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

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

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. Any time a bank, family member, or business lends you money and you agree to pay it back, you are using credit. In most cases there is a charge for borrowing the money.

Know the FACTS Cons Pros Credit Costs $$$ Credit =Temptation Easy to lose track Helpful for Emergencies Its Convenient Increased purchasing power Other Disadvantages: (1) When you make a purchase using credit, you commit to using your future income to repay the loan; (2) Lenders will report missed payments to the credit bureaus; (3) Mismanaged Credit may result in repossession of items; (4) Lenders and Employers require a copy of your credit report

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) Revolving Credit: As you pay the money back, it becomes available to borrow again. The lender allows you to pay back the money in a lump sum or over an extended period of time Installment Credit: You establish a payment plan with your lender to repay the loan on a regular basis over a period of time. The interest is determined in advance and factored into your set monthly payments. Non-installment Credit: Often if you pay the complete sum within a specified period of time, (30-60 days) you do not have to pay fees.

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)

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 FDIC and NCUSIF : The government regulates these financial institutions and insures consumer deposits for up to $100,000 per account.

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

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-signer’s 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.

Credit Building Lending Mission Credit 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 money’s there when you need it, but by thinking about your purchase, you can save more, ultimately, by making wiser decisions

Credit Building Lending Mission Credit 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. Source: http://www.wisebread.com/the-benefits-and-drawbacks-of-credit-unions

Non- Credit Building Lending Mission Credit 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

What is Predatory Lending? Predatory Lenders: Direct a borrower away from loans with more affordable rates. Instead, the applicant is offered a loan with a high interest rate, questionable fees, or unnecessary charges. Predatory lenders often target low and moderate income people, people of color, and the elderly Many Check Cashing and Payday loan places have predatory lending practices.

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 emails 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 document’s before signing Investigate Interest

Ask yourself…. Is this purchase a need or a want? Do I really need the item right now, or can I wait until I have the cash? How much do I have to pay to borrow this money? How will this credit payment affect my household budget each month? Will I still have this item when I finish paying for it? Should I go home and sleep on my decision before using my credit to make a purchase?

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. When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want to know what risk they'd take by loaning money to you. FICO scores are the credit scores most lenders use to determine your credit risk. You have three FICO scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. FICO scores are provided to lenders by the major credit reporting agencies. Source: myfico.com

Credit Bureaus/Inquiries U.S. Credit System Creditors Public Records Collection Agencies Credit Bureaus/Inquiries Data Furnishers TransUnion Equifax Experian

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

Racial Credit Score Disparities Source: Bridging the Gap: Credit Scores and Economic Opportunity in Communities of Color” September 2010

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 Harvard’s 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 Source: The Racial Wealth Gap and Access to Mainstream Credit Presentation by the Washington State Asset Building Coalition, June 2011

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 you’ve made your payments on time Whether or not you’ve paid back your loans

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

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.

The Credit Report: Explored Information typically included: Common errors on the report Indentifying Information Name, Address, Social Credit Information Dates opened, credit limits Public Record Information Bankruptcy, Foreclosures Inquiries Others who looked at report Duplicate Information Uninvited Inquiries Items that should no longer be listed on your credit report Visit www.annualcreditreport.com to get access to credit scores for free If you find an error on your report, contact the creditor and try to resolve the problem. In addition, you will want to complete and send a letter of dispute to the credit bureau. You can also ask the credit bureau to send you a statement of explanation, about an item on your credit report.

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 Other tips: (6) Be cautious about co-signing or guaranteeing loans for others; (7) Apply for a secured credit card; (8)Avoid Excessive inquiries into your credit report; (9) Review your credit report at least once a year and correct any inaccurate information; (10) Keep you track of your credit on your own

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

Recognizing Credit Repair Scams The company wants you to pay for credit repair services before they provide any services. The company recommends that you do not contact any of the three major national credit reporting companies directly. The company tells you they can get rid of most or all the negative credit information in your credit report, even if that information is accurate and current. The company suggests that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number. The company advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness. Credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before you sign anything. And before signing, know that a credit repair company cannot: make false claims about their services charge you until they have completed the promised services perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees. Source: FTC.gov

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. It doesn’t 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

Where To Get Help Annual Credit Report: www.annualcreditreport.com Experian: www.experian.com Equifax: www.equifax.com TransUnion: www.transunion.com National Foundation For Credit Counseling: www.nfcc.org Federal Trade Commission: Choosing a Credit Counselor www.ftc.gov Department of Justice: List of Credit Counseling Agencies- http://1.usa.gov/2P1Bq4 Better Business Bureau: See if there are any alerts on the organization you are considering www.bbb.org Association of Independent Consumer Credit Counseling Agencies: www.aiccca.org