1. Credit CREDIT 1

2. Credit Session Objectives What is Credit, how it works and why you need it How to establish Credit Borrowers responsibilities How to monitor your Credit and understand your Credit Report & Score Understand how to use Loans & Credit Cards 2

3. Credit Credit – What is it? Credit is the ability to borrow money or obtain goods by paying little or no money at the time of purchase It is your promise to pay the original cost later or over time plus interest Image: Salvatore Vuono / FreeDigitalPhotos.net 3

4. Credit Why do you need Credit? 4

5. Credit Oregon Employer Credit Check As of 2010, employers in Oregon may only check your credit for specific financial jobs Even in those cases, they need your permission 5

6. Credit 6 How do I establish my credit? Establish an account Local company Co-signer Secured Credit Card Use it responsibly Pay all bills promptly Don't bounce checks Image: jscreationzs / FreeDigitalPhotos.net 6

7. Credit Why would my credit be denied? No Credit History Too much outstanding credit Credit not handled responsibly in the past Victim of fraud Image: djcodrin / FreeDigitalPhotos.net 7

8. Credit Borrower's Responsibilities Borrow only what you can repay Read and understand the credit contract Pay debts promptly Notify creditor if you cannot meet payments Report lost or stolen credit cards promptly 8

9. Credit How do Potential Lenders know about my credit? On-time and late payments Outstanding credit limits and balances Public Records Companies that have requested your Report 9

10. Credit 10 How do I get a copy of my credit report? www.annualcreditreport.com Experian Transunion Equifax Will need to provide Full Name Social Security Number Addresses (2-5 years) Birthdate Image: Michelle Meiklejohn / FreeDigitalPhotos.net

11. Credit Your Credit Report Name Birth date Past Addresses Employer Credit Accounts Company Name Account Number Date Opened Months Reviewed Date of Last Activity High Credit Terms Balance Past Due Status Date Reported Previous Payment History Companies that requested your credit file (inquiries) Public Information Bankruptcy Court Judgments Past Due Child Support Property Tax Liens 11

12. Credit How much does it cost? One free copy annually from each bureau Free if denied credit in past 60 days Otherwise, about $9 Do not sign up for extra services Freecreditreport.com Image: Salvatore Vuono / FreeDigitalPhotos.net

13. Credit What do I do when I have my report? Check it carefully Look for accounts that may not be yours Verify all credit limits/balances Make sure accounts you've closed say Closed at consumer's request

14. Credit 14 You have the Right to: See what is in your report Have an accurate report Have mistakes corrected Tell your side of the story Know who has seen your report Image: Michelle Meiklejohn / FreeDigitalPhotos.net

15. Credit What is a Credit Score? 300 850 Image: jscreationzs / FreeDigitalPhotos.net Your credit score is based upon the information in your credit report Similar to a report card. The higher the score, the better your credit. Most commonly used score is compiled by the Fair Isaac Company (FICO) 15

16. Credit How do I find out my Credit Score? May obtain it at same time as credit report Each agency may have a different score Cost is usually $5-10 May go to each agency or Fair Isaac Image: Rasmus Thomsen / FreeDigitalPhotos.net 16

17. Credit 17 How is my Credit Score Determined? Length of History Types of Accounts Payment HistoryOwed Compared to Limits New Accounts

18. Credit What if I have a good score, but make some mistakes? Beginning Score of 780 Mistake Downgrade New Score Maxed out Credit Card 25-45735-755 30 day late payment 90-110670-690 Debt Settlement 105-125655-675 Foreclosure 140-160620-640 Bankruptcy 220-240540-560 18

19. Credit WHY IS MY CREDIT SCORE IMPORTANT? FICO ScoreInterest Rate Monthly Payment Total Interest Paid 720-8506.0%$608$1,901 690-7197.6%$623$2,430 660-6899.6%$642$3,096 620-65913.4%$678$4,391 590-61918.1%$724$6,077 500-58918.7%$730$6,290 New Car - $20,000 paid over 3 years 19

20. Credit How do loans work? Typical Home Mortgage $200,000 loan 6% interest rate $1199.10 per month for 30 years TimeTotal Paid Total Interest Principle Paid Loan Balance 5 years$71,946$58,055$13,891$186,109 21 years$302,173$202,051$100,122$99,877 30 years$431,676$231,676$200,000$0 20

21. Credit How do loans work? 21 30 Year Mortgage $200,000 Home in Oregon FICO ScoreAPR Monthly Payment 760-8504.4%$1,002 700-7594.6%$1,029 680-6994.8%$1,050 660-6795.0%$1,076 640-6595.5%$1,130 620-6396.0%$1,200

22. Credit Payday Loans Payday loans are essentially short term loans You write a check for the loan which the company may cash in 31 days In 2007, Oregon law was changed Maximum interest rate is 36% per annum Loan fee of 10% up to maximum of $30 22

23. Credit What about Credit Cards? Things to check Interest Rate Fees Don't open too many Pay off highest interest rate first Have a plan to pay for purchases Image: Francesco Marino / FreeDigitalPhotos.net 23

24. Credit What if I just make the minimum payment on my Credit Card? The minimum payment is the amount you must pay each month to avoid a late fee Credit card companies are now required to disclose how long it will take to pay off the balance if you just make the minimum payment Only making the minimum payment is one of the biggest mistakes people make with their credit 24

25. Credit Minimum Payment 25

26. Credit Larger Payments How Larger Payments help pay for Furniture: 26

27. Credit 27 Credit Terminology Fixed Rate Loan Variable Rate Loan Annual Percentage Rate Finance Charge Collateral Secured Loan Unsecured Loan Image: djcodrin / FreeDigitalPhotos.net 27

28. Credit What should I do? Shop around for Credit Read the fine print Know the cost of credit 28

29. Credit Case Studies Let's look at 4 people who are trying to obtain credit Jimmy Sasha Carolyn You 29

30. Credit Useful Resources www.annualcreditreport.com www.myfico.com www.creditcards.org www.bankrate.com www.ftc.gov/bcp/menus/consumer/credit.shtm www.federalreserve.gov/consumerinfo/ 30

31. Credit Session Objectives What is Credit, how it works and why you need it How to establish Credit Borrowers responsibilities How to monitor your Credit and understand your Credit Report & Score Understand how to use Loans & Credit Cards 31