Mastering Your Credit: Improve Your Financial Future

2. Topic Overview • Financial Psychology – Goal-setting, relationship with money, spending and savings habits. • Accounts and Budgeting – Automate and systemize finances to save more and stay organized. • Credit and Debt – How to repair, build, or maintain an excellent credit history and eliminate debt. • Skill Growth – Identify the skills that get you paid. • Insurance -- Insurance plan that protects assets, credit, and income and manages risk. • Investment Basics – Introduction to investment principles will get you excited to learn more.

3. How Credit Impacts Your Wallet.

4. How does My Credit Rating Impact Me? • Money. Someone with good credit can save $5,000 - $10,000 off the total cost ofan average-priced car. • Jobs. Many employers check credit prior to hiring new employees. Those with an excellent credit rating stand out. • Access to Capital. Poor credit severely limits ability to qualify for loans. Those who do qualify receive poor terms. People with a good credit rating receive better loan terms and an easier application process. • Emotions. Being turned down for credit can be embarrassing. And being unable to get your dream home or car can be disappointing.

5. What is Credit? • Credit is like a report card you receive in school: it grades you on how well you pay your bills and manage debt. • Three separate credit bureaus (Experian, TransUnion and Equifax) rate your credit each month. Lenders report details of your loan to the credit bureaus each month. • The credit bureaus compile all your information. Instead of giving you a grade, the credit bureaus assign you a credit score between 350 and 800. • Credit score above 740 = ‘A’ credit rating • Score around 660 = ‘C’ credit rating • Score under 580 = ‘F’ credit rating

6. How Credit Bureaus Rate Your Credit 35% • 35 % - On-time payments. • 30%– Debt versus available . credit. • 15%– Length of open credit .. lines. • 10%– How often credit is . applied for. • 10% – Various other details. 25% 15% 10% 10%

7. Tips to Building a Good Credit Rating • Pay your bills on time. • Keep your debt low. • Have medical and auto insurance. • Protect against identity theft. • Build your credit rating by using your credit each month and paying it off in full. • Clean up past credit mistakes.

8. How to Build or Rebuild Your Credit Rating • Have safety measures in place: • A written budget • Ability to control spending • Automated accounts (AutoX System) • A minimum of 3 months of bills in your emergency fund OR limit yourself to only secured credit cards • Use your credit card each month and pay it off in full. You can build or rebuild your credit rating without paying interest. • Monitor your credit profile at least annually.

9. Tips to Repairing Your Credit • Get free copies of your credit report from all 3 credit bureaus at www.annualcreditreport.com. • Dispute all negative items on your credit report. • Form letters included in the student guide. • The credit bureau has 30 days to verify the information or it drops off your report. • Continue your letter-writing campaign. • For any bad marks on which you still owe money, contact the lender directly. • Negotiate a settlement. Before you pay, get a letter stating that the item will be removed from your report.

10. Identity Theft • Annually in the U.S.: 1 million stolen cars; 9 million identity thefts. • Get annual copies of your credit report from all three bureaus at AnnualCreditReport.com. Search for any item that is not yours. • If you find items that aren’t yours, dispute those items. File a report with your local police department and the FTC. • Reduce risk of identity theft by: • Shredding documents with account and social security numbers. • If your mailbox is unsecured, bring mail in as soon as possible after delivery. • Review financial statements for any charges you did not make. • Shred ATM receipts (donot toss in the trash by the ATM). • If you don’t receive an expected statement, contact the company immediately. • Enroll in an identity theft protection plan.

11. Credit Card Usage • Do you think people are more likely to buy something they don’t need when they use a credit card? • Why? • Using a credit card = less money in the bank. • But sometimes credit can be good. ?

12. Debit vs. Credit • Debit cards deduct money automatically from your checking account. • Credit cards are loans that charge interest. • The longer you take to pay, the higher the interest. • To avoid paying interest, pay the credit card in full every month. • To avoid using credit at all, save up the money and buy in cash.

