Understanding and Using Credit

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Understanding and Using Credit
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Welcome
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I. Credit Basics
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What is Credit?

• The benefit of being able to pay at a later date
  for the goods and/or services that one enjoys
  today
• It is both privilege and a responsibility

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Types of Credit

• Secured
• Repayment is backed by some form of collateral
• Car loan (secured by the car)
• Mortgage (secured by the property)
• Secured loan (secured by cash in a bank account)
• Unsecured
• Simply the promise to repay
• Alternative loan, revolving credit card, personal
  loan

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Benefits of Good Credit

• A person with good credit is someone most
  likely to repay a loan
• Makes it more likely that you will receive the
  credit you want when you want it
• Car rentals
• Apartment rentals
• Utilities and phone service
• When financing education costs (particularly
  postgraduate education), good credit is needed to
  obtain an alternative student loan.

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Create a Good Credit History

• Pay your bills on time
• Keep your debt load reasonable
• Understand the basics
• Know the terms and conditions of all credit
• Review your credit history every year

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Applying for Credit

• Print clearly
• Use your complete name
• Only apply for the credit you want
• Review your credit report before making a major
  purchase

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II. Recent Developments
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Credit Report
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Your Credit Report

• Visit annualcreditreport.com
• One free credit report per year from each
  reporting agency
• Additional reasons for free reports
• Unemployed and plan to apply for employment in
  the next 60 days
• Denied credit within 60 days on public assistance
• Denied employment or insurance in the past 60
  days
• A victim of identity theft

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Credit Reporting Agencies

• Equifax, 1-800-685-1111
• www.equifax.com
• Trans Union, 1-800-888-4213
• www.transunion.com
• Experian, 1-888-397-3742
• www.experian.com

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Information on Your Credit Report

• Personal Information
• Name, address (current and prior), SSN, DOB,
  employment
• Credit Information
• current open accounts, closed accounts, rating
  and number of day(s) delinquent, timeliness of
  repayment, installment or open ended
• Public Record Information
• bankruptcy, legal judgment, property lien,
  warrants

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Information on Your Credit Report

• Inquiries
• Creditors and agencies who have requested your
  credit report
• Statements of dispute

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Example Credit Report
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Fixing Errors

• Document discrepancies in your credit report in a
  letter to the credit reporting agency, detailing
• Name, address, SSN
• Account and account numbers in dispute
• The information you are disputing and why
• Any documentation to support your claim
• A request for an updated credit report reflecting
  the correct information

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Credit Score
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FICO (Fair, Isaac and Company) Scoring, a.k.a.
Credit Scoring

• Credit scoring is a system creditors use to help
  determine
• Whether or not to give you credit
• The interest rate to charge for the credit they
  do give
• A credit scoring system awards points for each
  factor that helps predict who is most likely to
  repay a debt
• Your credit score is based on information on your
  credit report, therefore, make sure your report
  is accurate

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What is Your Credit Score?

• Forecast of how likely you are to repay a debt as
  agreed during the next 24 months
• The higher the score, the better the score, the
  better the forecast that you will repay
• Snapshot of your credit history at a particular
  point in time
• Only includes factors related to your credit
• Always changing

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Information Considered in Scoring

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Credit Scoring Does Not Consider

• Race, color, religion, national origin, sex or
  marital status
• Age
• Employment history, occupation, salary
• Where you live
• Non-credit inquiries
• Any information not found in your credit

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Why Credit Scoring?

• More than 70 of the top 100 financial
  institutions use FICO scoring to make billions of
  credit decisions annually because it is
• Fast
• Consistent
• Objective
• Cost Effective
• Reliable and updated regularly
• Strong analytical support
• Support increase lending

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FICO Scores - Ranges and Grades

• 760 and above Excellent A
• 700 to 759 Very Good A
• 680 to 699 Good A
• 660 to 679 Above Satisfactory B
• 640 to 659 Satisfactory B-
• 620 to 639 Below Satisfactory C

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Improving Your FICO

• Make loan/credit payments on time
• Pay down your debt and consider charging less
  often
• Keep balances low
• Dont close old, paid-off accounts
• Dont be afraid of credit counseling
• Stay out of bankruptcy

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Identity Theft
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Identity Theft

• Identity theft is the deliberate assumption of
  another persons identity by using their personal
  information, such as date of birth, mothers
  maiden name and social security number
• The theft of identity is usually to gain access
  to their credit and commit fraud
• Most identity theft is committed by people we
  know like friends, family, or co-workers

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Protect Yourself

• Check financial statements promptly
• Review your credit report annually
• Be careful with personal information
• Say NO
• opt out of credit offers
• minimize the number of credit cards you carry by
  calling 1-888-567-8688.

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Protect Yourself

• Shred and destroy
• Protect your mail
• Beware of strange ATMs
• Watch Shoulder Surfing
• Keep your eye on your card at restaurants and gas
  stations.

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Steps to Take if You Are a Victim

• Place a fraud alert
• Start your search
• File a police report
• File and complete the Federal Trade Commission
• Identity Theft Affidavit (1-877-ID-THEFT)
• Document everything

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Credit Trouble
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Signs of Credit Trouble

• Your credit card balances are rising and your
  income is decreasing
• Only paying the minimum monthly payment
• Too many credit cards
• Near, over, or at your limit

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Signs of Credit Trouble

• Charge more than you pay monthly
• Using credit for food or gas
• Lost job
• Receiving letters and calls on delinquent debts
• Use credit cards because you have no money

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Steps Toward Resolving Trouble

• Contact your lenders immediately
• Stop using credit
• Pay your bills when they are due
• Consolidate
• Get help from the professionals

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Credit Counseling Resources

• National Foundation for Credit Counseling (NFCC)
  and its member agencies
• Member agencies known as Consumer Credit
  Counseling Services (CCCS)
• To locate, visit www.nfcc.org or call (800)
  388-2227

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II. Alternative Loans
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Alternative Loans

• Private loans to fund graduate studies
• Interest Rate is based on LIBOR
• A variety of graduate loan eligibility criteria
• Many lending institutions
• Factors to compare include
• Interest rate
• Fees
• Interest capitalization
• Repayment terms

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Alternative Loan Advantages

• Process is fast
• As little as 5 business days to receive funds
• Student is not required to file the FASFA
• Loans can cover costs for fees, books, and
  technology
• Competitive rates
• Many times funds are sent directly to the student

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Alternative Loan Disadvantages

• Variable interest rate
• No cap on the interest rate
• Cannot be consolidated through the federal
  government
• No disability or death forgiveness
• Borrower must be creditworthy

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QUESTIONS
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THANK YOU!