Understanding Credit & Credit Scores

How we make purchases… Checking accounts Savings accounts Money you deposit to your bank… withdrawn through checks, ATM, debit cards Savings accounts Money deposited to your bank, left to gain interest Lines of credit Credit cards… specific limit based on credit score. From banks, stores, lending companies Loans Large purchases… homes, cars, tuition… one payment, monthly amount due (fixed)

Using Credit Wisely Costs of Using Credit: Pay monthly balance on time Use credit cards sparingly, stay within limit Check credit report regularly Risks of Credit: Interest rates Identity Theft Debt Overspending Costs of Using Credit: Finance charges Interest Late fees Closing costs

Paying off Debt $2,000.00 9 yrs & 9 mo $1,774.96 $3774.96, $6,000.00 Scenario: Interest Rate: 24% Minimum Payment: 4% of balance Balance Time to Pay Off Interest Charged Total Pay $2,000.00 9 yrs & 9 mo $1,774.96 $3774.96, $6,000.00 14 yrs & 4 mo $5,775.08 $11,775.08 $10,000.00 16 yrs & 5 mo $9,774.89 $19,774.89

Credit Scores Credit rating ranges from 200-850 A “good credit rating” is at least 700+ Based on amount owed, payment history, number of loans/credit Businesses report missed payments, overcharges, etc Banks/lenders use this to determine whether to loan you money or not! Today many employers run a credit report when hiring.

Identity Theft 15 Million people have their identity stolen every year! How to avoid identity theft: Average of $3,500 lost Shred important documents Often require lengthy process, criminal investigation to return $ (if possible) Limit online purchases Pay attention to bills/statements Online records databases (business & government) hacked Check credit score Complex passwords Secure your SS# Avoid opening unnecessary accounts

Other Scams & Schemes Rent to own Credit repair scheme College financial aid scam Pay day loan Loan scam Pyramid scheme

Creating a Budget What is a budget? Why do you need one? Plan for how you spend/save your money Why do you need one? Financial success/independence, responsibilities, accomplishment Income v. Expenses Paychecks, child support, part time employment, parents Expenses change…. Fixed, Variable (Flexible)

Budget Process 1. determine your income 2. estimate your expenses 3. cope with changes/Plan for goals 4. balance your budget (compare income/expense) 5. Review your budget and make changes