7.0 OBJECTIVE
UNDERSTAND WAYS TO PROTECT
PERSONAL AND FAMILY RESOURCES.
7.02 C-students will be able to understand how to
establish credit and maintain good credit
ESTABLISHING CREDIT
Creditors lend to people who can reasonably be
expected to pay them back – all questions asked
relate to “ability to repay”
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Creditors look at credit-related information to
determine if one is a good risk
A creditor’s evaluation of one’s ability and
willingness to repay debts is a credit rating
ESTABLISHING CREDIT


Credit rating reflects the consumer’s credit
history
Credit ratings are based on 3 Cs
(review objective 6.03 housing options)
 Character---a person’s reputation for being honest and
their financial history
 Capacity---a person’s employment history and ability to
earn money
 Capital---a person’s financial worth

HOW TO ESTABLISH GOOD CREDIT

Take out a small, short term loan
Make EVERY payment ON TIME!
 Pay off on time OR early
 Examples:

Low limit credit card – $500 MasterCard
 Car loan – may have to be co-signed by parent
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Pay ALL your bills ON TIME!
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Rent to your landlord
Premiums to your auto insurance
Cell phone bill
Utility bill
Medical bills with doctor, hospital
CONSIDERATIONS WHEN SHOPPING
FOR CREDIT
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Choosing the Right
Lender
Annual fees to keep card
Annual percentage rate
(APR)--the amount
 whether it changes
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Cash advance
 Late fees
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Method used to
calculate interest
Previous balance 
 Adjusted balance 
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Minimum payment
amounts
Grace period
Minimum finance
charge
Any other fees
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Credit limit
Special features and
services

Rebates, earning points,
free air miles
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LOAN SOURCES

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Preferred lenders
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Non-preferred lenders
Most reliable lenders
Examples:
Banks
Credit unions
Savings & loan
associations
 Consumer finance
companies*
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May take advantage of
people with poor credit;
typically charge high
interest rates
Examples:
“payday” lenders
Pawnbrokers
loan sharks
auto title loan lenders
tax refund loan
May accommodate lower
credit rating for higher
APR
Insurance policy loans
Credit card companies
Private loans**
*-usually higher interest rate
**- if family, may cause tension
CREDIT DOCUMENT- THE CONTRACT
 Credit
contracts
are legal binding
documents that
allow debtors to
use credit to
obtain goods and
services.
the
agreement BEFORE
signing!

Know the content of the
credit contract before
signing such as:
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 READ
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Who is your best
advocate?
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$ Amount of finance charges
Repairs covered
Add-on features
Reduction of finance charge if
contract paid in full prior to
ending date
Receive a copy of the contract
Repossession conditions
Know what you are signing!
JUMPSTART PRINCIPLE:

YOUR CREDIT PAST IS YOUR CREDIT
FUTURE

What do you think this means?

PSA videos on http://www.ftc.gov/freereports


PSA = Public Service Announcement
Go to http://www.ftc.gove/freereports

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Find information on how to obtain a credit report
What are the 3 major credit reporting bureaus?
What do they do?
Credit Reporting
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Before approving loan,
loan officer or
underwriter will run
credit report (credit
check)
A credit report is like a
report card of how people
manage their credit
Report reflecting how
well a person has used
credit resources
Credit Reporting

Three national credit
reporting agencies:
Equifax
 Experian
 TransUnion

500- poor credit score
 700+ good credit score
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Provide information about
employment history, credit
accounts, balances,
payment patterns
Consumers should check
each of the three credit
reports annually to verify
accuracy
The Fair Credit Reporting
Act---can get a free copy of
credit reports every 12
months
The FTC site
http://www.ftc.gov/freerepo
rts explains how to obtain
the free reports
CAUTIONS WHEN
SEEKING LOANS
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Typically, must provide
information related to ability to
repay loan:
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Income
Employment history
Residence
Credit history
Savings
The lender will likely run a
credit check (report).
If approved, borrowers may
have right to rescission (cancel)
within three days if they
choose; a provision of the Truth
in Lending Act*
* How else does Truth In
Lending Act protect consumers?
CAUTIONS WHEN
SEEKING LOANS

Always “read the fine print”
and know the terms of loans
before signing
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 watch for issues like
balloon payments
Consider if this would be wise
or unwise use of credit
Remember that, once signed,
borrowers are bound by the
terms of the agreement
Consumers can apply for
loans in person, online, over
the telephone or in writing
WHAT DO YOU THINK?
How can having bad credit negatively affect a
person?
 If bills are not paid, what items can be
repossessed?
 If bills are not paid, what items can be
foreclosed?
 If bills are not paid, what items can be turned
off?
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
http://whatsmyscore.org/contgest/videos.php
MAINTAINING GOOD CREDIT
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Evaluate the need to borrow
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Can the purchase be avoided, delayed or bought on layaway?
Identify and use the right type of credit for the
intended purchase
Shop for the best terms
Know how you will pay it back before you borrow
Only use the amount of credit that you can afford to
repay
Meet all the terms of credit contracts and agreements
Keep accurate records of charges, statements, and
payments
Consult creditors immediately if you cannot pay on
time
Resolve billing errors promptly
JUMPSTART PRINCIPLE:

Don’t borrow money that you can’t repay!

