Personal Finance Notes Unit 4

How you can Hurt your Credit Score: Make late payments Bouncing checks (writing a check even when you don’t have the money to cover the cost) Having a lot of credit cards and loans Maintaining a high balance on your credit cards and loans Changing credit cards frequently

So what does your credit score really matter A lot! People with bad credit can still get approved – sometimes Usually pay higher interest rates Even a 1% higher in interest rate can have a huge effect on your budgeted fixed expenses

Your Rights When your Credit Report is Wrong The law requires credit bureaus provide info regarding your credit history correctly & completely (& confidentially!) You have a right to see everything in your report And most of the time, who reported it. Regularly review your credit report to ensure its accuracy & to check for fraudulent use of identity!

If you do find inaccuracies: don’t panic. Contact credit reporting agency Ask representative to investigate info By law, agency must investigate questionable item & correct/delete anything that’s incorrect Credit bureaus must delete unfavorable info that is more than 7 years old Bankruptcy info must be removed after 10 years

Getting your piece of the Credit Pie Ways to get started with credit: Ask an adult to co-sign a credit card application or car loan Ask the place where you have savings/checking account for a credit card application Apply for a store credit card Apply for a secured credit card (one that only has money pre-deposited into account for you to use) Similar to a debit card. If renting a place with friends, make sure at least one of the bills is in your name & pay it on time.

Assignment: Turn to page 51 Evaluate Carmen’s loan application. On a piece of paper (you may type & print it out) Justify a reason why you would or would not approve Carmen’s loan. Also what type of terms would you give? (length of loan with what type of interest) Justify why you chose to do that Turn into the Red Tray by printer. Be sure your name is in a header. Use Loan App as the title

Remember: Good credit is crucial to achieving your financial goals The most common way people mismanage credit is overspending It is easier to get into debt that to get out. Be careful of your budget & your expenses/income

70-20-10 Rule 70% of income should go to living expenses 20% of income should go to investments/saving 10% of income should go to paying off debt.

Avoiding Pitfalls of Credit Always read the fine print – especially before you sign! Avoid higher interest rates of credit cards – consider a loan for larger purchases instead Be choosy – don’t apply for more than you actually need Pay as much as you can every month Even an extra $10 will reduce your balance much faster than minimum payment

Pay a bill at least 1 week before it’s due Arrange automatic payments for your monthly bills Get into savings mode so you rarely need credit loans for purchases

Assignment: Writing Assignment: On the back side of your previous assignment, you need to hand-write. For one minute, list all the strategies you can think of to responsibly use credit. If you want, wait for a partner so you can be timed. If you need a stopwatch, go to www.online-stopwatch.com Please don’t write for more than a minute. Don’t use your notes. Just try to remember and think and write all at the same time. That’s it. Now, you can turn in your paper.

Credit-related Record Keeping Make sure you keep in your files: Terms of agreement: the document that accompanies your loan application that defines your rights & responsibilities of the borrower & creditor. Receipts: so you can compare charges when your bills arrive Monthly statements: for at least a year; tax-related items, such as tax returns (for 7 years) List of credit card numbers: and phone #s so you can quickly notify it if card is lost/stolen

Dark Cloud of Debt Having debt can take its toll on you: It affects future ability to borrow money Stress can affect your health Debt also is your spouse’s responsibility (legally)

Reducing that debt: Get rid of plastic – stop adding to your debt Make commitment to repay debt – after all, it is your debt! Find out exactly how much you owe!! Create a repayment plan you can stick with

Methods to reduce debt: 1. Take additional money you have available & pay off debt with smallest balance first. Apply the same payment amount to the card or loan with next smallest balance. Continue this process until your debts are paid

2. Concentrate on paying the debt with the highest interest rate This method will save you more in interest charges over time, but progress is harder to see. Remember: both methods work, be patient & persistent Association of Independent Consumer Credit Counseling Agencies also will help.

Bankruptcy Bankruptcy: the legal process to get out of debt when you can no longer make all your required payments. 2 types: Chapter 7: allows you to erase most of your debt. To qualify, you must be unemployed or have very low income. You must undergo financial counseling. Chapter 11: allows you to repay many of your debts over time, usually no more than 5 years. Court oversees your repayment

Not all debts are erased by bankruptcy: Student loans, child support, alimony, penalties & fines for crimes committed Congress changed bankruptcy laws: It is much harder to declare Chapter 7 bankruptcy Bankruptcy stays on credit report for 10 years

Why do people file? Due to unforeseen or unavoidable circumstances/misfortune (health care costs, for example) Irresponsible borrowing & defaulting on loans (not repaying)

The Law & Order of Debt You are responsible for repaying your debts Lenders have legal action against you Truth in Lending Act requires lenders to tell you in writing the true interest rate & finance charges before signing credit application They can’t be misleading, either You have a right to cancel within 3 days – assuming you return money borrowed.

Fair Debt Collection Practices Act: Protects you from harassment by creditors Debt collectors cannot: Use abusive language Call @ unreasonable hours (before 8 am & after 9 pm) or excessive # times Threaten to notify your employer or friends Attempt to collect more than you owe Send you misleading letters that appear to be from gov’t agency or court of law

Assignment: Page 56: Exercise 4G: Complete the priorities of debt. Don’t turn in, but will have a check on Thursday for participation points.

Final Assignment: Open new blank document Add a header with title: My Plan for Credit Complete Assignment 4-1 on page 57. Assess your credit history & reflect. Type up a reflection paragraph. (please double space – format, paragraph, double-space line spacing) Then, use a bulleted list to identify strategies to manage your credit. Save, print, turn in.