• Introduction to Financial Services

1
Introduction to Financial Services Basic
Banking Services Money Management Credit
2

• Activity 1.Where Do I Keep My Money?
• Activity 2.Evaluating Financial Services
• Activity 3.Banks, Yesterday and Today

3
Introduction to Financial Services - Activity 1
ACTIVITY 1 Where Do I Keep My Money? Overview
The functions of banks The cost of
alternative financial services The stability
of banks
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Slide 1 - Places to Save MoneyLesson Reference
Introduction to Financial Services, Activity 2
Overhead 1

• PLACES TO SAVE MONEY
• Would you save your money in any of these places?
  Why? Why not? Can you think of other places to
  save money?
• Bed Mattress
• Cookie Jar
• Pillow
• Wallet
• Money Belt
• Small House Safe

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Slide 2 - Alternative Financial Services Lesson
Reference Introduction to Financial Services,
Activity 1 Handout 1

• ALTERNATIVE FINANCIAL SERVICES
• Check-Cashing Services
• Check-Deferrals, Cash Advances, Payday Loans
• Pawn Shops
• Rapid Tax Refunds
• Rent-to-Own
• Other Financial Services

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Slide 3 FDIC Lesson Reference Introduction to
Financial Services, Activity 1 Overhead 2

• FEDERAL DEPOSIT INSURANCE
• CORPORATION (FDIC)
• Established in 1933.
• Insures most Savings, Checking,
• and other Deposit Accounts, up to 100,000 per
  depositor,
• per institution.
• Applies to most Commercial Banks, Savings
  Banks, and
• Savings Associations.

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ACTIVITY 2Evaluating Financial Services

• Overview
• Formal and informal financial services
• Costs of alternative financial services and
  average bank accounts
• Advantages of establishing a banking relationship

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Introduction to Financial Services Activity 2
8

• INFORMAL
• FINANCIAL
• SERVICES
• Payday lenders
• Check cashing services
• Rent-to-own stores
• Pawn shops
• Title lenders
• Loans from family/friends
• Cultural savings clubs
• Remittances offered through nonfinancial
  institutions

• FORMALFINANCIAL SERVICES
• Accounts
• Credit cards
• Loans
• Investment vehicles
• Direct deposit
• Wire transfers/ remittances

8
Slide 1 Formal and Informal Financial
Services Lesson Reference Introduction to
Financial Services, Activity 2 Overhead 1
9
HOW A BANK CAN SAVE YOU MONEY Monthly Fees
without a Bank Monthly Fees with a Bank

• 0 to directly deposit paycheck
• 0 to get cash from bank's ATMs or make debit
  card purchase
• 0 to pay monthly bills using electronic bill
  payment
• 5 to send money to family
• Monthly cost 5.00
• Annual cost 60.00

• 80 to cash paychecks
• 3.81 on money orders and stamps to pay bills
• 15 to send money to family with a wire transfer
  company
• Monthly cost 98.81
• Annual cost 1,185.72

Annual Savings by Using a Bank 1,125.72
9
Slide 2 How a Bank Can Save You Money Lesson
Reference Introduction to Financial Services,
Activity 2 Handout 2
10
ADVANTAGES OF ESTABLISHING A BANKING
RELATIONSHIP Nearly everyone needs a bank
account to help manage his or her day-to-day
money. Bank accounts can help you to Pay
bills Manage your money Receive money Send
money to a friend or family member Keep your
money secure Start building wealth Earn
interest
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Slide 3 Advantages of a Banking Relationship
Lesson Reference Introduction to Financial
Services, Activity 2 Overhead 2
11
Introduction to Financial Services - Activity 3
ACTIVITY 3Banks, Yesterdayand Today Overview

• The many traditional financial services provided
  by a bank
• Other expanded financial services provided by a
  bank
• The impact of banks throughout the community

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Slide 1 - Traditional Services of Banks Lesson
Reference Introduction to Financial Services,
Activity 3 Overhead 1

• TRADITIONAL
• SERVICES
• OF BANKS
• Checking Accounts
• Savings Accounts
• CDs (Certificates of Deposit)
• Savings Bonds
• Loans
• Car
• Home
• Personal
• Safe Deposit Boxes

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Slide 2 - Expanded Services of Banks Lesson
Reference Introduction to Financial Services,
Activity 3 Overhead 2

• EXPANDED
• SERVICES
• OF BANKS
• Insurance Sales
• Small Business Advising and Loans
• Investments
• Credit Cards
• Remittances

• TRADITIONAL
• SERVICES
• OF BANKS
• Checking Accounts
• Savings Accounts
• CDs (Certificates of Deposit)
• Savings Bonds
• Loans
• Car
• Home
• Personal
• Safe Deposit Boxes

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Slide 3 - Financial Services Modernization Act
Lesson Reference Introduction to Financial
Services, Activity 3 Overhead 3

• FINANCIAL SERVICES
• MODERNIZATION ACT (1999)
• Transformed the banking industry. Eliminated many
• restrictions among companies in the securities,
• banking, and insurance industries.
• Results?
• Banks may offer some insurance and investment
  services.
• Investment and insurance companies may offer some
  traditional banking services. Investments are not
  insured by FDIC.

