can you fix it? Pay off your balance as aggressively as possible, make payments on time, and charge less toward your limit in the future.

Scenario 5 Credit score goes: DOWN Why? Each time you apply for a card, the inquiry goes on your record. Opening too many accounts over a short period of time demonstrates you may be using credit unwisely. How can you fix it? Stop opening accounts for the next few months, make payments on time, keep your balances low. DON’T close the accounts you already have.