Credit Made Simple

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Credit Made Simple

• Presented by the Financial Aid Office and the
  Medical Alumni Association

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What is credit?

• Credit is a promise to pay later, under
  designated terms, for goods and services
• Your credit means your credit file, or credit
  report
• There are three credit reporting agencies
  Equifax, Experian, and TransUnion
• Each agency keeps a separate credit file for you,
  and each may have different information

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What is a credit report?

• A credit report is the collection of your credit
  history and records maintained by a credit
  reporting agency
• The report includes personal identifying
  information, as well as a history of your credit
  usage and payments
• Negative information (such as late payments)
  stays on for seven years, except bankruptcy -
  which can stay on your credit report for up to 10
  years
• Get your credit report for free at
  www.annualcreditreport.com

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How to Read a Credit Report
This example is from Equifax and is available on
their website.
Every credit report will look different!
The personal information section lists your name,
social, date of birth, addresses, employer, and
any consumer statements.
It is common to have errors and misspellings in
this section of your credit report.
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Summary
The summary section shows all of your accounts,
listing the total balances and how many accounts
are past due.
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Summary
The summary section will give a list of your
accounts and their information in short
format. Your credit report may also have a more
detailed summary section, where accounts are
listed by status Open, Closed, In good standing,
Past Due, etc.
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Account Detail
Your credit report will then show details for
each credit account that you have, whether its
open or closed. The account details show the
type of loan, your balance, loan terms, payment
amounts, and payment history.
Closed accounts will continue to show on your
credit report for seven years.
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Revolving Account Detail
Revolving accounts, such as credit cards, will
show the current balance, the high credit
(highest balance ever held), and the credit
limit. It is not unusual for your payment
history to be missing for some months. A payment
status of NR (Not Reported) is fine.
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Inquiries
After your account information, your credit
report will show all of the inquiries about you.
There are two types Hard inquiries Inquiries
into your credit history as a result of you
attempting to obtain credit. Soft inquiries Not
caused by you seeking credit. Could be a
promotional inquiry from a credit company, or one
of your existing creditors monitoring your credit
report.
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Other information
Your credit report will also list any collections
and public records such as judgments,
bankruptcies, and liens.
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What is a credit score?

• In theory, it is an estimate of the likelihood
  you will pay your debt
• Formula was created by the Fair, Isaac Company
• The majority of scores range from 500-850, yours
  will be different at each reporting agency

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What determines my score?
The exact formula is a secret, but this is the
overall breakdown
Estimate your credit score
moneycentral.msn.com/investor/creditreport/main.as
p
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Why do I need good credit?

• Your credit history is one of the things a lender
  looks at when evaluating an application for
  credit, along with your income, assets, and other
  debt
• A good credit history makes it easier to get new
  credit when you need it
• Having good credit will get you the best interest
  rates on new credit, including mortgages and car
  loans
• Generally a score over 720 will get you the best
  rates
• Many landlords and employers check credit
• Utility companies and insurance companies may
  check your credit

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How can I build my credit?

• Build good credit by paying your bills on time.
• If you have no credit history, there are several
  ways to begin
• Get a credit card (use it wisely!) this is
  usually easy to do as a student
• May have to start with a secured credit card
• A debit card or check card wont do it
• Get added as a joint owner to your parents or
  spouses existing credit card
• Apply for a credit card at a local store
• Have your parents or spouse co-sign for a credit
  card or loan keep in mind, this legally
  obligates them to pay the loan back if you dont!
• http//www.ftc.gov/gettingcredit/

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How to improve your credit

• There is no quick fix!
• Get a copy of your credit report
• Look at what is helping and what is hurting, and
  check for errors
• Pay off your debt
• Pay all of your bills on time, even if its just
  the minimum payment
• Dont apply for new credit
• Use no more than 30 of your available
  credit

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How to hurt your credit

• Pay Late
• Late payments remain on your credit report for
  seven years. Bankruptcies remain for ten years.
• The later the payment, the more it hurts
• Lose touch with your lenders
• Fail to correct mistakes on your report
• Close old accounts
• Fail to pay traffic tickets and fines
• Co-sign for a loan
• Settle a current debt for less than you
  owe

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Things that dont matter

• Demographic information on your credit report
• Consulting a credit counseling service
• Checking your own credit
• Promotional and other soft inquiries
• Multiple inquiries for a mortgage or car loan
  within 14 days shop around!
• Getting married