Create a tip sheet/brochure on:
Credit card use
 Establishing and maintaining good credit
 Getting out of debt
 Knowing when and why to borrow

SIGNS OF A DEBT
PROBLEM
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Consumers find
themselves stressed and
constantly worrying
over their finances
Having no savings
Having reached the
credit limit on most of
their credit cards
Skipping payments on
some bills in order to
pay others
Using cash advances on
one credit card to pay
another
video link: signs of debt problems
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Relying on credit cards
to purchase day-to-day
items like groceries and
fast food
Relying on credit cards
to pay monthly bills
Opening new credit card
accounts in response to
reaching the credit limit
on others
Regularly receiving
contacts from
creditors/collection
agencies trying to collect
unpaid debts
STRATEGIES FOR GETTING OUT OF DEBT
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Actively deal with the
problem; ignoring it will
only make it worse
Get help from trained
people---a credit
counselor or credit
counseling service
Develop a spending plan
that includes living
expenses and debt
repayment funds
Learn to live within
your budget!
video link: tips for getting out of debt
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video link: credit counseling
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Stop using credit;
focus on repaying the
debt owed
Contact creditors
immediately, let them
know your situation,
ask to have credit
terms adjusted
Get credit card with
“teaser” rate
Pay bills
automatically
through EFTs!
Spend smarter!
video link: when to file bankruptcy
BANKRUPTCY…A LAST RESORT
Legal relief or forgiveness from repaying certain debts
 Try to deal with debts using ALL MEANS available
before filing for bankruptcy
 Bankruptcy carries serious, long-term consequences--part of one’s credit report for ten years!

Chapter 7---must sell certain personal belongings, use
proceeds to repay debts
 Chapter 13---can retain most personal property, but must
propose a repayment plan, go to credit counseling, receive
financial management education, and be employed
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BANKRUPTCY EXCLUSIONS
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No Bankruptcy Forgiveness for:
Taxes owed including fines & penalties
 Court ordered debt

Alimony
 Child support
 Liability from lawsuits


College loans
video link: filing personal bankruptcy
Chapter 7 Bankruptcy
Procedure
Chapter 7---must sell most personal belongings of value, use proceeds to
repay debts
1.
File the following with the US District Court:
a.
b.
c.
d.
e.
2.
3.
4.
5.
List of all creditors and amounts owed
List of all property owned
Statement about financial affairs
List of current income and expenses
Trustee is selected-independent party
Sale for cash (liquidation) of non-exempt assets by trustee
Proceeds (Cash) used to pay each creditor same %
Money left over, if any, returned to debtor
Creditors cannot sue for additional claims after filing
21
CHAPTER 7: PROPERTY- EXEMPT &
NON-EXEMPT
Exempt Property – can keep
 Up to $7500 equity in home
 Up to $1200 in vehicle
 Up to $500 in jewelry
 Up to $750 in tools of trade
 Up to $200 per item of household goods, max $4000
 Rights to social security benefits
 All amounts in excess, subject to sale for cash
Nonexempt property- cannot keep
everything else included in liquidation and distribution to
creditors, examples:
 Bank Accounts
 Stocks
 Bonds
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CHAPTER 13 BANKRUPTCY
Extended Time Payment Plan or Reorganization
 Applies to individuals with regular income
(currently working)

Trustee handles future earnings of debtor
 Trustee handles payment of bills
 Unsecured debts less than $250,000 and/or secured debts of less
than $750,000
 Submit reasonable plan for repayment of debts within three
years
 May be extended to five years
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PRINCIPLES OF FINANCIAL PLANNING
FROM THE JUMP$TART COALITION
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Map your financial future
Money doubles by the “Rule of 72”
Your credit past is your credit future
Start saving young
Stay insured
Budget your money
Don’t borrow what you can’t repay
Don’t expect something for nothing
High returns equal high risks
Know your take-home pay
http://www.jumpstartc
Compare interest rates
oalition.org/files2010/2
Pay yourself first
010_J$_Calendar.pdf