CREDIT BUY NOW…PAY LATER

The use of credit will affect your personal financial wellness for your ENTIRE adult life!

The 3 C’s of Getting Credit C HARACTER Can you be counted on to pay your bills? C APACITY Do you have a steady source of income? C APITOL How many assets do you have? How much debt do you have?

Good Debt vs. Bad Debt GOOD DEBT The purchase outlasts the debt. The ratio of debt to income does not exceed 20%. BAD DEBT Financial obligations last longer than the purchase. The ratio of debt to income exceeds 20% or jeopardizes financial security if payments cannot be made.

Benefits of Using Credit Use of product or service before you “own” it Free loan if you pay bill in full Convenient- no-hassle shopping More secure than cash – report to the bank that issued the card within two business days and you are not liable for more than $50 Useful in emergencies Universal acceptance – global Necessary for rental car and hotel reservations Use for catalog/Internet shopping Establish a good credit score

Disadvantages of Using Credit “Too convenient” – can lead to overspending Finance charges Predetermines future income Can hurt your credit score

Types of Credit Installment Credit: Loan is paid back in set monthly payments. Buyer signs a legally binding contract. Secured loan means the seller owns product until paid in full. Installment credit is used for large purchases such as vehicles, homes, education.

Revolving Credit: Monthly payment varies depending on the amount spent. Minimum payment = finance charge Pay in full within grace period to avoid finance charges. APR can be adjusted by creditor. Interest rates are higher than for installment credit. There is a limit on the amount that can be charged. Bank cards and store cards are examples of revolving credit.

Types of Credit Cards Retail –Macy’s & Nordstroms, and have the highest interest rates. Bank Cards – Issued by a bank - Mastercard, Visa, Discover, American Express. Affinity cards – a percent of your spending is donated to a school or organization. Reward cards – offer perks such as airline miles, a percentage back on merchandise. Secured Card – The amount that can be charged is prepaid. These are for students or those who have not established credit.

Credit Terms & Vocabulary Finance Charge The cost of using credit – the amount charged to borrow money. Avoid finance charges by paying in full each month. A.P.R. Annual Percentage Rate – the amount of interest charged each year. Principal The total dollar amount of purchases made on a credit card. The balance remaining on the loan not including interest. Collateral Security for a the loan. What the lender owns until the loan is paid in full.

Minimum payment The least amount that can be paid on a revolving credit account. ALWAYS pay more than the minimum Grace period The period before interest begins to build on new purchases Credit Bureau Agency that keeps track of your credit history TransUnion, Experian, Equifax Annual Fee The once-a-year cost of owning a credit card. Not all cards have an annual fee.

Average Daily Balance – Used to compute how much is owed and calculate interest owed on an average day of your billing cycle. Two Cycle Billing – Issuers calculate the balance by making use of the last two month’s account activity. Most expensive for card holders. Adjusted Balance - Balance is determined by subtracting payments or credits received during the current billing period from the ending balance. Purchases made during the billing period aren’t included. Best for card holders. Credit report The official record of your financial history Credit limit The amount you are allowed to charge Cash advance Use of credit card for cash High interest rate No grace period

Choosing a Credit Card Which One Is Best for YOU? What is the APR? What are the fees – penalty for over the limit, late payments, etc.? How long is the GRACE PERIOD? READ THE FINE PRINT BEFORE YOU SIGN ANYTHING!!!!

Tips to PROTECT Your Credit Card Account Never lend your card to anyone. Do not leave your receipts lying around or in a hotel room. Never give your card number over the phone or Internet unless you initiated the call and you are certain of the company or organization. Sign the back of your cards as soon as you receive them. Do not leave your card as a security deposit or as identification. Always retrieve your credit card receipts. Keep a record of your card number, expiration date, and phone number of card company separate from your wallet. Contact the credit card issuer if any questionable charges appear on your statement.

Federal Law Protects Your Use of Credit Truth in Lending Law The lender MUST disclose ALL lending costs and terms of the loan at the time the offer is made. Fair Credit Billing Act You may dispute billing errors and unauthorized use of your account. You may dispute charges for goods and services charged but not delivered satisfactorily. You may withhold payment on that amount while the charge is being investigated. Equal Credit Opportunity Act – DENIED???? You cannot be denied credit based on race, creed or gender. You must be given a reason if you are denied credit.

More Credit Laws… Unauthorized charges If your card is used without your permission you can be held responsible for up to $50. If you report the loss BEFORE THE CARD IS USED, you can’t be held responsible for any unauthorized charges.

QUESTIONS???

CREDIT REPORT & CREDIT SCORE

Credit Reports and Your Credit Score A credit report includes information on your level of indebtedness and bill paying behavior. Information for a report is submitted to credit reporting agencies from the individual creditors. The agencies compile the report and release it to lenders and others with the consumer’s permission.

FICO SCORE While a low credit score will not prevent you from securing loans, it will cost you more. FICO scores are your credit rating They range from , higher is better Most lenders base approval on them Higher scores mean lower interest rates

FICO SCORE FICO scores are calculated based on your rating in five general categories: Payment history - 35% Amounts owed - 30% Length of credit history - 15% New credit - 10% Types of credit used - 10%

How to Establish Credit History Pay bills on time Pay rent on time Use credit cards Establish and use a transaction account (such as a checking account)

The following can negatively affect your credit score…. Frequent late payments Court judgments Accounts sent to a collection agency Tax liens Bankruptcies You cannot remove negative information, but you can improve your credit score.

Who reviews your credit report? A lender A prospective employer A prospective landlord Insurance companies

Credit Reporting Agencies You can order your credit report from: Order from credit bureaus TransUnion Experian Equifax Order once a year to review for errors

Useful Websites and Phone Numbers To get off marketing lists (phone, mail, ) To stop credit card offers Identity Theft - prevention, tips and what to do if you are a victim

Credit Bureaus To get your FREE ANNUAL credit report go to :