Credit Management: Using Credit Wisely

1. Credit Management: Using Credit Wisely

2. Agenda • Uses of credit • Credit Reports / Credit Scoring • Establishing credit • The cost of credit • Choosing and using credit cards • Warning signs • Recovering from over-indebtedness • Sources of Help

3. First, a few facts: • Personal Credit Card Debt • Median - $6,600 • Average - $9,900 • 61% carry balances month to month • Almost half of all Americans are worried about the amount of debt they have • Over half have no financial plan

4. Wise Use of Credit • It’s about behavior, not dollars! • To purchase assets • Home • Education • For convenience • To take advantage of sales • Emergencies (convenience) • “Big Ticket” items

5. Unwise Use of Credit • To purchase consumables • Impulse buying • Spending for status • Retaliatory spending (couples) • Spending to feel good • Everyday living expenses

6. Qualifying for Credit • Three C’s of Credit: • Character • Capacity • Collateral • And the fourth “C” … Your Credit Report

7. Credit Reports • Detailed account of credit, employment and residence history • Used by prospective lenders, employers, landlords, insurance companies, etc. • Three Credit Reporting Agencies • www.annualcreditreport.com

8. Components of a Credit Report Personal Identification Information • Name • Social Security number • Address • Employment information • Date of birth Payment History (Trade Lines) - Credit accounts Inquiries - List of everyone who accessed your credit report within the last two years Public Record and Collection Items • Public records • Wage attachments • Bankruptcies • Liens • Foreclosures • Judgment • Suits • Collection Agencies – overdue debts

9. Credit Reports • Accurate Negative Information • Pay up and wait • Two years for inquiries and payments • Seven years for most information • Ten years for bankruptcies • Criminal Convictions—no limit • The seven-year period starts from the date that the event took place

10. Credit Reports • Correcting Wrong Information • Inform CRA in writing. Dispute forms included on websites. • CRA investigates, usually within 30 days. • CRA provides you with written results and copy of Credit Report. • CRA sends notices to others. • If not resolved, you can have a statement of dispute included in your file. Also, tell creditor that you dispute an item. *You have the right to put a statement of up to 100 words on your Credit Report*

11. Your Credit Score An objective estimate of how likely you are to repay on time according to the agreed on terms.  The score is based on five areas of information:

12. What is a good credit score?

13. Establishing a Credit History • Maintain a checking or savings account • Pay bills on time • Savings (share) secured loan • Cosigned loan • Local retailer or gas card • Major retail charge account • Major bank card

14. The Cost of Credit • Your Credit Worthiness Matters • The better your credit history, the better rates you will qualify for • Comparison Shop • Credit is a product, so comparison shop

15. Where to Borrow • Credit Unions • Commercial Banks • Savings & Loan Associations • Consumer Finance Companies • Retail Merchants BEWARE OF Predatory Lending

16. How Much You Borrow Interest Rate of 9% on a 5 yr. Loan Down Payment Amount Financed Monthly Payment Finance Charge Total Cost $0.00 $10,000 $207.60 $2,456 $12,456 $2,000 $8,000 $166.08 $1,965 $11,965 $5,000 $5,000 $103.80 $1,228 $11,228 Bigger Down Payment = Less Total Cost

17. How Long to Repay Interest Rate of 9% Term of Loan Amount Financed Monthly Payment Finance Charge Total Cost 1 Year $10,000 $874.50 $494 $10,494 3 Years $10,000 $318 $1,448 $11,448 5 Years $10,000 $207.60 $2,456 $12,456 Shorter Repay Period = Less Total Cost

18. Minimum Monthly Payment Beware of the myth of the minimum payment $1,000 credit card balance, 18% APR

19. Minimizing Interest Charges • Simple interest • Add-on interest Read the Contract! Example: $1,000 at 12% for 1 year Simple Interest paid = $66 Add-on interest paid = $120

20. Choosing Credit Cards: Know the Terms • Annual Percentage Rate • Grace Period • Annual Fees • Transaction Fees and other charges • Balance Computation Method for Finance Charges • Average Daily Balance • Adjusted Balance • Previous Balance • Two-Cycle Balances

21. Other Costs and Features • Other Costs and Features • How will you use it? • How high a credit limit? • Are there special delinquency rates? • What is the rate for Cash Advances? • Credit life, credit disability and credit unemployment insurance unnecessary and expensive

22. Military Cards: STARCARD • Use at ALL military installations • Administered by AAFES • 1-877-891-STAR or www.aafes.com • Finance charges accrue • Can reach into your paycheck

23. Government Credit Cardsand Navy Cash • Purchase cards • Travel cards • Authorized and approved charges only! • Navy Cash Card • On-board Debit Card System • “Electronic Purse”

24. Debt to Income Ratio Handout Debt: How Much is Too Much? Calculate your debt-to-income ratio

25. Warning Signs of Too Much Credit • Not paying off each month • Making only minimum payments • Gradually more income committed to debt repayments • Falling behind on payments • Using cash advances to meet monthly living expenses

26. Other Indicators • Little or no money in savings • Dependent on second job to make ends meet • Owing over 20% net income per month to creditors • At or near credit limits most of the time

27. Critical Point • Rotating bills (paying some this month, some next month) • Using credit to pay credit • Being denied additional credit • Dishonesty with spouse about debts • Use of consolidation loans to reduce payments

28. Recovering from Debt • Take Charge! Construct a budget and spending plan, prioritize debts • Construct a “power payment” plan • Talk to Your Creditors

29. Beware of: "Credit problems? No problem!" "We can erase your bad credit-100% guaranteed." "Create a new credit identity-legally." "We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!“ "Consolidate your bills into one monthly payment without borrowing" "STOP credit harassment, foreclosures, repossessions, tax levies and garnishments" "Keep Your Property" "Wipe out your debts! Consolidate your bills! How? By using the protection and assistance provided by federal law. For once, let the law work for you!" • Credit clinics • Debt consolidation loans • Bankruptcy • Chapter 7 • Chapter 13 • New Bankruptcy Law Much Stricter!

30. Stop Thief! Avoiding Identity Theft • Watch your purse or wallet at all times • Don’t carry your Social Security card • Don’t share personal information with random people you don’t know • Read statements, look for suspicious activity • Shred charge receipts, checks, bank statements, expired cards and any other documents with personal information

31. Talk to a Professional Non-profit Debt Management Counseling • www.aiccca.org • www.nfcc.org • www.myvesta.org • Your bank or credit union

32. Sources of Help • Your Command Financial Specialist • Fleet and Family Support Center • Navy Legal Services Office • Credit Union or Credit Counseling Agencies • Debt Management Programs

33. Summary • Keep your budget up-to-date • Calculate your Debt-to-Income Ratio • Plan purchases • Shop for credit • Check credit report annually • Use all of your available resources • Build wealth, not debt

34. Print your Certificate Click on the following link to add your name to the certificate and print it: Credit Management