1. Credit The Good, the bad, and the ugly

2. CREDIT CREDIT CAN MAKE OR BREAK YOUR FUTURE PLEASE PAY ATTENTION TO THIS IMPORTANT LIFE LESSON – IT IS SERIOUSLY ONE OF THE MOST IMPORTANT LESSONS YOU WILL EVER RECEIVE! UNLESS YOU ARE SUPER WEALTHY, YOUR CREDIT SCORE WILL DEFINE WHAT YOU CAN BUY DURING LIFE – CARS, HOUSES, FURNITURE, ELECTRONICS, CABLE, ETC

3. What is Credit? Credit = a loan or monies borrowed that you are expected to payback according to agreed upon terms. Different examples of why credit is used Car loans – mortgage loans – credit cards – students loans – furniture loan – personal loan – cash loan – and more These loans are paid for with CREDIT Lender = the person or financial institute that gives you the loan or credit card Borrower = the person who accepts the loan or credit Remember a loan or credit is money that you DO NOT ACTUALLY HAVE, you are borrowing it from a financial institute such as a bank

4. Smart Credit When you purchase something on credit, you are putting yourself into DEBT DEBT = owing money – you spent more then you actually have to pay for it. Repayment terms – the lenders aren’t going to let you borrow their money without charging you and setting up payment agreements. Good v. Bad Debt Anytime you cannot pay for something in cash and you use a loan or credit to buy it, you are creating a debt Good debts (unavoidable usually) would include a mortgage – within your means. A student loan –used to better your financial future. As long as you are making payments, then you keep good debt Bad debts – department store credit cards – if it’s not a necessity or you cannot use your major credit card then avoid it! Too many credit cards will RUIN your credit – IT IS NOT WORTH THE ONE TIME 20% DISCOUNT AT AMERICAN EAGLE – DO NOT GET MORE THAN ONE CREDIT, AND GET THAT ONE FROM A REPUTABLE BANK

5. Smart Credit Interest Charged = the fee you have to pay to borrow money – usually reflected as APR – THIS IS THE MONEY YOU OWE IN ADDITION TO YOUR LOAN AMOUNT APR = Annual Percentage Rate is the interest charge expressed as an annual rate they spread across each month Calculating APR each month – if your APR is 24%, that means each MONTH you will be charged 2% on your balance for that month. IF you have a zero balance you can avoid this charge! – SO, IF YOUR LOAN WAS FOR $100 TOTAL THAT YEAR, YOU WOULD BE CHARGED AN EXTRA $2 A MONTH OR $24 BY THE END OF THE YEAR – MAKING THE TOTAL AMOUNT YOU OWE $124 When applying for credit – find the lowest interest rate or APR – the higher your interest rate, the more money you have to repay

6. Smart Credit Interest Rate– it is essential you pay attention to these – are they fixed or are they variable – who offers the lowest (WITH CREDIT YOU HAVE TO PAY INTEREST, YOU ARE NOT EARNING INTEREST LIKE YOU DID WITH SAVINGS) Fixed = rate stays the same Variable = rate can change depending on economic changes (RISKY) Repayment agreements = how much will you be expected to pay each month? What are the penalties for not paying on time? What is my credit limit?

7. Smart Credit- Makes or Breaks YOU Unfortunately, credit is a necessary evil. All of our major purchases are judged off of something called our Credit Score Credit Score = a rating from top credit bureaus that tell a lender how responsible you are. Range from 300-850 with 850 being the best – also known as FICO scores How do you get an EXCELLENT Credit Score? Established long standing accounts that you have paid on time Pay off existing debts Open no more than one major credit card AVOID department store credit cards – too many accounts hurt your debt to income ratio Debt v. Income ratio – (what you owe v. what you earn) keep it under 30% PAY ALL BILLS ON TIME! Use your credit card wisely – pay it off month to month if possible Establish residency for long periods Avoid closing existing accounts Slowly build your credit

8. Credit Scores As mentioned before, many things affect your score Three major credit bureaus used by lenders Equifax Experian TransUnion Each company reports a score monthly and the score is good for that period of time only Points are added and deducted based on several factors Superior score = 800+ Excellent score = 750 - 799 Good = 699 - 749 Fair = 600 -698 Poor = 599 below

9. Four C’s Lenders and creditors look at the FOUR C’s when determining your Credit Worthiness ( can we trust you) 1. Capacity = your ability to repay the loan – do you have a job/income and is it steady – do you already have too many other loans 2. Capital = your regular income plus any savings or checking accounts 3. Character = checking your past loans to see how you did with them, spending habits, staying within your means 4. Collateral = what assets/property can be used if you fail to repay your loan – oftentimes the item you are purchasing is considered collateral

10. Points to remember Credit is a necessary evil Smart Credit – one major credit card, low interest rates, few loans, low debt to income ratio, make payments on time, payoff as often as possible, do not overextend yourself Credit Score – what lenders use when considering your credit worthiness