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Slide 4 - Some Community-Related Services Lesson
Reference Introduction to Financial Services,
Activity 3 Overhead 4

• SOME COMMUNITY-RELATED
• SERVICES OF BANKS
• Bank employees mentor students in areas of basic
  financial skills.
• Bank employees serve on community organizations
  boards of directors.
• Banks provide scholarships to students going into
  the banking profession.
• Banks fund affordable housing construction.

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• Activity 1.Why Do You Need A Bank?
• Activity 2The Many Services of a Bank
• Activity 3.The ABCs of a Checking Account
• Activity 4.Opening a Checking Account
• Activity 5.How to Write a Check
• Activity 6..Maintaining a Checking Account
• Activity 7The ABCs of a Savings Account

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Basic Banking Services - Activity 1

• ACTIVITY 1
• Why Do You
• Need a Bank?
• Overview
• Purposes of banks
• The differences between banks and
• credit unions
• Safety of financial institutions
• Banks as money management tools
• The Earned Income Tax Credit

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Slide 1 Safety of Financial Institutions
Lesson Reference Basic Banking Services,
Activity 1 Overhead 3
SAFETY OF FINANCIAL INSTITUTIONS COMMERCIAL
BANKS CREDIT UNIONS
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Slide 2 EITC Lesson Reference Basic Banking
Services, Activity 1 Handout 2
THE EARNED INCOME TAX CREDIT The Earned Income
Tax Credit (EITC) is a federal tax credit used to
reduce the tax burden on low-income working
people and to supplement low-income working
peoples wages. Low-income workers often use this
refund for the initial deposit required to open a
bank account and then pay off debt, save for
emergencies, or save for long-term goals such as
homeownership. Workers are eligible for the
EITC when they earn an annual income that is less
than a specified amount. This is possible even if
they have no tax liability and no money was
withheld from their paychecks for taxes. In
order to qualify for the EITC, a taxpayer must
have a Social Security Number and an annual
income and/or investment income that falls below
a certain level. Contact the IRS, a tax preparer,
or a VITA representative to obtain the current
income level requirements.
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Basic Banking Services - Activity 2

• ACTIVITY 2
• The Many Servicesof a Bank
• Overview
• Financial services provided by a bank
• Bank employees
• Services that might be of personal benefit
• The impact of state and federal regulations upon
  the security of a bank

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• REMITTANCE OPTIONS
• TO SEND AND RECEIVE MONEY
• 1. Money Transfer Organizations
• 2. Bank Transfers
• 3. Hand Delivery
• 4. Mail
• 5. Hawala
• 6. Post Offices
• 7. Stored Value Cards

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Slide 1 Remittance Options Lesson Reference
Basic Banking Services, Activity 2 - Overhead 1
22

• BANK OCCUPATIONS
• Tellers
• Platform Bankers
• Mortgage Lenders
• Operations Manager
• Branch Manager

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Slide 2 Bank Occupations Lesson Reference
Basic Banking Services, Activity 2 Overhead 2
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Slide 3 - Electronic Bank Services Lesson
Reference Basic Banking Services, Activity 2
Overhead 3

• ELECTRONIC BANK SERVICES
• Online banking is the fastest growing Internet
• activity in the U.S.
• Types of Services
• Bank Cards
• Automated Services
• Protect Your Passwords!

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Slide 4 - Bank Card Types Lesson Reference
Basic Banking Services, Activity 2 Overhead 4
BANK CARD TYPES

• TYPE
• Check Cards or
• ATM/Debit Cards
• Stored Value Cards

• DESCRIPTION
• Bank cards that allow for the payment of goods
  and services to be subtracted directly from a
  bank deposit account.
• Can be used with merchants that take major credit
  cardsknown as point of sale (POS) transactions.
• Bank cards with preset, limited value.
• Used to pay for goods and services.
• Alternative to cash.

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• ELECTRONIC BANK SERVICES
• Direct Deposit
• Transfers between Accounts
• Transfers to a Third Party
• Online Banking
• Bank by Phone
• ATM

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Slide 5 Electronic Bank Services Lesson
Reference Basic Banking Services, Activity 2
Handout 3
26
Slide 6 - Regulation of Electronic Banking
Lesson Reference Basic Banking Services,
Activity 2 Overhead 5

• REGULATION OF ELECTRONIC
• BANKING SERVICES
• Electronic Fund Transfer Act
• Protects consumers using any type of electronic
• banking from loss and protects their privacy.
• Banks must
• Offer consumers a record or receipt for all
  computer
• transactions.
• Investigate errors and report to consumer within
  ten days of error notification.
• Customers are responsible to report any errors.

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Basic Banking Services - Activity 3

• ACTIVITY 3
• The ABCs of a Checking Account
• Overview
• Purposes of a checking account
• Shopping for and comparing checking accounts

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• CHECKING ACCOUNT TERMS
• Bank Statement
• Cancelled Check
• Check
• Check Register/Ledger
• Endorsement
• Fee
• Interest
• Minimum Balance

• Outstanding Transactions
• Overdraft
• Overdraft Protection
• Payee
• Reconciling a Bank Statement
• Transaction Limits

