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What you need to know about credit

What you need to know about credit. A promise to pay someone back in the future. You make a contract with someone to borrow money/services. What is credit?. Affects your ability to borrow money Impacts the amount you pay for many things Impacts your ability to get a job

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What you need to know about credit

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  1. What you need to know about credit

  2. A promise to pay someone back in the future. • You make a contract with someone to borrow money/services What is credit?

  3. Affects your ability to borrow money • Impacts the amount you pay for many things • Impacts your ability to get a job • Impacts your ability to find a place to live Why is good credit important

  4. Secured Credit • Mortgage • Car Loan • Home equity loan/line of credit • Unsecured • Credit cards What types of credit are available

  5. Character • Are you reliable / trustworthy • Capacity • Do you have the ability to pay what you owe • Creditworthy • Have you shown you can repay debts? What do banks condsider when granting credit

  6. Personal Info • Name / Address • Financial Info • Annual salary / recent pay stubs / tax returns • Other debt you have • Credit Info • Credit report • FICO score What do you need to apply for credit

  7. Credit Reports • Experian • Transunion • Equifax • Credit Score / FICO Score How do they evaluate your creditworthiness?

  8. Your report is divided into six main sections: • identifying information (name, address, birth date and Social Security Number) • Employment • consumer statement • account information • public records • inquiries. What is in your credit reports?

  9. http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx What makes up your FICO score

  10. Installment Loan (Pay a fixed price + interest) • Equal payments for life of loan (mortgage) • Installment Loan with Balloon payment • Lower monthly payments then 1 large payment at the end of loan (be careful with these) • Some also contain an acceleration clause for default • Revolving Credit • Typical credit card • Spend up to your limit, only have to make minimum payments What kinds of loans can you get?

  11. What is the Annual Percentage Rate (APR) • Be careful of teaser rates • Check for fees (annual fee, late payment fee, over the limit fee, cash advance fee) • Rate increases for being late or over the limit • Avoid the minimum payment trap (see example) • Evaluate all factors before using a card What to know about credit cards

  12. Maintain your checking and savings account • Get a low limit credit card and make your payments • Get a store cards (Macy’s / Gap / Best Buy) • Get a secured credit card • Like a credit card but secured with a cash deposit • Get your own cell phone and pay the bill yourself How to establish credit

  13. Truth in Lending Law • All terms of loan must be stated prior to signing the agreement • Fair Credit Billing Act • Dispute charges on your credit card bill • Must be done in writing within 90 days What credit laws protect consumers

  14. Fair Credit Reporting Act • If you are denied credit based on your credit report they have to tell you why. • You can they try to fix problems with the credit bureaus • Fair Debt Collection Act • Sets rules for people trying to collect debt • How and when they contact you Credit Laws Continued

  15. Equal Opportunity Act • Prevents discrimation on who gets credit • Decision must be based solely on credit score/history Final Credit Law Slide

  16. Call your creditors • Ignoring the problem will make it worse • Reassess your spending • If you spend more than make you are in trouble • Get credit counseling • Many nonprofit agencies can help you address • Bankruptcy • Legal process but it harms your credit What to do if you can’t pay

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