CREDIT SCORES - MR. Chavez`s Class

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CREDIT
• Most debt is mortgage based (considered good debt) Cnn.com
•
Student Loans are also considered good debt “IF” it does not
represent more than 20% of income post education
• The average American household with at least one credit card
has nearly $15,950 in credit-card debt (in 2012)
• 35% of Americans have debt in Collections
(180 days past due)
• The 77 million Americans with debt in
collections owe an average of $5,200.
• That includes debt from credit card bills, child
support, medical bills, utility bills, parking
tickets or membership fees.
WHY IS IT IMPORTANT
• USED TO DETERMINE WHAT INTEREST RATE
YOU WILL RECEIVE FROM A LENDING
INSTITUTION.
• FOR:CAR LOANS, HOME LOANS, CREDIT
CARDS, RENTING APARTMENTS
• SAVE YOU A LOT OF MONEY IN INTEREST
• ALSO SOME COMPANIES ARE CHECKING
CREDIT SCORES FOR EMPLOYMENT
• national average annual percentage rate, or
APR, on a 30-year fixed-rate mortgage based
on their FICO score
• between 760 and 850 is 3.15 percent.
• For a person with a credit score between 620
and 639, the national average APR is 4.74
percent.
•FICO
• The Fair Isaac Corp.
What is a credit score?
• A credit score is a number that summarizes
the historical credit information on your
personal credit report. The number reflects
the likelihood that you will become delinquent
on a loan or a credit obligation in the future.
Basically telling people how responsible you are.
BASICALLY
What are the minimum requirements for a FICO
score?
There's really not much to it; in order for a FICO® score
to be calculated, a credit report must contain these
minimum requirements:
• At least one account that has been open for six months or
more
• At least one undisputed account that has been reported to the
credit bureau with in the past six months
• No indication of deceased on the credit report (Please note: if
you share an account with another person this may affect you
if the other account holder is reported deceased).
HOW IS IT CALCULATED
1.
35 % of the score is based on your payment
history. The score is affected by how many bills
have been paid late, how many were sent out for
collection and any bankruptcies. When these things
happened also comes into play. The more recent,
the worse it will be for your overall score.
2. 30 %of the score is based on outstanding debt.
How much do you owe on car or home loans?
How many credit cards do you have that are at
their credit limits? The rule of thumb is to keep
your card balances at 25 percent or less of their
limits.
3. 15 % of the score is based on the length of time
you've had credit. The longer you've had
established credit, the better it is for your overall
credit score.
4. 10 % of the score is based on new credit. Opening
new credit accounts will negatively affect your score
for a short time. This category also penalizes hard
inquiries on your credit in the past year.
5. 10 % of the score is based on the types of credit you
currently have. It will help your score to show that
you have had experience with several different kinds
of credit accounts, such as revolving credit accounts
and installment loans.
Ex. Car loans, student loans, credit cards,
RANGE OF CREDIT SCORES
•
•
•
•
•
•
•
•
499 and below 2 %
500-549 5 %
550-599 8 %
600-649 12 %
650-699 15 %
700-749 18 %
750-799 27 %
800 and above 13 %- GET THE BEST RATES
Is there one score?
• • One of the most common myths about credit
scores is that there is only one credit score. In
fact, there are many different credit scores used
by lenders (according to some estimates, more
than 1,000), although some scores are used
more than others.
• Credit bureau scores are not the only scores
used.
• Many lenders use their own credit scores, which
often will include the FICO score as well as other
information about you.
• FICO scores are not the only credit bureau
scores.
• Your credit score may be different at each of
the main credit reporting agencies.
• Main reporting bureaus Experian, Equifax,
Transunion
Can you fix a credit score?
• The first step is to pull your credit report
Make sure none of the following are on your
report:
• Late payments, charge-offs, collections or
other negative items that aren‘t yours.
• Credit limits reported as lower than they
actually are.
Accounts listed as "settled," "paid derogatory,"
"paid charge-off" or anything other than
"current" or "paid as agreed" if you paid on
time and in full.
• Accounts that are still listed as unpaid that
were included in a bankruptcy.
• Negative items older than seven years (10 in
the case of bankruptcy) that should have
automatically fallen off your reports.
Where do I go to get info
• Annualcreditreport.com
• Government sponsored site and you get one
report free each yr.
• Need current information
• Address and numbers of each reporting
bureau are listed
I’m Ready
• Go to the bank you are currently with. They
are more likely to issue you a card.
• Average credit line $500
• Secured Credit Card- A pre-paid card “not the
Rush Card” that you utilize like a credit card.
• If you default your deposit is used to pay of
debt
• After 12 months you will typically qualify for a
traditional credit card.
• People establishing or re-establishing credit
• Parents may help you establish credit by
allowing to “piggy back on their card”
• Pro- parents will be aware of your spending
• Cons- If you fail to pay it will impact your
parents credit history and will be reported to
the credit agencies
How to read your statement
• If your card has been issued by your bank then
you can view your statement on their on-line
banking web-site
• For other card companies “Discover”
statements can be mailed or most people
receive an online notice with an account
opened with their credit card company.
• ATT: Destroy all documents
• The stated rate is not your actual interest
rate. The advertised rate on a credit card is
often the card's simple interest rate.
The effective interest rate, however, is your
true cost of borrowing. It should
include annual feesyou pay to use the card.
The compounded interest rate is a better
barometer of your effective interest rate.
Real & Hidden Costs
• Banks can change terms when ever they want
• This includes interest rates, lowering your limit
and closing your account
• http://www.bankrate.com/calculators/managi
ng-debt/minimum-payment-calculator.aspx
Just making the
Ave. Monthly Balance
13.0%
15.0%
$1,000
$130
$150
$5,000
$650
$750
$10,000
$1,300
$1,500
• Purchase APR: This is the most common type
of APR. Purchases made to the credit card will
have a purchase APR calculated. This is the
yearly amount of interest charged on
purchases carried month to month
.
• Cash Advance APR: A cash advance is when a
cardholder withdraws cash from an ATM or
bank using the card, or writes and cashes a
check against his or her credit card. Credit
card companies charge a specialized APR
against this type of transaction. The cash
advance APR is commonly higher than the
purchase APR.
• Balance Transfer APR: A balance transfer is an
opportunity for an individual to pay off the
balance of one credit card using another
credit card. Balance transfer APRs may offer a
special introductory offer, such as zero percent
for the first six months.
• Each of area will be assessed its own interest
rate and are calculated into you monthly
payment.
• So basically you are paying on 3 lines of credit!
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