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Slide 1 - Checking Account Terms Lesson
Reference Basic Banking Services, Activity 3
Handout 1
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Slide 2 - Shopping Around Lesson Reference
Basic Banking Services, Activity 3 - Handout 2
SERVICES Location of bank Location of
ATMs Banking hours Minimum balance
required Minimum transactions or
limits Interest-bearing accounts? Other COSTS Non
-primary bank ATM transactions In-branch
transaction fees Per-check fees Other checking
fees Overdraft protection Printing of checks
SHOPPING AROUND (THINGS TO ASK ABOUT
WHEN OPENING A CHECKING ACCOUNT)
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Basic Banking Services - Activity 4
ACTIVITY 4 Opening a Checking Account Overview
Checking Account Application Process The
Application Acceptable Forms of ID The
Signature Authorization Card The PATRIOT Act
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OPENING A CHECKING ACCOUNT
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Slide 1 Opening a Checking Account Lesson
Reference Basic Banking Services, Activity 4
Handout 1
32
Slide 2 - Commonly Accepted Forms of ID Lesson
Reference Basic Banking Services, Activity 4
Handout 2
COMMONLY ACCEPTED FORMS OF ID
Primary ID

• Photo Drivers License issued within the U.S. or
  Canada
• State Non-Driver Photo ID
• Photo Learners Permit
• Government Photo ID
• U.S. Passport
• Non-U.S. Passport
• Resident Registration Card
• Mexican Consular ID (Matricula Consular)

• Naturalization Certificate
• Employee Photo ID (from a recognizable employer)
• Photo Trade License (barber, plumber,
  electrician, etc.)
• Student Photo ID (college/trade school)
• Medicare Card (must be 65 or older)

Financial institutions' ID requirements may
differ check with the institution first before
applying for an account.
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Slide 3 - Commonly Accepted Forms of ID Lesson
Reference Basic Banking Services, Activity 4
Handout 2
COMMONLY ACCEPTED FORMS OF ID
Secondary ID

• Pay Stub
• Car Registration
• Mortgage Statement
• Letter of Introduction from Bank, Embassy, or
  well-known Employer
• Welfare Card
• Supplemental Health Insurance Card

• Foreign Drivers License
• State/Local Gun Permit
• Utility Bill (Name and address of individual
  account should be listed)
• Current Bank Statement
• National Credit Card
• Bank-issued Debit or Check Card

Financial institutions' ID requirements may
differ check with the institution first before
applying for an account.
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THE PATRIOT ACT Congress passed the PATRIOT Act
in response to the terrorist attacks of September
11, 2001. Financial institutions are now required
to collect certain information when a new account
is opened.
1. The customer must provide identification that
includes name, date of birth, address, and
identification number. 2. The institution must
maintain a copy of the information used to verify
the persons identity. 3. The institution must
determine whether the applicant appears on the
lists of known or suspected terrorists or
terrorist organizations.
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Slide 4 The PATRIOT Act Lesson Reference
Basic Banking Services, Activity 4 Overhead 1
35
SIGNATURE AUTHORIZATION CARD
35
Slide 5 Signature Authorization Card Lesson
Reference Basic Banking Services, Activity 4
Handout 3
36
Basic Banking Services - Activity 5
ACTIVITY 5 How to Write a Check
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Slide 1 - Writing a Check Lesson Reference
Basic Banking Services, Activity 5 Handout 1
WRITING A CHECK
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Basic Banking Services - Activity 6

• ACTIVITY 6
• Maintaining a
• Checking Account
• Overview
• Check 21
• Keeping a check register
• Making a deposit into a checking account
• Reconciling a bank statement
• Maintaining a checking account
• Avoiding Overdrafts

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CHECK 21 Check 21 is a federal law that helps
banks handle more checks electronically and that
makes check processing faster and more
efficient. Under this law, a check deposited in a
bank is typically delivered overnight to the
paying bank and deducted from the checkwriters
account on the next business day. Money may be
deducted from your checking account almost
immediately.
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Slide 1 Check 21 Lesson Reference Basic
Banking Services, Activity 6 Handout 1
40
Slide 2 - Keeping a Check Register Lesson
Reference Basic Banking Services, Activity 6
Handout 2
KEEPING A CHECK REGISTER
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Slide 3 - Making a Deposit - Endorsing a Check
Lesson Reference Basic Banking Services,
Activity 6 Handout 2
MAKING A DEPOSIT - ENDORSING A CHECK
The Back Side of a Check
Restrictive Endorsement (most secure)
Blank Endorsement(least secure)
Endorsement to a third party
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Slide 4 - Making a Deposit - Completing a Deposit
Slip Lesson Reference Basic Banking Services,
Activity 6 Handout 2
MAKING A DEPOSIT - COMPLETING A DEPOSIT SLIP
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Slide 5 - Reconciling a Bank Statement Lesson
Reference Basic Banking Services, Activity 6
Handout 2
RECONCILING A BANK STATEMENT
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• OVERDRAFTS AND BOUNCED CHECKS
• Overdrafts and bounced checks occur when you
  complete a financial transaction (e.g., write a
  check) for more than what is available in the
  account. Your financial institution may pay the
  amount and charge you a fee, known as an
  overdraft fee or a nonsufficient funds fee.
• Tip Avoid overdraft or non-sufficient funds fees
  by making a habit of monitoring the balance in
  your checking account.

