A community outreach program of the

Get Smart About Credit

In 2015 American consumers owed $889 billion in credit card debt. That’s… $889,000,000,000! Why CARE?

Debit cards are different from credit cards  A debit card works just like a check  The money for the purchase comes directly from your bank account  You must have money in the bank account to use the card can’t spend what you don’t have  Many places prefer debit cards over checks or do not accept checks at all

 Emergencies  Large Purchases  Internet Purchases  Establish a Credit History  Identification  Safety Some Good Reasons to have Credit Cards

 It is very easy to lose track of your purchases You end up spending more than you think  The convenience of a credit card can be overpowering leads to unnecessary and even foolish purchases. Some Downsides to Credit Cards

 As you enter adulthood, you will begin to receive credit card offers.  Understanding how credit works and what kinds of things to avoid when using credit cards is essential before the damage is done. There is a big problem in this country with credit card abuse

 And why should you care about the interest rate on a credit card? Or other fees?  Let’s find out in the next slides So how does a credit card work?

 Credit is the ability to borrow money  Borrowing money creates debt Debt is what you owe  It costs to borrow money What is credit?

 Interest is the amount that a lender charges to borrow money  The higher the interest rate, the more money you pay  Interest rates vary from credit card company to credit card company  Card companies charge compound interest—that’s interest on interest What is Interest?

Here is an example that shows that compound interest piles up FAST: What if you bought…

 Laptop = $1,  Scanner/printer/fax for $400  Software/wireless router for $300  TOTAL: $2,000

 you used your credit card  you make monthly payments of $300  you never miss a payment  annual percentage rate on your card is 8%

What will the system end up costing you? (remember, it costs to borrow money) How long will it take to pay for it?

Your total cost will be $2052 It will take you SEVEN MONTHS to pay for it

 Now, instead of an 8% rate, assume that, because your credit rating is poor, you must pay interest at a rate of 24%.  Also assume that you pay the MINIMUM MONTHLY PAYMENT of only $50 per month.

 It will take you 82 MONTHS (almost SEVEN YEARS) to pay for it  Total payment: $4,085!

How Minimum Payments Won’t Get You Out of Credit Card Debt

So what’s our point? Pay your balance in full and on time every month – the single most important point of this presentation

Credit Card Costs and Fees If you are smart, you can avoid paying unnecessary credit card fees E.g., avoid cards that charge an annual fee Other fees you can avoid by paying in full and on time Finance charges Universal default rate

Fees you avoid when you don’t use your card for these unnecessary services Balance Transfer Fees Over-the-Limit Fees Cash Advance Fees Document and Research Fees Reissued Card Fees Returned Check Fees

How do you find the best card? Shop around at card comparison sites such as creditkarma.com nerdwallet.com creditcards.com bankrate.com cardhub.com

Credit Card Control Reasons to reduce or eliminate the credit card habit: 1. Improve your credit rating 2. Save more money and pay less interest 3. Regain control over your life when you control your spending

Credit Cards Are Only One of Many Forms of Credit What are some others?

1. Long Term Credit - payments made over several months or years  Mortgages  Car Loans  Student Loans 2. Short Term Credit – single payments  Charge cards  Utility Bills  Cable/Satellite  Cellular phone bills Types of Credit

Credit Reports and Credit Scores are Key Instruments By Which You Are Measured in the Business World

 Summary of a consumer’s financial reliability  Prepared by credit reporting companies for use by credit grantors and other parties with permissible purpose What is a Credit Report?

 Four primary credit bureaus in the US: Equifax, Experian, Innovis, and TransUnion  Companies update and distribute consumers’ information Credit Reporting Companies

Check Your Credit  Ensure all credit reports are accurate:  Avoid credit “repair” scams—these often participate in illegal activities to initiate fraudulent accounts and should not be trusted with your personal information

Want to learn more about credit reports? Continue advancing slides. Otherwise, continue to a discussion of saving and budgeting by clicking here Skip Credit Report Section Skip Credit Report Section

 Consumer applies for credit  Creditor requests information about consumer’s financial history  Credit profile used to determine whether to authorize credit—and if so, at what interest rates  Credit grantor reports activities back to credit reporting companies every 30 days How Credit Reporting Works

 Sum calculated by credit scoring company and used by lenders as an indicator of how likely consumer is to repay loans  Generated by a mathematical formula – FICO is the most common credit score  Each credit grantor has its own strategy for interpreting the credit score  If credit is denied after reviewing the score, credit grantors must disclose the reasons for the decision What is a Credit Score?

