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CHAPTER 6 BUILDING AND MAINTAINING GOOD CREDIT

CHAPTER 6 BUILDING AND MAINTAINING GOOD CREDIT. Fin 235 Spring 2013. BUILDING AND MAINTAINING GOOD CREDIT. LEARNING OBJECTIVES Explain reasons for and against using credit. Establish your own debt limit. Achieve a good credit reputation. Describe common sources of consumer credit.

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CHAPTER 6 BUILDING AND MAINTAINING GOOD CREDIT

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  1. CHAPTER 6BUILDING AND MAINTAINING GOOD CREDIT Fin 235 Spring 2013

  2. BUILDING AND MAINTAINING GOOD CREDIT • LEARNING OBJECTIVES • Explain reasons for and against using credit. • Establish your own debt limit. • Achieve a good credit reputation. • Describe common sources of consumer credit. • Identify signs of over-indebtedness and describe options available for debt relief.

  3. BUILDING AND MAINTAINING GOOD CREDIT • using credit pros and cons • Positives • Convenience • Emergencies • Making reservations • Own expensive products sooner • Take advantage of free credit • Protections against fraud • Obtain and education

  4. BUILDING AND MAINTAINING GOOD CREDIT • Negatives • Credit reduces financial responsibility • It is tempting to spend more • Easy to become financially overstretched • Interest is costly • Potential for bankruptcy increases

  5. BUILDING AND MAINTAINING GOOD CREDIT • Privacy / Security Issues • Offer no other personal information when using a credit card • Check receipts against credit card statements (online access to account) • Only give your card numbers when you initiate the contact • Review your credit reports regularly • Report lost or stolen cards or suspicious activity immediately • ”Opt out” of account information sharing • Do not respond to e-mail requests for account verification • Place a security freeze on your credit bureau files

  6. BUILDING AND MAINTAINING GOOD CREDIT • managing debt • Debt payments-to-disposable income should not exceed 14% (see Table 6-1 page 175) • Debt-to-Equity ratio should not exceed 33% (see Table 6-2 page 176) • You should be able to eradicate non-mortgage debt in 4 years.

  7. BUILDING AND MAINTAINING GOOD CREDIT • Student debt • Choose the most advantageous repayment pattern allowed. • Repay electronically. • Make payments on-time, every time. • Consolidate your student loans.

  8. BUILDING AND MAINTAINING GOOD CREDIT • obtaining credit • Application to credit card / bank / finance company • Federal law imposes new standards on creditworthiness • Three Credit Bureaus (free every 4 months) • Trans Union (1-800-680-7289) • Equifax (1-800-525-6285) • Experian (1-800-397-3742)

  9. BUILDING AND MAINTAINING GOOD CREDIT • Building a Good Credit History • Have a checking and savings account • Have telephone and utilities bill in your name • Acquire and use a oil-company credit card • Apply for bank credit card (at your bank is best) • Get a small short-term cash loan and put it in savings account • Pay-off student loans as quickly as possible • Regularly monitor credit report • Don’t cancel unused credit cards

  10. BUILDING AND MAINTAINING GOOD CREDIT • Sources of consumer loans • Banks, Savings and Loan, Credit Unions (least expensive) • Finance Companies (most expensive) • Life Insurance companies against cash values of whole life policies

  11. VI. Dealing with Excessive Indebtedness • Ten Danger Signs • Not knowing how much you owe • Running out of cash and using credit cards for essentials • Paying the minimum amount each month • Exceeding you credit limits • Requesting additional cards or increased debt limits • Paying late or skipping payments • Taking add-on loans or credit card flipping • Using debt-consolidation loans (home equity lines) • Having your pay garnished by creditors • Experiencing repossession or foreclosure

  12. VI. Dealing with Excessive Indebtedness • Handling the Indebtedness Problem • Determine all your account balances and required monthly payments • Focus your budget on debt reduction • Contact your creditors • Take on no new credit • Refinance, if possible, to lower interest rates • Avoid bad help; especially credit counselors that charge a fee • Find good help

  13. VI. Dealing with Excessive Indebtedness • Ultimate Measures • Filing for bankruptcy • Chapter 13: Regular Income plan • Chapter 7: Liquidation • HOMEWORK

  14. VII. HOMEWORK • Do the Math: 3 • Personal Financial Manager: 1 (getting a free copy of your credit report), 4 • Be Your Own Personal Financial Planner* • 2 – Setting Debt Limits (W/S 25) • 3 – List your outstanding installment loans (W/S 26) • 5 – List your student loans (W/S 27) * Much of this information is confidential and should not be turned in with homework.

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