1. © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Understanding Credit Reports Family Economics & Financial Education

2. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Credit Reports ◊ Credit report - a record of a consumer’s transactions involving credit ◊ No credit report if you have never used credit ◊ Affects your ability to acquire credit ◊ Bad credit history stays with your for 7-10 years

3. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why is it important to Building a Credit History ◊ To be able to ◊ purchase items on credit ◊ house, vehicles, appliances ◊ Renting an apartment ◊ Emergencies

4. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona General Rule ◊ Keep the amount of debt currently held at 25% of the total amount of available credit ◊ For example - if Sue’s total amount of credit available is $1,000, her current amount of debt should not exceed $250

5. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona How can you harm your credit?  Debit/Credit cards over the limit  Routinely paying bills late  Having a criminal record  Holding a large amount of debt  Holding an unreasonable amount of unused credit  Defaulting on a loan  Obtaining a high number of credit inquiries  Carrying many credit/store cards  Having a public record of bankruptcy

6. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Bankruptcy  When a person or company does not have the financial means to pay their debts as they come due  Secured debt- creditor has the legal right to something of yours if you fail to make proper payments  Example: mortgage- bank can reposes your home  Unsecured debt- loans made without the security of assets  Example: credit cards- not always possessions to take back  Secured debt gets paid first in bankruptcy cases

7. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Types of Personal Bankruptcy  Chapter 7- Liquidation Bankruptcy  Sell all assets to repay creditors  May reaffirm some debt- house, car  Some debt discharged- no repayment  Must have an average monthly income less than medium income of family of the same size  Example: family of 4 median income $64,427 or $5,368.92 per month  If salary is higher, must file Chapter 13  Must get budget management and debt counseling before debt discharged

8. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Types of Personal Bankruptcy  Chapter 13  Restructuring of debt  Debtor retains assets  Plan of repayment created with a trustee of the court  3-5 years  Pays only $.30 to $.50 on the dollar of debt value  Chapter 12  Same as 13 but for farmers

9. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

10. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Credit Reporting Agencies ◊ Keep a record of a consumer’s credit transactions and compiles credit reports The three main credit reporting agencies are: ◊ Equifax  www.equifax.com www.equifax.com  (800) 685-1111 ◊ Trans Union  www.transunion.comwww.transunion.com  (800) 888-4213 ◊ Experian  www.experian.com www.experian.com

11. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Requesting Credit Reports ◊ Consumers can request his/her credit report any time ◊ Can obtain one free credit report annually from all three credit agencies www.annualcreditreport.com ◊ Additional copies can be purchased for no more than $9.50 ◊ Consumers should check credit report once a year for accuracy ◊ Mistakes are common

12. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Who can Request your report? This may include: ◊ Insurance agencies ◊ Current and potential credit companies ◊ State/local child support agencies ◊ Government agencies ◊ Financial institutions inquiring for lines of credit ◊ Landlords ◊ Potential employers ◊ Only with applicant’s written request ◊Credit inquiry- and entry on a credit report that shows a business has requested a copy of your report

13. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Mistakes in Credit Reports ◊ More than 50% of the credit reports checked in a study contained errors ◊ Source: Consumer Reports (July 2000) ◊ The two main errors are: 1)Mistaken identity – occurs when a lender reports a credit transaction and information is recorded on the wrong person’s credit report, usually of a similar name 2)Fraud

14. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Fair Credit Reporting Act 1971 Consumers have the right: ◊ To know the information in their credit report ◊ To have errors corrected in their credit report

15. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Correcting Errors on Credit Reports Steps include: ◊ Contact the credit bureau that has the error ◊ CRA must report to the consumer within 30 days ◊ If the CRA can’t verify the information, ◊ must be removed from the file ◊ Corrected in file ◊ If a consumer disagrees with result ◊ right to submit a 100 word explanation ◊ stays in the consumer’s file ◊ Negative information is usually removed from credit file after seven years, ◊ except bankruptcy- removed after 10 years

16. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Credit Scores ◊ A mathematical tool created to help lender evaluate the risk associated with lending a customer money ◊ Not listed on a credit report ◊ It takes 6 months of using credit to get a credit score ◊ If you pay on time for 1 st 6 months, score should me 650-700 range

17. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona FICO Score  700 and above – Very good to excellent  680 to 699 – This credit score puts you in the "Good" category.  620 to 679 – If your credit score falls into this range, you fall into the "Okay" category.  580 to 619 – plan on paying a higher interest rate  500 to 580 – can still get credit, but expect to pay a very high interest rate high interest rate  499 and below – you can still be extended credit, but with very high interest rates

18. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Five Standard Categories of Scores 1.35%-Payment history - Timely manner in which a consumer pays debt 2.30%-Outstanding debt -Amount of debt currently held 3.15%-Credit history -How long the consumer has held credit accounts and how often they are used 4.10%-Pursuit of new credit -How much credit is acquired over the length of the consumer’s credit history 5.10%-Types of credit in use -May include credit cards, gas cards, store cards or accounts, loans, etc.

19. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Effect of Credit Scores on Consumers ◊ Interest rate of loans ◊ High score – can insure a lower interest rate on credit ◊ Low score– can cause a higher interest rate on credit ◊ Ability to receive future loans/credit ◊ Financial lending institutions have guidelines of what score will qualify for a loan ◊ Reflection of risk of borrower to the lender ◊ The lower the score, the higher the possibility the consumer pays bills late ◊ Financial security for lifetime ◊ Takes time to improve credit, which could take time from building financial security

20. 1.4.2.G1 © Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Conclusion Build and maintain positive credit! Check credit reports annually for errors! Act financially responsible!