What information is used to calculate a credit score? (Make a list and then let’s see) What’s not calculated?  Demographic information (age, race, religion, national origin, gender, sexual orientation, marital status, residence, child/family support obligations)  Employment information (salary, occupation, title, employer, date employed, employment history)  Other credit information (interest rates charged by other credit grantors, rental information, usage by the consumer of a credit counseling company)  Payment history  Outstanding debt  Credit account history  Recent inquiries  Types of credit used

Generic Score Breakdown 35% Payment History 30% Amounts Owed 15% Credit History Length 10% New Credit 10% Types of Credit Used

Factors That Negatively Affect Your Credit 1. History of late/past due payments 2. Failure to make payments 3. Having too much credit 4. Having no credit 5. Not leaving a forwarding address 6. Judgments against you / bankruptcy

Credit Dispute Resolution  Remember, you have the right to dispute inaccurate information on your credit report

Credit Management Tips Set Goals  Check your credit report every year for each major credit bureau (every four months from one or another of three major bureaus)  Never carry a card balance to next month. Balances above 25% damage your score Clean Up Your Records  Dispute negative inaccuracies on your credit report  Guard against identity theft

Identity Theft and Fraud  Identity theft: The use of another person’s name and Social Security number to obtain new credit  Account take-over: The use of another person’s existing account

Keep Accurate Records  Keep important records in a safe place—available when needed and not easily taken  Balance checkbook—watch for missed check numbers or mystery charges Good records make it easier to identify and resolve fraud

Act Fast When Fraud is Suspected Prevent further fraud damage  Acting quickly will ease the resolution greatly with creditors and the credit bureaus  It is much easier to prevent damage than remove it  Don’t wait until it costs you thousands on a loan

 Learning to live within your means will help you get ahead (wants vs. needs)  Budgeting creates financial security  Budgeting will keep you out of debt Saving for the Future

 Keep track of what you make.  Keep track of what you spend.  Ask yourself, how close are they? SO, how do you budget??

To make your budget work, you must equalize what you spend with what you make by: 1) Making more 2) Spending less (Sounds easy, huh?)

Start making adjustments… Earn more by working more hours Reduce expenses by buying your coffee at 7/11 instead of Starbucks Be honest with yourself: Do I really need this or do I simply want this?

Then, stick to your budget! Sticking with a budget is a lifelong process Be flexible ◉ your budget will change as your life changes

What is a Budget? INCOME Gross wages$2,000 Less payroll deductions 400 Net monthly pay$1,600 EXPENSES Rent$ 500 Utilities 40 Food 300 Clothing 20 Laundry 20 Medical/Dental Transportation 200 Recreation 30 Insurance 90 Taxes Installment Payments 350 Misc. Expenses 50 Total Expenses$1,600

Many useful budgeting apps and web sites are available Try mint.com – widely-used, user-friendly and free Budgeting help is on the way

❧ Savings works just like the finances involved with Credit Cards But in REVERSE! (See if you can fill in the bottom row) Starting Age18 Monthly Savings $100 $150 Total Years12 years47 years Interest Rate5% Final Age3065 Savings at Final Age $19,678$226,438$339,652

Just as time – and compound interest - can work against you when you borrow money (remember the $2000 laptop system that doubled in cost), it can be your best friend when it comes to saving. A 22 year old who saves $20 a week could have as much as $1 MILLION by retirement age. A person who waits until the age of 45 to start saving, would have to save $245 a week to accumulate the same amount.

True or False You pay no interest on a debit card purchase.

TRUE! A debit card works just like a check.

True or False There is a credit report for everyone over age 18.

FALSE There is a credit report only for people who have established a credit history. Having no credit history can have adverse consequences.

True or False If you are late in making a few payments on your credit card, the interest rate you pay may increase sharply.

TRUE For example, on one Platinum VISA card, the interest rate jumps from 4.9% to 30% if you pay late or miss even one payment. Late charges also accrue.

True or False If you miss just one or two payments on your credit card, it won’t hurt your credit rating.

FALSE That negative information can legally remain on your report for up to 7 years.

Last one…promise! True or False No one really looks at credit reports.

FALSE People who lend you money will almost always review your credit report. Car, home, credit cards. More prospective employers also look at credit reports. You can receive free copies of your credit report each year—worth reviewing!

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