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Credit Cards

• You only need one to build your credit
• Use it and pay it off every month
• Avoid annual fees if possible
• Avoid fees and rate increases for going over the
  limit or paying late
• You can sometimes negotiate better rates
• Safer than carrying cash
• Might cause you to spend more
• Read the fine print for both terms and
  protections you might not know about

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Student Loans

• Stafford loans have no credit check
• PLUS loans require a basic credit check
• Federally guaranteed student loans do not show up
  on your credit report until you are out of school
• Student loans show on your credit report as an
  installment loan, similar to a mortgage, but
  their existence generally dont help or hurt
• Paying late can hurt your score
• Student loans will affect your debt-to-income
  ratio

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Using credit to your advantage

• Many credit cards offer points or miles for
  every purchase
• Good credit can get you a better rate on your car
  insurance
• Good credit may mean you do not have to pay a
  deposit to your utility companies
• Using a credit card, especially on large
  purchases, protects you

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Credit Pitfalls

• Beware
• Easy credit
• High credit limits
• Free stuff and discounts for signing up
• Low- or no-interest promotional offers
• Fees overlimit fees, late fees, annual fees
• Bills may be due within a week or two when you
  get them in the mail

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What to do if youre in trouble

• Contact your creditor immediately
• Make a budget, with a plan to pay off your debts
  Good credit begins with a good budget.
• Come talk to your financial aid counselor
• If you need credit counselor, find someone
  accredited with no or low up-front fees
• You may need a credit counselor if
• You cant even pay the minimums on your credit
  cards
• Youre consistently late on your regular bills
• Your efforts to work with your creditors have
  failed
• You are being harassed by collection agencies

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Errors on your credit report

• If you find an error
• Contact the creditor and ask them to fix it
• They have 30 days to respond
• Send the credit bureau documentation
• If its corrected, the bureau must send you a
  copy of your new report
• If its not, the bureau must tell you who
  investigated the error, and you can add a
  statement to the report
• Mortgage companies can use a rapid rescoring
  service to correct errors

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Identity Theft

• Identity theft is when someone uses your
  accounts, or uses your personal information to
  obtain credit accounts
• Common ways identity thieves get info
• Phishing scams
• Phone scams
• Financial documents in your trash or mail
• Stealing your purse or wallet
• You are not liable for the damage caused by an
  identity thief, but fixing it can take a
  lot of time and energy.

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How to prevent identity theft

• Shred sensitive documents
• Get your bills by email and pay bills online
• Never respond to phone or email requests for
  information
• Nearly all legitimate companies will request
  information by regular mail. If you have any
  concerns, contact the company directly.
• Carry only necessary documents in your purse or
  wallet
• Usually it is not worth paying a credit
  monitoring service unless you have reason to
  believe you are at risk

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Steps to take

• If you think someone has your information, or if
  you are a victim of identity theft
• Review your credit report
• Place a fraud alert on your credit report
• Equifax 1-888-766-0008, www.equifax.com
• Experian 1-888-397-3742, www.experian.com
• TransUnion 1-800-680-7289, www.transunion.com
• Close the affected accounts
• File a complaint with the local police
• File a complaint with the FTC www.consumer.g
  ov/idtheft

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Resources

• The Federal Trade Commission www.ftc.gov/credit
• Opt out of unsolicited credit card offers
  1-888-5-OPTOUT (1-888-567-8688)
• Personal Finance on CNN Money money.cnn.com/pf
• Planning on MSN Money moneycentral.msn.com/plann
  ing/home.asp
• Glossary of credit terms www.equifax.com/credit-
  information/ credit-glossary

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The Credit Crisis

• Risky mortgages and other investments
• Global investors saw their investments fail as
  people couldnt pay their mortgages, mostly those
  with subprime (nontraditional) mortgages
• Easily available mortgages helped skyrocket home
  prices, which then had nowhere to go but down
• The economy
• Falling home values, rising unemployment,
  recession
• Sudden conservatism by financial institutions is
  making things worse its harder to get loans
  even with good credit, so spending decreases

• How this affects you
• - Harder to get loans
• - If you have investments, they have likely
  lost value

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The Financial Aid Office
For help with budgeting, credit, or any financial
concerns, come by the Financial Aid Office any
time, Monday-Friday, 8-5.
Dennis (A-H)
Margaret (I-R)
Nancy (S-Z)
Tonya