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Slide 6 Overdrafts and Bounced Checks Lesson
Reference Basic Banking Services, Activity 6
Overhead 1
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Basic Banking Services - Activity 7

• ACTIVITY 7
• The ABCs of aSavings Account
• Overview
• Purpose of a savings account
• Shopping for a savings account
• Applying for a savings account
• Monthly bank statement checkup

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Slide 1 - Reasons to Save Lesson Reference
Basic Banking Services, Activity 7 Overhead 1

• REASONS TO SAVE
• Emergencies
• Future Purchases
• Future Investments

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Slide 2 - Shopping for a Savings Account Lesson
Reference Basic Banking Services, Activity 7
Overhead 2

• SHOPPING FOR A
• SAVINGS ACCOUNT
• Factors to consider
• Safety
• Risk
• Liquidity
• Minimum Account Balance Requirements
• Fees and Service Charges
• Interest Rate
• Returns (Earnings)
• Automatic Transfer
• Direct Deposit

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OPENING A SAVINGS ACCOUNT
48
Slide 3 Opening a Savings Account Lesson
Reference Basic Banking Services, Activity 7
Overhead 3
49
BANK STATEMENT
49
Slide 4 Bank Statement Lesson Reference
Basic Banking Services, Activity 7 Overhead 4
50

• Activity 1Saving vs. Investing
• Activity 2..Saving for a Rainy Day
• Activity 3..1 1 Saving
• Activity 4..Investing for the Long Term

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Money Management - Activity 1

• ACTIVITY 1
• Saving vs. Investing
• Overview
• Saving vs. investing
• Information on a paycheck
• Making a financial plan
• Budgeting

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Slide 1 - Do You Save? Do You Invest? Lesson
Reference Money Management, Activity 1
Overhead 1
DO YOU SAVE? DO YOU INVEST?
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Slide 2 - Saving vs. Investing Lesson Reference
Money Management, Activity 1 Overhead 2

• SAVING VS. INVESTING
• Saving
• Short-term.
• Postpones spending.
• Has safety precautions.
• Investing
• Long-term.
• Exchanges money for something with the future
  expectation of receiving a profit.
• Has risk factors.

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TAKE A GOOD LOOK AT A PAYCHECK
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Slide 3 Paycheck Lesson Reference Money
Management, Activity 1 Handout 1
55

• MAKING A SUCCESSFUL
• FINANCIAL PLAN
• Start as early as possible.
• Set goals.
• Include both short- and long-term strategies.
• Support the plan with a practical, working
  budget.
• Review the plan on a regular schedule.
• Do your homework while working on your plan.
• Put the plan in writing.

55
Slide 4 Making a Successful Financial Plan
Lesson Reference Money Management, Activity 1
Handout 2
56
Slide 5 - Financial Plan Assistance Lesson
Reference Money Management, Activity 1
Overhead 3

• FINANCIAL PLAN ASSISTANCE
• Bankers
• Certified Financial Planners
• Schools and Courses
• Peer Groups and Investment Clubs
• The Media
• The Internet

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BUILDING MY MONTHLY BUDGET

• Savings Investments
• Fixed Expenses
• Periodic Fixed Expenses
• Variable Expenses
• Debts

Slide 6 Building my Monthly Budget Lesson
Reference Money Management, Activity 1
Handout 4
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Money Management - Activity 2

• ACTIVITY 2
• Saving for a
• Rainy Day
• Overview
• Reasons to save
• Concerns and issues with saving
• Where to save

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Slide 1 - Saving for a Rainy Day Lesson
Reference Money Management, Activity 2
Overhead 1
SAVING FOR A RAINY DAY
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Slide 2 - Reasons to Save Lesson Reference
Money Management, Activity 2 Overhead 2

• REASONS TO SAVE
• Provide for unexpected emergencies.
• Purchase expensive items in the future.
• Ensure retirement.
• Plan for investment opportunities.

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• CONCERNS AND ISSUES
• WHEN SAVING
• Safety
• Restrictions
• Liquidity
• Earnings
• Taxes

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Slide 3 Concerns and Issues When Saving Lesson
Reference Money Management, Activity 2
Handout 1
62

• PLACES TO SAVE
• Savings Accounts
• Money Market Accounts
• Certificates of Deposit (CDs)
• Savings Bonds
• Insurance

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Slide 4 Places to Save Lesson Reference
Money Management, Activity 2 Handout 2
63
Slide 5 - Looking at Places to Save Lesson
Reference Money Management, Activity 2
Overhead 3
LOOKING AT PLACES TO SAVE On a scale of 1 to 5
(with 1 being low and 5 being high), rate the
following places to save your money.
Based on the above ratings, where would you save
your money? Why?
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Money Management - Activity 3
ACTIVITY 3 1 1 Saving Overview

• Types of interest
• The impact of saving
• Savings regulations

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Slide 1 - Types of Interest Lesson Reference
Money Management, Activity 3 Overhead 1
TYPES OF INTEREST Which type of return on your
money would you prefer? Whats the difference?
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IMPACT OF RETURNS ON SAVINGS This chart shows
what happens at several different rates to 100
in an account when no money is withdrawn and
interest is compounded yearly.
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Slide 2 Returns on Savings Lesson Reference
Money Management, Activity 3 Handout 2
67
Slide 3 - Savings Regulations Lesson Reference
Money Management, Activity 3 Overhead 2

• SAVINGS REGULATIONS
• Federal Government Insurance
• Deposits are potentially insured up to 100,000.
• FDIC (Federal Deposit Insurance Corporation)
• NCUA (National Credit Union Administration)
• Truth in Savings Act
• Financial institutions must disclose the
  following
• information about their consumer savings
  accounts
• Fees on accounts
• Interest rate
• General terms and conditions
• Defines the year as 365 days for purposes of
• determining the annual percentage rate of
  interest.