13. Credit Card Example Bad Credit: Purchases $1000 Interest Rate 27% Minimum Payment $23 Years to Pay off 12 years Interest Paid $2,312 Actual Cost $3,312 Purchase with Savings: Purchases $1000 Amount Saved/month $125Months to save $1,000 8 monthsInterest earned on money in savings $30Actual Cost $970 Good Credit: Purchases $1000 Interest Rate 7% Minimum Payment $10 Years to Pay off 12 years Interest Paid $440 Actual Cost $1,440

14. Why do People have Credit Cards? • Credit cards can be a tool to build your credit rating. • Must pay in full every month. • Build credit history without paying interest. • WARNING: Before getting a credit card: • Have 6 months’ worth of bills saved • Have a working budget • Control your spending

15. How to Effectively Pay Off Debt • Contact all your creditors and ask them for your: • Current interest rate • How much you owe • Minimum payment • Whether they can reduce your interest rate or any specials they may have. • List your debt on a spreadsheet with the highest interest rate credit card first.

16. How to Effectively Pay Off Debt (continued) • Pay the maximum amount on your highest-rate card; make minimum payments on lower-interest cards. • Once the highest-rate credit card is paid off, work on the card with the next-highest interest rate and continue making minimum payments on lower-rate cards. • Just this tip can save you 3 to12 years of extra payments.

17. Other Debt Elimination Options • Each option discussed below will negatively impact your credit for 7 --10 years. Cut this down by actively trying to repair your credit. • Debt Consolidation – If you feel you could pay off half your debt in 3-5 years, you may want to consult with a debt consolidation specialist. Payments must be made consistently on the consolidation agreement. • Bankruptcy – If you don’t think you can pay off your debt within 5 years, talk to a bankruptcy attorney. • Foreclosures and Short Sales. - If you’re unable to make payments on a property where you owe more than the value, discuss these options with a professional in your state. • Although the above solutions will have negative impact in some ways, they may benefit you in other ways. Make non-emotional business decisions. Become an expert in debt and consult trusted advisors.

18. Action Steps for ‘A’ Credit: Review • Get a complimentary copy of your credit report. • Identify the areas that need work and create a credit plan to address them. • If in debt, create a debt reduction plan. • If you have no credit history - save 6 months of your bills, have a working budget, have the ability to control your spending; then get a credit card to use and pay in full each month. • Set up the Auto X system to pay your bills on time automatically. • Review medical and auto insurance to ensure adequate protection. • Review your credit report annually and three months before a major purchase. • Sign up for credit protection plans. • Build available credit over time. Keep debt to a minimum. • Limit inquiries and be conscientious.

19. Creating Your Credit Plan • Identify areas where your credit can improve and verify on your credit report. • List areas that need work in order of importance. • Write down how you’ll remedy each area. • Example: I will set up the Auto X system so my bills are paid on time. • List any larger purchases for which you’ll need a loan. • Create a credit timeline to ensure best terms at time of purchase. • Take action on your credit each month and work your plan.

20. Credit “UPS” • Understand • A good credit rating can save you hundreds of thousands of dollars. • Good credit avoids the embarrassment of being denied for a loan or receiving bad loan terms. • The main components of building a good credit rating are paying bills on time, keeping debts low, protecting your credit with insurance, protecting against identity theft, and actively building a good credit rating. • Plan • You have created a credit plan that will guide you through the process of building an excellent credit rating. • Systemize • Use the Auto X system to protect your credit rating. • Schedule a time in your calendar to check your credit each year. If you don’t use a calendar, schedule around a memorable date (birthday, holiday). Get in the habit of reviewing your credit report and updating your credit plan.

21. You are on your way to: Income You have multiple income sources and are developing skills that grow your income. Assets You have an emergency fund, risk capital, investments and a plan to grow your wealth. Debt You have no bad debt and carefully leverage good debt to build your assets. Credit You have an excellent credit rating and qualify with the best terms. Insurance You have the insurance that protects your income, assets, credit ,and family.

22. You’re on Your Way!. • You are all less than 5 years away from financial wellness. • You know more about money than the vast majority of people. • You have a clear plan. Follow it! • Keep learning about money management topics and building your skill sets. • Overcome feelings of greed and fear. • When things don’t go your way financially -- stay calm, think logically, and make the right moves. • You have all the steps…now go!