FIN 200:
Personal Finance
Topic 8-Credit I
Lawrence Schrenk, Instructor
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Learning Objectives
1.
2.
3.
Discuss the sources and uses of credit in
personal finance.▪
Explain how your credit score is calculated
and how you maintain a good credit rating.
Describe how to avoid identity theft.▪
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Types of Borrowing
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Types and Sources of Credit
Three Types
Specific
Type Purchase
Non-Installment
■
Installment
■
Revolving
Long
Term
Multiple
Payments
■
■
■
■
Time
Limit
■
■
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Payments Patterns

Interest then Principal
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
1
2
3
4
5
6
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Payments Patterns
Interest and Principal Simultaneously
Amoritization Schedule
$1,600
$1,400
$1,200
Value

$1,000
$800
$600
$400
$200
$0
1
27 53 79 105 131 157 183 209 235 261 287 313 339
Months
Monthly Interest
Principal Repayment
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Possible Advantages of Credit
1.
2.
3.
4.
5.
6.
7.
8.
Purchase of expensive items
Emergency funds
Tax savings
Anticipate a price increase
Convenience
Delay payment without interest
Avoid carrying cash
Spending record
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Possible Disadvantages of Credit
1.
2.
3.
4.
5.
Excess spending
Increased cost of purchase
Excessive debt
Increased monitoring
Identity theft
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‘Good’ versus ‘Bad’ Debt

Good Debt–Investment

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Home
Education
Car
Improvements increasing value of home
Borrowing at lower interest rate to reduce credit
card debt
Bad Debt–Consumption
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Credit Bureaus, Ratings
and Reports
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Credit Bureaus


Central Collection of Credit Information
Three Main Credit Bureaus

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
Experian
Equifax, and
TransUnion (Credit Report Guide)
Independent

May have different information and provide
different scores
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Example
Credit Report
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Credit Report, Part I

Identifying Information includes:




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

Name
Alias or AKA (Also Known As)
Current and previous addresses
Social Security number
Telephone number
Date of birth
Current and previous employers
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Credit Report, Part 2

Credit History provides an ongoing historical
and current record of a consumer's buying
and payment activities, including accounts
such as:




Retail stores
Banks
Finance companies
Mortgage companies
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Credit Report, Part 3

Public Records include:

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Tax liens
Court judgments (including child support
judgments)
Bankruptcies
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Credit Report, Part 4

Inquiries include:



Regular inquiries: Credit grantors and other authorized
parties who have requested a copy of the consumer's
credit report with a legally permissible purpose.
Account review inquiries: Credit grantors with whom a
consumer has an existing relationship and who are
permitted to periodically review the information.
Promotional Inquiries: Companies, with a legally
permissible purpose, that have obtained certain limited
information about a consumer, such as name and address,
in order to send targeted, mutually beneficial firm offers of
credit or insurance.
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Credit Score–FICO



Credit Score–FICO
Median US score is 723
Range 300-850
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FICO–Payment History

Account payment information
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Presence of adverse public records
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Credit cards, retail accounts, installment loans, etc.
Bankruptcy, judgments, suits, liens, wage attachments, etc.
Severity of delinquency
Amount past due
Time
Number of past due items on file
Number of accounts paid as agreed
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FICO–Amounts Owed


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Amount owing on accounts
Amount owing on specific types of accounts
Lack of a specific type of balance, in some
cases
Number of accounts with balances
Proportion of credit lines used
Proportion of installment loan amounts still
owing
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FICO–Length of Credit History
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
Time since accounts opened
Time since accounts opened


by specific type of account
Time since account activity
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FICO–New Credit

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Number of recently opened accounts, ...
Number of recent credit inquiries
Time since recent account opening(s)...
Time since credit inquiry(s)
Re-establishment of positive credit history
following past payment problems
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FICO–Types of Credit Used
 Number of (presence, prevalence, and recent
information on) various types of accounts




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Credit cards,
Retail accounts,
Installment loans,
Mortgage,
Consumer finance accounts, etc.
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Financial Impact of FICO Score
Calculator
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Your Credit Report


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Get and check your free credit report from
each agency at AnnualCreditReport.com.
Each credit report; one per year
Do not use any other web site; do not get it
from the guy playing the guitar on the TV
commercial!
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Further Information

Web Pages


MyFICO.com
Pamphlets



Understanding your FICO® score (MyFICO.com)
Your Credit Scores (MyFICO.com)
Credit Report Guide (TransUnion)
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Identity Theft
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Identity Theft–Why Worry?


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Loss of Money
Credit Score Weakened
Difficulty Opening New Accounts
Fraudulent Criminal Record
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Some Key Information
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Social Security Number
Driver’s License Number
Bank/Credit Card Account Numbers
PIN Numbers/Passwords
Date of Birth
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Weak Points–Your Mail
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Mailbox with Lock
Outgoing Mail in Postal Box
Shredder (Cross-Cut or Micro)

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Mail with Personal Information
‘Pre-Approved’ Credit Applications
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Weak Points–Personal Information
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Don’t Give Out Social Security Number
Don’t Carry Social Security Card or Use it on
Checks, IDs, etc.
Outgoing Mail in Postal Box
Shredder (Cross-Cut)
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Documents with Personal Information
Keep List of Important Data
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Account Numbers
Telephone Numbers, etc.
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Weak Points–Computer
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Avoid Obvious Passwords, e.g., Birthday
Don’t Send Sensitive Information in E-Mails
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Especially if Requested
Suspect Links in E-Mail and Attachments
Don’t Keep Passwords on your Computer
Password Protect

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Laptop, Flash Drives, Back-Up Drives
Sensitive Documents
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Computer Software

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Anti-Virus
Anti-Spyware
Anti-Spam
Firewall
MyIDProtector
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Active Measures

Check Credit Card/Bank Account Statements
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Check Credit Reports
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
www.AnnualCreditReport.com
Consider Credit Monitoring
Consider Identity Theft Insurance
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Regularly Online
NOTE: Terms, Coverage and Reimbursement
Varies
Watch for the Unexpected: Credit Cards,
Account Statements, Denials of Credit, etc.
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Further Information
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Federal Trade Commission
Identity Theft Resource Center (non-profit)
Identity Theft and You (MyFICO.com)
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Project Notes
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Ethical Dilemma

Rita is a medical office manager, and her brother,
Juan has recently begun work for a health insurance
company. Juan asks Rita if she will provide him with
a list of all the doctors' patients who do not currently
have health insurance, and she runs the list that
includes names, addresses, telephone numbers,
Social Security numbers, and brief medical histories.


a. Is Rita acting ethically? Explain.
b. What problems could Rita be creating for the practice's
patients?
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