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Money Management - Activity 4

• ACTIVITY 4
• Investing for the Long Term
• Overview
• The Historical Performance of the SP 500
• Reasons to Invest
• Investing Considerations
• Investment Concerns
• Places to Invest
• Online Money Management

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Slide 1 - Savings vs. Investing Lesson
Reference Money Management, Activity 4
Overhead 1

• SAVING vs. INVESTING
• SAVING
• Short-term.
• Postpones spending.
• Has safety precautions.
• INVESTING
• Long-term.
• Exchanges money for something with the future
  expectation of receiving a profit.
• Has risk factors.

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SAVING VS. INVESTING, HISTORICALLY The
SP 500 stock index has increased almost 200
percent since 1970. On average, the stock market
returns 12 percent per year, including
dividends. Savings rates, by comparison, have
been much lower anywhere from 1.5 to 5,
usually depending on the length of time the
savings are deposited.
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Slide 2 - Saving vs. Investing, Historically
Lesson Reference Money Management, Activity 4
Overhead 2
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Slide 3 - Places to Invest Lesson Reference
Money Management, Activity 4 Overhead 3

• PLACES TO INVEST
• Stocks
• Bonds
• Mutual Funds
• Retirement Plans
• Real Estate
• Collectibles/Valuables

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• QUESTIONS TO ASK BEFORE
• MAKING AN INVESTMENT
• How safe is the investment?
• What types of returns can I expect?
• What kind of risk is involved?
• Can I get my money back if I need it? How long
  will it take and how much will it cost to get it
  back quickly?
• Are my investments in a variety of places to
  spread my risks (diversification)?

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Slide 4 Questions to Ask Lesson Reference
Money Management, Activity 4 Handout 2
73

• INTERNET PRIVACY SECURITY
• Avoid passwords or screen names that are easy to
  guess.
• Change passwords often.
• Read privacy policies.
• Check online accounts often. Report unfamiliar
  transactions.
• Do not open emails with unsolicited offers that
  sound too good to be true.

73
Slide 5 Internet Privacy Security Lesson
Reference Money Management, Activity 4
Overhead 4
74

• Activity 1.The ABCs of Credit
• Activity 2.Credit Scores
• Activity 3.Establishing Credit
• Activity 4.Maintaining Good Credit
• Activity 5..Credit Cards
• Activity 6.Managing Credit Challenges
• Activity 7...Identity Theft
• Activity 8Prime and Subprime Lending
• Activity 9..Predatory Lending
• Activity 10..Bankruptcy

75
Credit - Activity 1

• ACTIVITY 1
• The ABCs of Credit
• Overview
• What is credit?
• The five Cs of credit
• Pros and cons of using credit
• The big decisionShould I use credit?

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CREDIT DEFINITIONS Credit Trust given to another
person for future payment of a loan, credit card
balance, etc. Creditor A person or company to
whom a debt is owed.
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Slide 1 Credit Definitions Lesson Reference
Credit, Activity 1 Handout 1
77
Slide 2 - The Five Cs of Credit Lesson
Reference Credit, Activity 1 Overhead 1
THE FIVE Cs OF CREDIT C Capacity C
Capital C Collateral C Conditions C
Character
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WHEN TO USE CREDIT Can you describe a situation
when it is a good time to use credit and when it
is NOT a good time to use credit?
78
Slide 3 When to Use Credit Lesson Reference
Credit, Activity 1 Handout 2
79
QUESTIONS TO ASK BEFORE USING CREDIT 1. 2. 3. 4.
5. 6. 7.
79
Slide 4 Questions to Ask Lesson Reference
Credit, Activity 1 Handout 3
80

• ACTIVITY 2
• Credit Scores
• Overview
• Credit scores and their impact
• The factors that make up a credit score
• Strategies to improve your credit score

80
Credit - Activity 2
81

• WHAT IS A CREDIT SCORE?
• A credit score is a number that helps a lender
  predict how likely an individual is to repay a
  loan, or make credit payments on time.
• A credit score is a number that changes as the
  elements in a credit report change.
• A credit score has broad use and impact. Your
  credit past is your credit future.
• FICO scores, one of the most common credit
  scoring systems, vary between 350 and 850.
• VantageScoreSM, a new credit scoring system
  developed by the three credit bureaus, ranges
  from 501-990.

81
Slide 1 What Is a Credit Score? Lesson
Reference Credit, Activity 2 Overhead 1
82
WHAT MAKES UP A TYPICAL CREDIT SCORE?
Source Fair Isaac and Consumer Federation of
America, 2005
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Slide 2 What Makes Up a Typical Credit Score?
Lesson Reference Credit, Activity 2 Overhead 2
83

• IMPROVING YOUR CREDIT SCORE
• Pay bills on time.
• Get current and stay current.
• Dont open a lot of new accounts too rapidly.
• Correct mistakes.
• Shop for loan rates within a focused period of
  time.
• Keep balances low on revolving credit.
• Pay off debt.
• Check your credit report.

