Understanding Credit & Debt
FIVE “ C ’ S ” OF
Character - the honesty and reliability to repay a debt.
Have you used credit before? Do you pay your bills on time? How long have you lived at your present address or have been employed?
Capital/Collateral - if you have valuable assets such as real estate, personal property, investments, or savings with which to repay debt if income is unavailable.
Capacity/Cash Flow - your ability to repay the debt – employment, income.
“ Creditors have better memories than debtors.
Debt & How To Handle It
Your Credit Score & How To Raise It
Credit Reports & How To Obtain One
Credit In The Current Market
Talking To Your Students
Credit is a valuable tool, yet many people misuse and overuse it.
Signs of someone who may be in trouble:
Making only the minimum payment
Maxing or nearly maxing out credit cards
Not knowing how much is owed
Signs of someone who may be in trouble:
Using credit cards to purchase items that used to be purchased with cash
Paying off one card with another card
Phone calls or letters from creditors
Lowering Your Debt
Ask Your Credit Card Company To Lower
Your Interest Rate
If Your Card Company Wont Lower – Shop
For A Lower Rate Card
Set up a tight budget and stick to it. Find ways to save money – America Saves
Set realistic goals
If You Are In Trouble
Contact Your Creditors
Review the Fair Debt
Speak with a credit counselor
Washington State Department of Financial Institutions
” Regulating financial services to protect and educate the public and promote economic vitality.
National Foundation for Credit Counseling www.debtadvice.org
Debt Management Plans
Friends or Family
Ask to borrow money from a friend or family
No to low-interest loans
Be wary of organizations or individuals that:
Promise to solve your problem overnight
Charge high up front fees
Won ’ t disclose the costs for their services
If It Sounds Too Good To Be True
… It Probably Is
Only 49% of Americans have obtained their credit score in the past two years.
(Consumer Federation of America, 2008)
What Is A Credit Score?
The score given to an individual to determine their credit worthiness.
FICO and Vantage.
Who checks your credit score?
Credit card companies
How your score can affect you:
If your rate goes up on 1 card it can go up on another
Some Employers Use It When Hiring
On a $225,000 home:
6% Interest Rate
30-year fixed = $1348/mo
5% Interest Rate
30-year fixed = $1207/mo.
$50,810 over 30 yrs
How Your Score Is
FICO® scores are calculated based on your rating in five general categories :
1) Payment History
2) Amounts Owed
3) Length Of Credit History
4) New Credit
5) Types Of Credit Used
What ’ s A Good Score?
FICO Scores Range From 300 – 850
In the eyes of most lenders, FICO credit scores above 700 (750) are very good .
Recent changes in the economy have changed what lenders as a very good score
A credit report is a report containing a detailed credit history of an individual.
What ’ s On Your Credit Report?
Personal Information (Name, SSN, Etc.)
Public Records & Collection Accounts (Bankruptcies,
Your Credit History & Current Obligations
You are entitled to 1 free credit report a year from each of the 3 major credit bureaus.
To request your free credit report visit www.annualcreditreport.com
You can also request your credit score.
A small fee may apply.
Pay Bills On Time (Get current, stay current)
Pay Off Debt – Don ’ t Move It Around
Don ’ t Close Unused Credit Cards As A Short-
Term Strategy To Raise Your Score
Don ’ t Open New Credit You Don ’ t Need.
More Tips For Improving
Repair Errors (Outstanding Debts You Paid)
Pay Down Balances To 20-30% Of Credit
If You Have 1 Or 2 Old Cards You Haven't Used
Put A Little On The Card And Then Pay It Off
Do This About 1 Every 6 Months
Lenders are lowering credit limits
20% banks lower on prime borrowers
60% banks lower on subprime borrowers
Lenders are tightening their requirements.
Good Score - 750 or higher
Lenders are closing inactive cards
BASIC RULES TO FOLLOW:
They should charge only what they can afford to pay back.
Credit cards shouldn't be a money substitute for items they can't afford.
They need to pay their bills on time and not just the minimum amount.
Credit companies specifically target college students.
FTC Credit Web Site
Bad Credit Hotel