How to establish, use and protect your credit

Discussion Topics 4 What is a creditor? 4 What is a debtor? 4 What is a credit history? 4 What is a credit report? 4 What is a credit reporting agency? 4 Information listed on your credit report 4 Why it is important to review your credit report once a year? 4 Correcting errors on your credit report –Types of credit –Types of accounts –Lets look at a credit report 4 Repairing bad credit 4 Ways to re-establish credit 4 How to maintain a good credit rating 4 Individual credit counseling

What is Credit? (Chapter 7)  A valuable commodity and important financial tool?  A dangerous temptation that can lead to debt?

What do lenders look for? 4 Credit Worthiness –Income & Expenses –Assets –Credit History

How do you Establish Credit? 4 Open an individual savings and checking account in your name. 4 Apply for a loan (requires payment of interest). 4 Obtain Secured bank loans or a cosigned loan. 4 Apply for a department store or gasoline card (Make sure you understand the small print) –grace period –finance charges –annual fees, etc. 4 Be patient in this process. 4 Start slow, be cautious, keep track of your overall debt, and pay on time. 4 Remember: credit represents real money and has to be repaid 4 with interest.

Common Reasons for Denying Credit 4T4Too little time in current job or at current residence 4T4Too much outstanding debt 4U4Unreasonable purpose for requesting credit 4C4Cosigner cannot take on additional debt liability. 4E4Errors on applicant’s credit record. 4S4Strictness of creditors standards.

Consumer Fact Sheet 4 What is a Creditor? –Credit Card Company –Mortgage Company –Landlord –Telephone Company 4 What is a Credit History? –Your credit history is a record of how well you pay your bills 4 What is a Credit Report? –Your credit history is written in the form of a report. This is the document that creditors get when they request information about your credit history. 4 What is a Credit Reporting Agency (or Bureau)? –A company that collects information on how you repay debts. Credit reporting agencies do not recommend whether your credit application should be accepted or denied.

Information Listed on your Credit Report (pages 51 & 52) 4 Identifying Information 4 Public Record Information 4 Bankruptcy information stays on your credit report for up to 10 years. 4 Credit Information 4 Inquiries

Credit Reporting Agencies 4 A federal law, called The Fair Credit Reporting Act, gives you the right to see and correct mistakes on your credit report. There are three national credit- reporting agencies (or bureaus). In order to get a copy of your credit report, contact these agencies: 4 Equifax: Experian: Trans Union: You can receive a free copy of your credit report if you send a written request to the credit reporting agency within 60 days of being denied. –Credit –Employment or –Insurance 4 If you are unemployed, receive welfare payments or are a victim of fraud you can also get a free copy of your credit report.

Your Free Credit Report 4 Free, if denied credit (within 60 days) 4 Free once per year nationwide –See –Call credit reporting agency –Send a written request 4 Stagger requests (every 4 months) –Equifax –Experian –Trans Union

Types of Credit and Accounts 4 Types of Credit –Revolving –Installment –Non-Installment or Alternative –Secured vs Unsecured loans 4 Types of Accounts –Individual –Joint –Cosigner –Authorized User

Basic Credit Terms 4 Annual Percentage Rate: 4 Interest Computation Method: 4 Grace Periods: 4 The Outstanding Balance Computation Method: 4 Finance Charge: 4 Minimum Payment:

Making Just Minimum Payment (p 56) How long will it take to repay $3,000 on your credit card with minimum monthly payments of 2% of the outstanding balance and an 18% APR (assuming no additional charges are made)? a. 10 years? b. 20 years? c. 30 years?

REPAIRING BAD CREDIT 4 DO IT YOURSELF! –Find out how much money you owe and who you owe it to. –Make a realistic budget of what you can repay and when you can make the payments. –Figure out which debt is the most important. Pay that debt first. –Contact your creditors and work out a payment schedule. Make sure that whatever you agree to is in writing. –Make sure that you stick to the payment plan. If you cannot make a payment, call your creditor and work something out. –Stop using your credit cards until you have paid your debts. If you need to, cut up your credit cards in order to make sure that you do not use them. 4 Other Options –Consumer Credit Counseling Services (CCCS) affiliate ( ) –YWCA (Credit Counselors)

Guerrilla Tactics for Rapid Debt Reduction 4 Practice abstinence by not incurring additional unsecured debt. 4 Join a support group, such as Debtors Anonymous or take the YWCA Money Management classes, and attend meetings on a regular basis. 4 Contact the nearest office of Consumer Credit counselors and ask for help in developing a repayment plan. 4 Maintain records of daily expenses and of the retirement of any portions of your outstanding debts. 4 Make a list of all the people you owe and arrange to complete your agreements with them. 4 Reduce your outstanding debts to a minimum. 4 Find a way to increase your income. 4 Maintain awareness of the credit system by taking note of bank, loan company and credit card advertising and by reading news accounts of its effects.