1. Mr. Rosenstock Economics San Fernando High School
Credit and Banking
Mr. Rosenstock
Economics
San Fernando High School

2. Basic Terms
Credit: the ability of a customer to obtain goods or services before payment
Based on trust that payment will be made in the future
Creditor: the bank or lender who makes the loan or offers credit
Debtor: the person who owes money to a creditor
examples: credit card, a home loan, car loan, etc.

3. Where Your Credit Scores Come From and Who Calculates Them
In the U.S., your creditworthiness (being good enough to have credit) is represented by a numerical score that comes from your credit files
FICO (Fair Isaac Corporation) calculates and reports a score widely used by mortgage lenders (for home loans) and the three big credit reporting agencies
The three credit reporting bureaus: Experian, TransUnion and Equifax
Each has their own method for determining your score
The range is between
So, what goes into your score?

4. Derogatory Marks

5. What Your Score Is Based On: (FICO)
Payment History: (35%) your record of making payments
This and Debt Burden are the two most important factors in your credit score
Make your payments on time!
Always pay more than the minimum amount if you can’t pay off the debt completely
Interest on debt adds up quickly
Will result in a high minimum payment
It can take years to pay off high debt with only minimum payments

8. Debt Burden: (30%) This is a ratio expressed in percent of how much debt you have compared to your total credit limit
Creditors look at this when deciding whether to:
Offer you new credit (like a new card or loan)
Increase the amount of credit you already have
Ideally your Debt Burden should be between: 0 – 10% of total credit limit
Keep it below 30% to avoid hurting your score

9. Length of Credit History: (15%) The average age of the accounts on your report and the age of the oldest account
Avoid closing credit accounts:
Closing accounts will cause your score to drop
Instead: keep the account open and occasionally use it for a small purchase and then immediately pay it off

10. Derogatory Marks: (10%) Negative information on your credit report that will cause your credit score (and credit worthiness) to drop. Includes:
late payments (remember paying on time is #1)
lien – a claim on property or an auto made by a creditor seeking payment of debt
judgment – a court ruling that can lead to seizure of property and wages
settlement - an agreement between the creditor and debtor to accept less than the full amount of debt owed as payment
charge off – when a creditor writes off the debt on an account (credit card). Usually after 6 months delinquency

11. repossession - when a bank or lender takes back possession of an auto because the borrower stops making payments
foreclosure - when a bank takes back possession of a home because a borrower stops making payments (or some other serious problem)
bankruptcy – when a person is legally declared unable to pay their debts
Almost all debts discharged (gotten rid of)
The above three are very serious and will stay on your report for 7-10 years and will hurt your ability to get credit

12. If you ever get into financial trouble…
CCCS – Consumer Credit Counseling Services
Services include:
financial education
budgeting assistance
Debt Management Plans
All services are FREE!

13. Credit Inquiries & New Credit: (10%)
Credit Inquiries – refers to when others inquire about your credit
Often called “Soft” searches - won’t hurt your score
pre-screened offers of credit you get in the mail
prospective employers may do this before offering you a job
landlords do this when you apply to rent an apartment or commercial space for a business
New Credit - refers to when you apply for credit
Often called “Hard” searches - will hurt your credit score when you apply many times in a month or two
Avoid asking for credit within six months of a previous application
You end up appearing desperate for credit

14. Types of Credit: There are different types of credit a person can get
Consumers can benefit by having a history of managing different types of credit
Installment – auto, student loans
Revolving – majority of credit cards (you are allowed to make payments each month on outstanding balance)
Mortgage – the loan given on a home or commercial property
Consumer finance – payday and car title loans STAY AWAY! These are predatory loans with extremely high interest – up to 300% or more!

16. Excellent Credit: 750+ Good Credit: 700-749 Fair Credit: 650-699
So what does your score mean?
Excellent Credit: 750+
Good Credit:
Fair Credit:
Poor Credit:
Bad Credit: below 600

17. Establishing Credit If you haven’t already:
Open a checking account at a bank or credit union
Open a savings account (the interest is poor but you can link it to your checking to protect from insufficient funds)

19. Bank vs. Credit Union Owned by shareholders Paid board runs bank
For profit
Will charge fees for many things: exess transactions to “account maintenance”
Offer industry standard rates on savings and loans
Owned by members (you)
Volunteer board runs bank (that could be you)
Not for profit
Fees kept to minimum if at all
Offer better rates on savings and loans
Customer service is a priority

21. Two Good Credit Unions Near You…
Premier America Credit Union Chatsworth St. Granada Hills (800) Pacoima Development Federal Credit Union Van Nuys Blvd. (818)