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Credit Score Consumer Math
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What is Credit? How did you pay for your last purchase?
What would it take to for you to loan your car? Some of the factors you think should matter when it comes to getting credit actually don’t (e.g., education, race, gender, age, religion, etc.).
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advantages and disadvantages of credit
Able to buy needed items now Don’t have to carry cash Creates a record of purchases More convenient than writing checks Consolidates bills into one payment Disadvantages: Interest (higher cost of items) May require additional fees Financial difficulties may arise if one loses track of how much has been spent each month Increased impulse buying may occur college – lesson 4 - slide 4-A
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The Three C’s Character
Does it look like you possess the honesty and reliability to pay credit debts? Have you used credit before? Do you pay your bills on time? Do you have a good credit report? Can you provide character references? How long have you lived at your present address? How long have you been at your present job?
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The Three C’s Capital Do you have any valuable assets such as real estate, savings, or investments that could be used to repay credit debts if income is unavailable? What property do you own that can secure the loan? Do you have a savings account? Do you have investments to use as collateral?
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The Three C’s Capacity Have you been working regularly in an occupation that is likely to provide enough income to support your credit use? Do you have a steady job? What is your salary? How many other loan payments do you have? What are your current living expenses? What are your current debts? How many dependents do you have?
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Importance of Credit History
Your credit history determines everything from whether you qualify for a loan and the rate you’ll pay on that loan, to renting an apartment, and obtaining car insurance.
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Credit History How promptly you have paid off credit cards and loans
Your credit history is a financial profile May include such information as: How promptly you have paid off credit cards and loans How well you have handled paying other bills, such as rent and utilities Your total outstanding debts How much available credit you have on credit cards and home equity loans
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Reading a Credit Report
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Credit History vs. Credit Score
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Credit Score Sometimes referred to as FICO® scores because they may be calculated using software developed by Fair Isaac Corporation. Each of the three main credit bureaus – (Equifax, Experian and TransUnion) FICO scores range from 300 to 850.
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Your Credit Score Ability to gain credit/loans
Higher Risk = Higher Interest Rate Lower Risk = Lower Interest Rate
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Credit Score
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Credit Score Formula 35% Payment History – Paid on Time
30% Amount Owed – Utilization Rate 15% Length of History – Average age of Account 10% New Credit – Opened New Accounts 10% Types of Credit Used – Mortgage, Cards, Loans
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Importance of Credit Score/History
Creditors and Lenders Landlords Insurance Companies Employers Utilities Government Agencies
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References
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