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Slide 3 Improving Your Credit Score Lesson
Reference Credit, Activity 2 Handout 2
84
Credit - Activity 3

• ACTIVITY 3
• Establishing Credit
• Overview
• Types and sources of credit
• Credit safeguards
• Applying for credit
• Questions to ask when applying for credit

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TYPES OF CREDIT Cash Credit Sales
Credit Secured Credit Revolving Credit
I.O.U. Single Payment Credit Installment
Credit Other Types of Credit
85
Slide 1 Types of Credit Lesson Reference
Credit, Activity 3 Handout 1
86
Slide 2 - Sources of Credit Lesson Reference
Credit, Activity 3 Overhead 1
SOURCES OF CREDIT
Banks Credit Unions
Retail Stores Finance Companies
Savings Loan Associations Internet Stores
What are other sources of credit? What sources
of credit should be avoided? Why?
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• STEPS TO TAKE TO AVOID
• ABUSIVE LENDING
• Have you shopped around for the best deal?
• Do you feel the lender pressured you to take the
  loan?
• Do you understand the terms of the loan?

87
Slide 3 Avoiding Abusive Lending Lesson
Reference Credit, Activity 3 Handout 2
88

• COMMON PARTS OF A
• CREDIT APPLICATION
• Reason for Loan
• Personal Identification Information
• Employment Information
• Mortgage/Rental Information
• Documentation Required (for some applications)
• Current Debts
• Credit References
• Collateral (for some applications)
• Bank References
• Signature and Date

88
Slide 4 Parts of a Credit Application Lesson
Reference Credit, Activity 3 Handout 3
89
SAMPLE CREDIT APPLICATION
89
Slide 5 Sample Credit Application Lesson
Reference Credit, Activity 3 Handout 3
90

• QUESTIONS TO ASK WHEN
• APPLYING FOR CREDIT
• What is the annual fee?
• What is the annual percentage rate (APR)?
• When are payments due?
• What is the minimum payment required each month?
• Is there a grace period?
• Are there other fees associated with the credit,
  such as minimum finance charges?
• What is the credit limit?
• What are the penalties for late or missed
  payments?
• What are the terms and conditions of the credit?
  What else is included in the fine print?

90
Slide 6 Questions to Ask Lesson Reference
Credit, Activity 3 Handout 5
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Credit - Activity 4

• ACTIVITY 4
• Maintaining
• Good Credit
• Overview
• Debt to income thermometer
• Credit process
• Credit reporting agencies
• Credit safeguards for consumers
• Credit reports, ratings and scores
• Establishing a credit history

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Slide 1 Debt-to-Income Thermometer Lesson
Reference Credit, Activity 4 Overhead 1
DEBT-TO-INCOME THERMOMETER
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Slide 2 - The Credit Process Lesson Reference
Credit, Activity 4 Overhead 2
THE CREDIT PROCESS CREDIT HISTORY CREDIT
BUREAU CREDIT REPORT CREDIT SCORE CREDIT
RATING
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SAMPLE CREDIT REPORT
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Slide 3 Sample Credit Report Lesson Reference
Credit, Activity 4 Handout 2
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Slide 4 - Credit Safeguards for Consumers Lesson
Reference Credit, Activity 4 Handout 3
CREDIT SAFEGUARDS FOR CONSUMERS Truth In Lending
Act Fair Credit Reporting Act Equal Credit
Opportunity Act Fair Credit Billing Act Fair
Debt Collection Practices Act
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• THE FAIR AND ACCURATE CREDIT TRANSACTION ACT
• One of the primary objectives behind the Fair and
  Accurate Credit Transaction Act (the FACT Act) is
  to help consumers fight the growing crime of
  identity theft. The following are some highlights
  of the Act.
• Free credit reports
• Fraud alerts and Active Duty alerts
• Truncation credit cards, debit cards, Social
  Security Number
• Red flags
• Disposal of consumer reports
• Credit scores

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Slide 5 FACT Act Lesson Reference Credit,
Activity 4 Handout 4
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Slide 6 - Things to Establish Good Credit Lesson
Reference Credit, Activity 4 Overhead 3
THINGS TO DO TO ESTABLISH AND MAINTAIN GOOD
CREDIT What can everyone do to establish and
maintain good credit? 1. Pay all bills on
time. 2. Avoid late fees. 3. 4. 5. 6.
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Credit - Activity 5

• ACTIVITY 5
• Credit Cards
• Overview
• Types of credit cards
• Shopping for a credit card
• Costs of credit

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Slide 1 - Types of Credit Cards Lesson
Reference Credit, Activity 5 Overhead 1

• TYPES OF CREDIT CARDS
• Private Label
• Issued by a single source
• Can only be used at a single source
• Examples Department Stores, Gasoline Companies
• General Label
• Issued by a single source
• Can be used in many places
• Examples Bank Card, Major Credit Card

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Slide 2 - Shopping for a Credit Card Lesson
Reference Credit, Activity 5 Overhead 2
SHOPPING FOR A CREDIT CARD DECISIONS,
DECISIONS... ANNUAL FEE? APR? COMPUTATIO
N METHOD? GRACE PERIOD? FINANCE
CHARGE? CREDIT LIMIT? CARD INCENTIVES?
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• QUESTIONS TO ASK WHEN SHOPPING FOR A CREDIT
  CARD
• Annual fee
• Annual percentage rate (APR)
• Minimum payment
• Computation method
• Grace period
• Finance charges
• Card incentives

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Slide 3 Questions to Ask Lesson Reference
Credit, Activity 5 Handout 1
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COSTS OF CREDIT How much can credit cost? If you
make only the minimum payment for an item, here
are some examples of what you might actually pay
and how long it will take you to pay it.
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Slide 4 Costs of Credit Lesson Reference
Credit, Activity 5 Handout 2
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Credit - Activity 6

• ACTIVITY 6
• Managing Credit
• Challenges
• Overview
• Warning signs of credit abuse
• Credit card reductions
• Correcting credit errors
• Resources and assistance

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MEASURING THE SERIOUSNESS OF CREDIT TROUBLE
SIGNS Rate how serious you think each of the
following trouble signs is. 1 Not Serious
4 Very Serious Trouble Signs

• Delinquent Payments
• Default Notices
• Repossessions
• Collection Agencies

• Lien
• Garnishment
• Others?

