Chapter © 2010 South-Western, Cengage Learning Credit Records and Laws Establishing Good Credit Evaluating Credit and Laws 17

© 2010 South-Western, Cengage Learning SLIDE 2 Chapter 17 Information stored Before granting you credit, a creditor will check into your past credit performance: Did you pay your bills on time? How much total credit did you receive? How much do you owe now and how large are your payments?

© 2010 South-Western, Cengage Learning SLIDE 3 Chapter 17 Types of Information Stored Public information becomes part of your credit record. Examples of activities that result in public information: Failing to pay your property taxes Filing for bankruptcy Filing for divorce marriage license birth of a child job promotion Being involved in a lawsuit Information you provide on a credit application becomes part of your credit record.

© 2010 South-Western, Cengage Learning SLIDE 4 Chapter 17 Your Credit File Every person who uses credit has a credit history on file at a credit bureau. A credit bureau is a business that gathers, stores, and sells credit information to other businesses.

© 2010 South-Western, Cengage Learning SLIDE 5 Chapter 17 Creditworthiness Before potential creditors will grant credit to you, they must determine whether you are a good risk—that you are creditworthy. A person who is considered creditworthy usually meets five basic qualifications, called the five Cs of credit: Character Capacity Capital Conditions Collateral

© 2010 South-Western, Cengage Learning SLIDE 6 Chapter 17 Getting Started with Credit Begin with a savings account. Open a checking account. Open a store credit account. Many stores will allow you to open a small account with a responsible adult as a cosigner. A cosigner is someone who promises to pay if the borrower fails to pay. Get a small loan. Apply for a credit card.

© 2010 South-Western, Cengage Learning SLIDE 7 Chapter 17 Credit Rating Your credit rating is a measure of creditworthiness based on an analysis of your credit and financial history. This process rates consumers according to how reliably they pay back money borrowed or charged. Excellent credit rating Good credit rating Fair credit rating Poor credit rating

© 2010 South-Western, Cengage Learning SLIDE 8 Chapter 17 Credit Score Your FICO score How errors are made Credit inquiries Improving your FICO score (continued)

© 2010 South-Western, Cengage Learning SLIDE 9 Chapter 17 Credit Laws Equal Credit Opportunity Act It was designed to prevent discrimination in the evaluation of creditworthiness. Discrimination is treating people differently based on prejudice rather than individual merit. (continued)

© 2010 South-Western, Cengage Learning SLIDE 10 Chapter 17 Credit Laws Fair Debt Collection Practices Act It was designed to eliminate abusive collection practices by debt collectors. A debt collector is a person or company hired by a creditor to collect the overdue balance on an account. (continued)