Chapter © 2010 South-Western, Cengage Learning Credit Records and Laws Establishing Good Credit Evaluating Credit and Laws 17

© 2010 South-Western, Cengage Learning SLIDE 2 Chapter 17 Credit History Your credit history is the complete record of your borrowing and repayment performance. This record will help the creditor determine your ability to pay new debts.

© 2010 South-Western, Cengage Learning SLIDE 3 Chapter 17 Your Credit File Every person who uses credit has a credit history on file at a credit bureau. A credit bureau is a business that gathers, stores, and sells credit information to other businesses. The three national credit bureaus

© 2010 South-Western, Cengage Learning SLIDE 4 Chapter 17 Credit Report A credit report is a written statement of a consumer’s credit history, issued by a credit bureau to businesses. You can order a copy online or by writing to the bureau. When you are denied credit, you can get a free credit report if you ask within 30 days of being denied.

© 2010 South-Western, Cengage Learning Credit bureaus gather information from businesses, called subscribers, that pay a monthly fee to the credit bureau for access to this information. Each subscriber supplies information about its accounts with customers including: Names Addresses Credit balances On-time payment record Credit bureaus also gather information from many other sources. SLIDE 5 Chapter 17 How Information Is Gathered

© 2010 South-Western, Cengage Learning SLIDE 6 Chapter 17 Types of Information Stored Public information becomes part of your credit record. Examples of activities that result in public information: Failing to pay your property taxes Filing for bankruptcy Filing for divorce Applying for a marriage license Announcing the birth of a child Announcing a job promotion Being involved in a lawsuit Information you provide on a credit application becomes part of your credit record.

© 2010 South-Western, Cengage Learning SLIDE 7 Chapter 17 Creditworthiness Before potential creditors will grant credit to you, they must determine whether you are a good risk—that you are creditworthy. A person who is considered creditworthy usually meets five basic qualifications, called the five Cs of credit: Character – stability Capacity – ability to pay Capital – assets - liabilities Conditions - length at job Collateral – property pledged

© 2010 South-Western, Cengage Learning SLIDE 8 Chapter 17 Getting Started with Credit Begin with a savings account. Open a checking account. Open a store credit account. Many stores will allow you to open a small account with a responsible adult as a cosigner. A cosigner is someone who promises to pay if the borrower fails to pay. Get a small loan. Apply for a credit card.

© 2010 South-Western, Cengage Learning SLIDE 9 Chapter 17 Credit Rating Your credit rating is a measure of creditworthiness based on an analysis of your credit and financial history. This process rates consumers according to how reliably they pay back money borrowed or charged. Excellent credit rating Good credit rating Fair credit rating Poor credit rating

© 2010 South-Western, Cengage Learning SLIDE 10 Chapter 17 Credit Score Your FICO score How errors are made (continued) Credit inquiries Improving your FICO score

© 2010 South-Western, Cengage Learning SLIDE 11 Chapter 17 Credit Reports Credit files are updated continuously. Information stays in the file for seven years. Bankruptcy information stays in the file for ten years. Credit reports are requested for credit applications, employment applications, and insurance reasons.

© 2010 South-Western, Cengage Learning SLIDE 12 Chapter 17 Credit Reports Formats vary, but credit reports contain sections similar to the ones below-p. 387 and on next page Summary of information Public record information Credit information Account detail Requests for credit history Personal information (continued)

© 2010 South-Western, Cengage Learning SLIDE 13 Chapter 17 Credit Laws Consumer Credit Protection Act It is also known as the Truth-in- Lending Law. It requires lenders to fully inform consumers about all costs of a credit purchase before an agreement is signed. Fair Credit Reporting Act It gives you the right to know what is in your file and who has seen your file.

© 2010 South-Western, Cengage Learning SLIDE 14 Chapter 17 Credit Laws Fair Credit Billing Act It requires creditors to resolve billing errors within a specified period of time. Equal Credit Opportunity Act It was designed to prevent discrimination in the evaluation of creditworthiness. Discrimination is treating people differently based on prejudice rather than individual merit. (continued)

© 2010 South-Western, Cengage Learning SLIDE 15 Chapter 17 Credit Laws Fair Debt Collection Practices Act It was designed to eliminate abusive collection practices by debt collectors. A debt collector is a person or company hired by a creditor to collect the overdue balance on an account. (continued)