Extra Credit Understanding Credit & Debt

FIVE “C’S” OF CREDITWORTHINESS Character - the honesty and reliability to repay a debt. Have you used credit before? Do you pay your bills on time? How long have you lived at your present address or have been employed? Capital/Collateral - if you have valuable assets such as real estate, personal property, investments, or savings with which to repay debt if income is unavailable. Capacity/Cash Flow - your ability to repay the debt – employment, income.

Benjamin Franklin On Debt “Creditors have better memories than debtors.”

What We’ll Talk About Debt & How To Handle It Your Credit Score & How To Raise It Credit Reports & How To Obtain One Credit In The Current Market Talking To Your Students

Not All Debt Is Evil Credit is a valuable tool, yet many people misuse and overuse it.

Warning Signs: Too Much Debt Signs of someone who may be in trouble: 1) Making only the minimum payment 2) Maxing or nearly maxing out credit cards 3) Not knowing how much is owed ”

Warning Signs: Too Much Debt Signs of someone who may be in trouble: 4) Using credit cards to purchase items that used to be purchased with cash 5) Paying off one card with another card 6) Phone calls or letters from creditors

Lowering Your Debt Ask Your Credit Card Company To Lower Your Interest Rate If Your Card Company Wont Lower – Shop For A Lower Rate Card Set up a tight budget and stick to it. Find ways to save money – America SavesAmerica Saves Set realistic goals

If You Are In Trouble Stop Borrowing Contact Your Creditors Review the Fair Debt Collection Act Speak with a credit counselor Washington State Department of Financial Institutions ”Regulating financial services to protect and educate the public and promote economic vitality.”

Where To Turn For Help Credit Counselors National Foundation for Credit Counseling Debt Management Plans Friends or Family Ask to borrow money from a friend or family No to low-interest loans

Protect Yourself Be wary of organizations or individuals that: Promise to solve your problem overnight Charge high up front fees Won’t disclose the costs for their services If It Sounds Too Good To Be True … It Probably Is

Credit Scores & Reports

DO you know your credit score? Only 49% of Americans have obtained their credit score in the past two years. (Consumer Federation of America, 2008) ”

Credit Scores What Is A Credit Score? The score given to an individual to determine their credit worthiness. FICO and Vantage. Who checks your credit score? Credit card companies Lenders Insurance Companies Employers Phone companies

Credit Scores How your score can affect you: Interest Rates If your rate goes up on 1 card it can go up on another Insurance Rates Some Employers Use It When Hiring

An Example On a $225,000 home: 6% Interest Rate 30-year fixed = $1348/mo 5% Interest Rate 30-year fixed = $1207/mo. $141.14/mo. difference $50,810 over 30 yrs

How Your Score Is Calculated FICO® scores are calculated based on your rating in five general categories: 1) Payment History 2) Amounts Owed 3) Length Of Credit History 4) New Credit 5) Types Of Credit Used

What’s A Good Score? FICO Scores Range From 300 – 850 In the eyes of most lenders, FICO credit scores above 700 (750) are very good. Recent changes in the economy have changed what lenders as a very good score

Your Credit Report A credit report is a report containing a detailed credit history of an individual. What’s On Your Credit Report? Personal Information (Name, SSN, Etc.) Public Records & Collection Accounts (Bankruptcies, Foreclosures, Etc.) Your Credit History & Current Obligations Credit Inquiries

How To Check Your Credit Report & Score You are entitled to 1 free credit report a year from each of the 3 major credit bureaus. To request your free credit report visit You can also request your credit score. ***A small fee may apply. ”

How to establish or obtain credit. 1. Apply to the bank or credit union you already have a relationship with. 2. Obtain a co-signer (but never be a co- signer ) 3. Get a secured credit card 4. Get a department store card

Improving Credit Scores Pay Bills On Time (Get current, stay current) Pay Off Debt – Don’t Move It Around Don’t Close Unused Credit Cards As A Short- Term Strategy To Raise Your Score Don’t Open New Credit You Don’t Need.

More Tips For Improving Credit Scores Repair Errors (Outstanding Debts You Paid) Pay Down Balances To 20-30% Of Credit If You Have 1 Or 2 Old Cards You Haven't Used Put A Little On The Card And Then Pay It Off Do This About 1 Every 6 Months

USE CREDIT WISELY(CAVEAT EMPTOR) BASIC RULES TO FOLLOW: You should charge only what you can afford to pay back. Credit cards shouldn't be a money substitute for items you can't afford. You need to pay your bills on time and not just the minimum amount. Credit companies specifically target college students. ”

Homework… Get a free credit report at…

Resources FTC Credit Web Site AICPA College/ College/ Bad Credit Hotel

DFI: We’re here for you! Contact Us: / RING.DFI Lyn Peters Director of Communications Jeremy Lushene Web Master-Communications Consultant Washington State Department of Financial Institutions ”Regulating financial services to protect and educate the public and promote economic vitality.”