CHAPTER 26 – HOW TO GET AND KEEP CREDIT What I need to know…

Developing a Credit History  Without a History  Banks will not loan you money and/or  You will pay very high interest rates  Ways to begin developing a Credit History  Open a Checking and Savings Account  Get a Debit Card  Apply for a Secured Credit Card Charge Small balances and pay bill in full each month NOTE: IF YOU HANDLE THE ABOUT RESPONSIBLY THEN…

Developing a Credit History  You will have a good chance of getting a car loan, mortgage or a personal loan  BEFORE APPLYING FOR A LOAN  Check your Credit Report – fix discrepancies  Bring the following when applying for a loan: PROOF OF INCOME: Pay stubs, tax reports, bank statements, or any other proof of income PROOF OF IDENTITY: Social Security Number and Driver’s License  If they feel you are not credit worthy you may need a Cosigner

CREDIT WORTHY – 3 C’s of CREDIT  Character : does the lender think you are honest, reliable, and lead a stable life  Have you used credit before?  Do you pay bills on time?  How long have you lived at your present address?  How long have you been working at your present job?  What is your credit score?

CREDIT WORTHY – 3 C’s of CREDIT  Capital : do you have assets such as real estate, personal property, investments, or savings that the lender can take if you do not repay the loan  What property do you own that can secure the loan?  Do you have a savings account? How much?  Do you have any investments?

CREDIT WORTHY – 3 C’s of CREDIT  CAPACITY : do you have enough income to pay the loan  Do you have a steady job? What is your salary?  How many other loan payments do you have?  What are your current living expenses? (Budget)  What are your current debts?  How many dependents do you have?

What’s Your FICO SCORE?FICO SCORE  Credit Score –  CREDIT SCORES – Vary from different lenders  Range from 300 – 850  Good  Excellent –  What Impacts your Score?  Late Payments  Types of credit Loans (cars/Home), Credit Cards, Store Loans (Best Buy/Ashley)  Number of loans/credit cards  TOTAL DEBT  Public Records – Bankruptcy, Judgments

Credit Scores  Things not considered in your Score  Race, religion, national origin, sex, or marital status  Age  Where you live  Occupation, title, employer, on Public Assistance LENDERS LOOK AT THESE BUT IT DOES NOT AFFECT SCORE  Consequences of Scores  Low score will keep you from getting a loan and/or paying a higher interest rate

Comparing Credit Cards  List the different features of credit cards that you may need to compare…  Why do some credit cards charge and Annual Fee?  Most important if:  Pay balance off each month?  Don’t pay balance off  Use you credit card to get cash  Don’t keep good track of your checking account balance

Facts about loans and mortgages  Most are secured  Backed by collateral  Interest Rates/Finance Charges  Variable  Fixed  Most need a down payment  A loan’s Principal  Amount Financed  Cosigner  Needed with poor credit history or no credit history  Someone with good credit also signs the loan If you default…they have to pay

Keeping a Healthy Credit Record CLICK HERE FOR VIDEO  Pay Bills on time  Don’t carry more credit cards than you need  Stay within your means – no more than 20% of your Income for consumer Credit  Check your Credit Report yearly  Correct Errors on your Report

Signs of Credit Trouble 1. Can only pay minimum payment 2. Can’t pay bills on time 3. Getting calls from Creditors 4. Garnishment of Wages 5. Repossess

How Much Debt can you Afford?  Never borrow more than 20% of your Annual net income  If you make $400 a month 400 X *.2 =$960. Outstanding Debt not including housing  Monthly payments shouldn’t exceed More tan 10% of your monthly take home $400 a month - $40 monthly debt payment

Debt-to-income ratio  Your debt-to-income ratio usually gives a clear picture of your financial well-being.  To calculate it  add up your fixed monthly expenses, such as rent, mortgage or credit card payments (do not include expenses like utilities or groceries).  Then divide the total by your monthly take-home pay (net pay)  It should not be more than 28%

Deter...Detect…Defend IDENTITY THEFT

CREDIT REPORTS

Free Credit Report. Com  Annual Credit Report.com  Which one’s for you??????