Credit Counseling & Repair

Credit Counseling & Repair The National Economics Department Financial Freedom Campaign NAACP

Agenda • What is Credit? • Pros & Cons • Types of Credit • Understanding Financial Institutions • Importance of Building Credit • Credit Building V.S. Non Credit Building • What is Predatory Lending • Understanding Credit Scores & Credit Reports

What is CREDIT? • Credit: Money you borrow and plan to repay. It allows you to make a purchase without having to pay the entire price at once. • Interest: Is the cost of borrowing money.

Know the FACTS Pros Cons

Types of Credit Revolving Credit: Allows you to borrow money at any time up to a set limit. The most common types are credit cards. Installment Credit: A loan that must be repaid over a specific period of time. This type of credit is common for larger purchases such as a home, car, or education. Non-installment or Service Credit: Allows you to pay for a used service at a later date usually without an interest charge. (i.e. A utility bill)

Types of Credit Continued • Secured Credit: Requires you to provide something of value to guarantee that you will repay your debt. It is usually used for installment loans. If you fail to repay, the lender takes your item as repayment • Unsecured Credit: Does not require a guarantee (collateral)

Understanding Financial Institutions • Financial Institutions: Establishments that provide services, such as investments, loans and deposits. • Some offer Depository Services, which means that you are able to open a checking and savings account • Federal Deposit Insurance Corporation (FDIC) & National Credit Union Share Insurance Fund (NCUSIF) = Government backed insurance for your funds

The Importance of Building Credit • Its hard TO GET credit if you HAVE NOT ALREADY ESTABLISHED a credit history. • Without a history, Lenders can’t tell if you are RESPONSIBLE with your money (by paying your bills on time, etc.) or not. • Building credit isNECCESSARYto proving your creditworthiness.

Ways To Build Your Credit • Apply for a secured credit card • Your credit card limit will match the amount you have deposited into an account. • Use a co-signer • The co-signer’s good credit will serve somewhat like an insurance for your credit behavior • Use retailer programs • (i.e. Gas Station Cards, etc) They are generally easier to qualify for and can help you to establish a credit record. • Get a credit card with a reputable credit building institution • An institution that will protect and help you to grow your money.

Credit Building Lending

Non- Credit Building Lending

What is Predatory Lending? Predatory Lenders: • Direct a borrower away from loans with more affordable rates. Instead, the applicant is offered a loan with a high interest rate, questionable fees, or unnecessary charges. • Predatory lenders often target low and moderate income people, people of color, and the elderly

Predatory Lending Cont. Take the following steps to avoid predatory lenders • Turn away loan offers from anyone who calls you on the telephone, comes to your door or send you emails without invitation. • Be wary of high pressure sales pitches, such as claims that an offer is only good for a limited time • Consult with a local nonprofit or consumer credit counseling agency whenever possible • Avoid loans that include extras that you do not need • Try to read all document’s before signing • Investigate Interest

Ask yourself…. How will this credit payment affect my household budget each month? Will I still have this item when I finish paying for it? Should I go home and sleep on my decision before using my credit to make a purchase? • Is this purchase a needor a want? • Do I really need the item right now, or can I wait until I have the cash? • How much do I have to pay to borrow this money?

The Credit Score • A Credit Score: is used to predict how likely an individual is to repay a new loan based on the financial institutions experience with consumers. • There are various computer models used. In general the computer model assigns points to information on a credit report • A FICO Score: The credit scores used by the credit bureaus are produced from a software developed by the Fair Isaac and Company.

U.S. Credit System Creditors Public Records Collection Agencies Credit Bureaus/Inquiries Data Furnishers TransUnion Equifax Experian

The FICO Score: Factors that influence credit • 35% Payment History • 30% Amounts Owed • 15% Length of Credit History • 10% New Credit • 10% Type of Credit in Use

Racial Credit Score Disparities

Racial Disparities in Credit Scores • Fair Isaac: The percentage of individuals from high minority areas with relatively low credit scores was twice as large as the share of individuals from other areas • Federal Reserve: Fewer than 40% of consumers who lived in high-minority areas had credit scores over 701, while nearly 70% of consumers who lived in mostly white neighborhoods had scores over 701 • Harvard’s Joint Center for Housing: Median credit score for whites in 2001 was 738, but for Blacks it was 676 and Hispanics it was 670 • Freddie Mac: Blacks were three times as likely and Hispanics twice as likely to have FICO scores below 620 as whites

The Credit Report: Explored • Credit Report: A record of how you have paid your credit card debt and other loans. It reflects the following: • How much debt you have • If you’ve made your payments on time • Whether or not you’ve paid back your loans

The Credit Report: Explored Credit reports are complied by national credit reporting agencies called credit bureaus • There are three Credit Bureaus: • TransUnion • Equifax • Experian

Credit Report: Explored Note: • There are multiple credit scores available for you. • Different scoring models are used with different institutions (Vantage Scoring System v. FICO Scoring system). • The FICO score is the most commonly used one, as it is the one used by the three credit bureaus.

The Credit Report: Explored Information typically included: Common errors on the report Duplicate Information Uninvited Inquiries Items that should no longer be listed on your credit report • Indentifying Information • Name, Address, Social • Credit Information • Dates opened, credit limits • Public Record Information • Bankruptcy, Foreclosures • Inquiries • Others who looked at report

Want GOOD Credit??? • Tip 1: Pay your bills on time • Tip 2: Contact your lenders immediately if you foresee a payment problem • Tip 3: Borrow at a minimum • Tip 4: Do not overdraft accounts • Tip 5: Understand loan terms/agreements before signing

Protecting Your Finances • Keep the original copies of your documents in a safe place. • Keep your important computer files safe. • Make copies of all of your important documents. • Keep a copy of your important papers in safe, or storage that is secure and outside of the home, in case of an emergency • Monitor your accounts regularly

Recognizing Credit Repair Scams • The company wants you to pay for credit repair services before they provide any services. • The company recommends that you do not contact any of the three major national credit reporting companies directly. • The company tells you they can get rid of most or all the negative credit information in your credit report, even if that information is accurate and current. • The company suggests that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number. • The company advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness.

YOUR RIGHTS • Each of the nationwide consumer reporting companies Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report once every 12 months, if you ask for it. • It doesn’t cost anything to dispute mistakes or outdated items on your credit report. • No one can legally remove accurate and timely negative information from a credit report

Where To Get Help • Annual Credit Report: www.annualcreditreport.com • Experian: www.experian.com • Equifax: www.equifax.com • TransUnion: www.transunion.com • National Foundation For Credit Counseling: www.nfcc.org • Federal Trade Commission: Choosing a Credit Counselor www.ftc.gov • Department of Justice: List of Credit Counseling Agencies- http://1.usa.gov/2P1Bq4 • Better Business Bureau: See if there are any alerts on the organization you are considering www.bbb.org • Association of Independent Consumer Credit Counseling Agencies: www.aiccca.org

Credit Counseling & Repair