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Slide 1 Rating Trouble Signs Lesson Reference
Credit, Activity 6 Handout 1
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WARNING SIGNS OF DEBT PROBLEMS

• Delinquent Payments
• Default Notices
• Repossessions
• Collection Agencies
• Judgment Lien
• Garnishment

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Slide 2 Warning Signs Lesson Reference
Credit, Activity 6 Handout 2
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CREDIT CARD REDUCTIONS Paying only the minimum
payments on your credit card may seem appealing,
but if only minimum payments are made, it can
take years, and sometimes decades, to achieve
full repayment. Paying the minimum amount due
keeps your credit history clean, but it also
costs you more.
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Slide 3 Credit Card Reductions Lesson
Reference Credit, Activity 6 Handout 3
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• CORRECTING CREDIT ERRORS
• Circle the incorrect items on your credit report.
• Write a letter to the reporting agency, telling
  them which information you think is inaccurate.
  Provide supporting documentation.
• Send all materials by certified mail.
• Send a similar letter to the creditor whose
  reports you disagree with.
• The reporting agency will conduct an
  investigation.
• If negative information is accurate, it can stay
  on your report for 7-10 years.

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Slide 4 Correcting Credit Errors Lesson
Reference Credit, Activity 6 Handout 4
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• CORRECTING CREDIT PROBLEMS
• Take responsibility for actions.
• Communicate with creditors.
• Debt Consolidation
• Credit Counseling
• Bankruptcy

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Slide 5 Correcting Credit Problems Lesson
Reference Credit, Activity 6 Handout 5
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• ACTIVITY 7
• Identity Theft
• Overview
• The growing problem of identity theft and how it
  occurs
• Strategies to protect your personal information
• Steps to take if your identity has been stolen.

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Credit - Activity 7
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IDENTITY THEFT Identity theft occurs when
someone uses your personal identifying
information to either establish credit under your
name or to take over an existing account that you
established without your authorization. This
information may include

• Social Security Numbers
• Name
• Address
• Date of birth

• Mothers maiden name
• Passwords
• PINs

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Slide 1 Identity Theft Lesson Reference
Credit, Activity 7 Overhead 1
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• HOW TO AVOID IDENTITY THEFT
• Monitor your credit report.
• Dont give out personal information to unknown
  persons or companies.
• Protect your credit and debit cards.
• Protect your mailbox.
• Protect your wallet.
• Use passwords and PINs that cant be easily
  guessed.
• Use anti-virus software on your computer.
• Notify your bank when you change your address or
  phone number.
• Other suggestions?

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Slide 2 How to Avoid Identity Theft Lesson
Reference Credit, Activity 7 Handout 2
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WHAT TO DO IF YOUR IDENTITY HAS BEEN STOLEN If
you think your identity has been stolen, take the
following steps

• Contact the three major credit bureaus (Equifax,
  Experian, and Trans Union).
• Close accounts.
• Contact all creditors involved.
• File a police report.
• Keep a record of your contacts.

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Slide 3 What to Do Lesson Reference Credit,
Activity 7 Overhead 2
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• ACTIVITY 8
• Prime and Subprime Lending
• Overview
• Subprime and prime lending definitions
• Alternative institutions that provide higher-cost
  loans
• Strategies to improve credit in order to qualify
  for prime loans.

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Credit - Activity 8
114
PRIME AND SUBPRIME MORTGAGE LENDING Prime
Prime credit is typically available to an
individual who has paid his or her outstanding
credit on time. Subprime A subprime loan is
typically available to a person with either no
credit history or a damaged credit history and
who is considered to be a high-risk borrower.
Subprime loans have higher-than-average interest
rates.
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Slide 1 Prime and Subprime Lending Lesson
Reference Credit, Activity 8 Overhead 1
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THE PRICE OF SUBPRIME LENDING How much does a
subprime loan cost you? If you are making
payments on a car, for example, you could be
paying significantly more just for getting a loan
with a higher interest rate. This added interest
is significant over the life of the loan.
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Slide 2 The Price of Subprime Lending Lesson
Reference Credit, Activity 8 Handout 1
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• MOVING FROM
• SUBPRIME TO PRIME
• Pay bills on time.
• Correct mistakes.
• Pay more than the minimum required.
• Use credit sparingly.
• Work with a reputable nonprofit credit counseling
  organization.

If you currently have a lower credit score and
want to be able to qualify for prime loans in the
future, you should take steps to improve your
credit. The following steps can help.
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Slide 3 Moving from Subprime to Prime Lesson
Reference Credit, Activity 8 Handout 2
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• ACTIVITY 9
• Predatory Lending
• Overview
• Characteristics and warning signs of predatory
  lending.
• The key targets of predatory lending.
• Common abuses and scams.
• Nonprofit organizations that can help consumers
  plagued by predatory lending.

