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2 Welcome 3 rd of 16 Sessions No cost to participate. Financial Support: FINRA Foundation & United Way Worldwide Solid Finances Webpage: www.msuextension.org/solidfinances
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Text Your Questions Do you have a Question? Do you want to comment? Type in the Q & A pod: 3
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Send Your Questions Click this after typing question in Q & A Pod 4
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Schedule Money Management October 20th Saving Money by Paying Down Debt 5
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Schedule Investments November 30 Investment Risks December 7 Personal Risk Tolerance & Asset Allocation December 14 Mutual Funds December 21 Mortgages (Refinancing & Reverse) 6
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What’s Your Credit Score? & What Does it Mean? Joel Schumacher 7
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Question A: I learned about Solid Finances from 8 1.Mailed Flyer 2.Campus Email 3.Poster 4.Newspaper 5.Other
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Question B: A Credit Report and a Credit Score are the same 9 1.True 2.False
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Question C: A Credit Score is issued by a lender 10 1.True 2.False
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Question D: The Maximum Credit Score is 900 11 1.True 2.False
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The Lending Decision Who Lends Money? Banks & Credit Unions Finance Companies Credit Card Issuers Utility Companies −Electricity, Gas, Phone, Cable, Internet Landlords? 12
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The Lending Decision What does a Lender do? Connect Savers with Borrowers Who are the Savers? Bank Customers, Stock Holders, Bond Holders Savers want to be paid for using their money Saver’s don’t want to lose their money Borrowers have to pay to use Saver’s money 13
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Lender’s Role Transactional Role Accounting, Statements, Legal, Physical Location Information Role Lenders want to know: How risky is a potential borrower? Borrowers want to know: Can I borrow money and what are the terms (rate)? 14
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Five “C’s” of Credit Capacity Income & Assets Capital Investment in this project Collateral Loan is secured by a car or home Credit How has a borrower managed credit in the past Character Borrower’s “dedication” to debt repayment 15
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Question E: If couldn’t pay all of your bills which bill would you not pay first? 16 1.Cable TV 2.Phone Service 3.Mortgage/Rent 4.Car Loan 5.Credit Card
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Credit Reports A Credit Report is your history with credit. The report contains: Your Name, Address, SSN, DoB, Employment information Your loans (current & past) including credit cards Balance & Terms Payment history Court Judgments, Tax Liens, Past Bankruptcies Companies who have requested a copy of your Credit Report 17
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Credit Reports What is not in your report: Your Income Your net worth Many on-time bill payments Age 18
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Who views my Credit Report? Lenders Utility companies, phone, TV, internet, etc. Your employer or potential employer Only with your approval Insurance companies Government agencies reviewing your status for benefits Anyone with “legitimate business” need For Example: potential landlord or court order 19
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Question F: Which of these provides a free credit report every 12 months (no strings attached)? 20 1.FreeCreditReport.com 2.AnnualCreditReport.com 3.FreeScore.com 4.FreeScoreOnline.com
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Accessing Your Credit Report www.annualcreditreport.com Or call 1-877-322-8228 You need to provide: Name Address Social Security Number Date of Birth 21
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Credit Reports What if I find an error on my report? Contact the reporting agency How long does negative information stay on my report? 7 years, for most information 10 years for a personal bankruptcy No limit for criminal convictions 22
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Questions on Credit Reports 23
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What is a credit score? A Credit Score is an attempt to quantify the credit report. Credit scores are issued by the same companies that issue credit reports. Higher scores indicate a lower risk (a good borrower) FICO Score range from: 300 to 850 Median Fico Score is about 725 24
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Different Scores Experian Plus Score: 330-830 Equifax Credit Score: 280-850 Vantage Score 2.0: 501-990 FICO Scores: FICO 300-850 NextGen: Max 950 25
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Average Credit Scores FICO Scale (300-850) 20%780-850 20%745-780 20%690-745 20%620-690 20%300-620 Median Score: 725 26
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What is a credit score? Exactly how there are calculated is a secret 35% Payment History −Late payments can lower this area 30% Credit Utilization −Using the full credit limit on a credit card can lower this area 15% Length of Credit History −No credit history or a short credit history can limit your score 10% Types of Credit Used −Some types of credit look better than other 10% Recent Searches for Credit −Applied for several loans at once can be red flag for a lender 27
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Question G: Which lowers your score more? 28 1.A missed payment 3 months ago 2.A missed payment 5 years ago 3.Any missed payment in the last 7 years is equal
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Why does your score matter? Borrowers with low scores may… Be required to have higher down payments Be required to make a security deposit Be charged higher interest rates Be denied credit 29
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$200,000 Mortgage Example MonthlyTotal Premium Premium360 Payments 5.780%760-850$0 $0 6.002%700-759$28 $10,223 6.286%660-699$65 $23,457 7.096%620-659$173 $62,123 8.583%580-619$379 $136,312 9.494%500-579$510 $183,554 Deniedbelow 500 Rates from BankRate.com (3/07) 30
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Where can I get my credit score? You may purchase one from: Equifax, Experian or TransUnion If you apply for a loan, your lender may provide it for free. 31
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Key Points Credit Reports can be obtained for free. Credit Scores are generally not free. Low credit scores can cost you money. How you manage your current credit affects your score. 32
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Questions? 33
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Final Thought Take Ownership of Your Finances! No one else will! 34
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