Protecting and Building your Credit

1. Protecting and Building your Credit

2. How does good credit help you? • Lower auto and homeowner insurance rates • Lower rates on car loans • Your credit may even affect your ability to get a job!

3. Why do companies charge more for people with bad credit? • Insurance companies have found a correlation between risk of accidents/claims and credit scores • Credit card companies and banks look at your credit history to determine the likelihood you will repay the loan More risk = Higher rates

4. Can I get a checking accountif I have bad credit? • Better chance with a credit union • Open a savings account first – can still get ATM card, receive direct deposits, etc. • May be able to open checking account at bank used by employer • Open an investment account; most investment banks will open a bank account for you without a credit check (but may cost $500 or more to open)

5. Establishing and Building Credit • Apply for a credit card and make sure you pay it off each month • Discover.com has good cards for students with cash back incentives • Set up your credit card for automatic payments so you are never late

6. Rebuilding Credit • Secured Credit Cards • Some people don’t quality for regular credit cards • Secured cards require a cash collateral deposit that determines your credit line • Banks may reward you for good payment history and add to your credit line without additional deposits

7. Secured Credit Cards • People usually qualify for a regular unsecured credit card after a year with the secured card • Switch as soon as you can to an unsecured card as fees and rates are lower • Better than a prepaid card for rebuilding credit because a prepaid card = debit card (they are not reported to the major credit bureaus)

8. Secured Credit Cards • Watch out for fees: • Don’t pay an application fee • Don’t pay insurance policies!! • Annual fees lower at credit unions • Read the fine print! • Ask how long the issuer will keep your deposit after card is closed • Make sure card issuer DOES report to three major credit bureaus • Ask the card issuer if they flag report to credit bureaus as a secured credit card

9. Recommendations • Get the lowest annual fee you can • Just charge a few things each month and pay off entire balance each month • Don’t go into credit card debt! It can takes YEARS and YEARS to repay: Calculator • Compare credit cards at BankRate.com or look into cards through a credit union (i.e. Global)

10. Check your Credit Reports • annualcreditreport.com is free • Can check for free once a year from each credit bureau • TransUnion • Experian • Equifax

11. ChexSystems • Credit reporting agency used by 80% of banks • You can get one free report per year from their Web site • Some credit unions don’t use ChexSystems • If you owe one bank money, you may not be able to open account at another bank if they run report in ChexSystems • You can apply for account online to avoid embarrassment

12. Global Credit Union • Location across from STA Plaza • They offer secured loans for $250 or $500 with no credit check and no fee at 5% interest. They are reported to Equifax as installment loan. • They offer two secured credit cards; to qualify, you can’t owe more than $500 to another bank. Annual fee is low ($12 or $18) and interest rate about12% or 18%.

13. Global Credit Union • $20 to join (one-time fee) • After 6 months to a year, most qualify for a regular credit card (it depends on your credit history)

14. Free Financial Help

15. Your Questions • How do I pick a stock? • What are good investments? • What’s a Roth IRA?

16. Choosing a Bank • What things should I look for?

17. Owning a Home • What is equity? • How do I choose a bank for a home loan? • Compare, compare, compare! • Points vs. interest rate • Debt-to-income ratio? • Does it make sense to refinance? • Selling a home to limit taxes Tax Info • Best place to invest that money?

18. Your FICO Score • You have to pay extra for it • Precise formula for calculating it is a mystery, but experts estimate it is calculated this way: • 35% based on your payment history • 30% based on credit utilization • 15% based on length of time you’ve had credit • 10% based on new credit • 10% based on the types of credit you currently have

19. Budgeting • How do I estimate my power bill? • Track your expenses for a few months to develop a budget/see where your money goes • Consider using “money buckets” or envelope system STCU Web Site

20. Strategies for Improving your Score • Limit the number of credit cards you have • Clean up your score • If a company no longer exists or a bank has merged with another, bureaus are required to remove information because it is no longer verifiable • Try to keep debt utilization rate low (people with best credit scores borrow 7% or less of limit) • All 3 credit bureaus allow you to add a brief statement to report, which may help with employers

21. Stay Away from These Things!! • Credit repair offers • Some dispute all of your accounts, but after credit bureaus validate the accounts, they appear on your report again • Secured credit cards with monthly fees or application fees

22. Miscellaneous • How do you have paid items removed from your credit? Info • How do you build your credit? • How can I get the best car loan deal? • How is interest calculated? Stay tuned! • Teaching kids they can’t buy everything • Choosing lowest car insurance • Considering bankruptcy

23. How to Teach Teenagers (& yourself) Good Web Sites • Moneysavingmom.com • Clarkhoward.com • http://balancetrack.org/ AM Radio Shows • Clark Howard • Dave Ramsey

24. Ways to Save Money • Groceries • Buy generic brands • Consider low-cost protein sources like beans • Get the Wednesday ads and stock up on good deals • Use leftovers

25. Ways to Save Money • Clothes and furniture • Buy second hand • Craigslist • Consignment shops • Insurance • Get several quotes • Increase deductible • Check out books from the library • Download music for free with Freegal

26. If you spend 30 minutes clipping coupons and you save $10.00 on groceries, that’s like earning $20 an hour tax-free!

27. Good Web Sites • Moneysavingmom.com • Clarkhoward.com AM Radio Shows • Clark Howard • Dave Ramsey

28. Other questions • Why do some rich people pay lower tax rates than middle-class taxpayers? • Capital gain taxes vs. ordinary income • Different tax structures in different states • Income taxes versus sales taxes

29. Income Taxes • Use W-4 form worksheet to determine number of allowances

30. Interest • Cost of using money • You pay interest when you borrow money • You earn interest when you invest money High interest rates are good for savers, bad for borrowers. 

31. Mortgages • First and second mortgages • Refinances

32. Certificates of Deposit (CDs) • Ties up your money for a period of time • Early withdrawal penalties, but higher rates than regular savings • No fee to purchase • Doesn’t help build your credit • Invest in bonus rate savings accounts first