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Credit - Activity 9
118

• PREDATORY LENDING
• Sell properties for much more than they are
  worth, using false appraisals.
• Encourage borrowers to lie about their income,
  expenses, or cash available for down payments in
  order to get a loan.
• Knowingly lend more money than a borrower can
  afford to repay.
• And many other scams.

In communities across America, people are losing
their homes and their investments because of
predatory lenders, corrupt appraisers, mortgage
brokers, and home improvement contractors who
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Slide 1 Predatory Lending Lesson Reference
Credit, Activity 9 Overhead 1
119

• IDENTIFYING
• PREDATORY LENDING
• Packaging a loan with single-premium credit
  insurance products
• Repeatedly refinancing a loan in a short period
  of time
• Charging excessive rates and fees to a borrower
  who qualifies for lower rates and fees

Predatory lending is not defined by federal law
except to the extent that a loan is a high-cost
loan and contains one of a fixed list of terms or
conditions. Predatory or abusive lending
practices can include
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Slide 2 Predatory Lending Lesson Reference
Credit, Activity 9 Handout 1
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• TEN WARNING SIGNS OF
• PREDATORY MORTGAGES
• Unreasonably high interest rates
• Multiple refinancing
• Unnecessary debt consolidation
• Balloon payment
• Negative amortization
• Door-to-door solicitation
• Back-dating of documents
• Large loan broker fees
• Kickbacks between lender and broker
• Single-premium credit life insurance

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Slide 3 Ten Warning Signs Lesson Reference
Credit, Activity 9 Handout 1
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• COMMON SCAMS
• Advance fee schemes
• The prize that will cost you
• Online auctions
• Fraud jobs
• Moneymaking schemes
• Bogus charities
• Scam schools

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Slide 4 Common Scams Lesson Reference
Credit, Activity 9 Handout 2
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• TOP STRATEGIES TO AVOID SCAMS
• Dont become a victim.
• Investigate strangers who have deals too good to
  be true.
• Always stay in charge of your money.
• Dont be fooled by appearances.
• Watch out for salespeople who prey on fears.
• Monitor your investments.
• Report fraud or abuse.
• Do your homework.
• Be wary of door-to-door solicitations.

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Slide 5 Top Strategies to Avoid Scams Lesson
Reference Credit, Activity 9 Handout 2
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• ADDITIONAL RESOURCES
• Department of Housing and Urban Development (HUD)
  Office of Consumer and Regulatory Affairs,
  Interstate Land Sales/RESPA Division. (202)
  708-4560 www.hud.gov/complaints/landsales.cfm.
• Federal Deposit Insurance Corporation (FDIC)
  Consumer Affairs Division. (877) ASK-FDIC
  (925-4618) www.fdic.gov.
• Federal Trade Commission (For federal lending
  violations involving mortgage and consumer
  finance companies.) (877) FTC-HELP
  (382-4357) TTY [phone] www.ftc.gov.
• Federal Reserve Board of Governors of the Federal
  Reserve System Division of Consumer Affairs.
  [phone] www.federalreserve.gov/pubs/compla
  ints.

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Slide 6 Additional Resources Lesson Reference
Credit, Activity 9 Handout 3
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• ACTIVITY 10
• Bankruptcy
• Overview
• Chapter 7, 11, and 13 bankruptcies
• Provisions of the new bankruptcy legislation
• The credit counseling component of the new law
• Strategies to avoid bankruptcy

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Credit - Activity 10
125
BANKRUPTCY Chapter 7 wipes out all allowable
debts and allows certain personal property
exemptions. Chapter 13 is a court-approved
repayment plan. Chapter 11 is typically used for
business bankruptcies.
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Slide 1 Bankruptcy Lesson Reference Credit,
Activity 10 Overhead 1
126

• NEW PROVISIONS OF THE BANKRUPTCY LAW
• A test to determine eligibility to file
  bankruptcy
• Determining what you can afford to pay
• Tougher homestead exemptions
• Lawyer liability
• Credit counseling and money management
• New debt may not be discharged.
• Quicker collections process

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Slide 2 Provisions of the Bankruptcy Law
Lesson Reference Credit, Activity 10 Handout 1
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• THINGS TO CONSIDER BEFORE FILING FOR BANKRUPTCY
• A bankruptcy filing could determine whether or
  not you get a job.
• Your insurance rates could rise.
• You may find it difficult to rent an apartment or
  qualify for a home loan.
• Bankruptcies stay on your credit report for 10
  years.
• Bankruptcy can lower your credit score.

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Slide 3 Things to Consider Lesson Reference
Credit, Activity 10 Overhead 2
128

• THINGS TO DO BEFORE DECIDING TO FILE
  BANKRUPTCY, CONT.
• Reduce your spending
• Talk with your creditors.
• Talk with a nonprofit counseling agency.
• Talk with an attorney and understand the
  consequences of declaring bankruptcy.
• Consider consolidation carefully.

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Slide 4 Things to Do Lesson Reference
Credit, Activity 10 Handout 2
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• TIPS TO REMEMBER
• Keep track of your daily expenses.
• Save money on a regular basis.
• Make changes right away if you see yourself
  starting to get into financial trouble.
• Pay attention to your household finances,
  especially if you are married.

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Slide 5 Tips to Remember Lesson Reference
Credit, Activity 10 Handout 2