Provided in partnership with SunTrust Bank
What Is Credit?
 Credit is money you borrow to pay for things. It is usually
referred to as a loan. You make a promise to pay back the
money you borrowed plus some extra. The extra amount is
part of the cost of borrowing money, known as interest.
 If you use credit carefully, it can be useful to you. If you are
not careful in the way you use credit, it can cause problems!
 “Good Credit” means that you make your loan payments on
time to repay the money you owe. If you have a good credit
record, it will be easier to borrow money in the future.
Why Is Credit Important?
 It can be useful in time of emergencies.
 It is sometimes more convenient than carrying large
amounts of cash.
 It allows you to make a large purchase, such as a car or
a house, and pay for it over time.
 It can affect your ability to obtain employment,
housing and insurance, depending on how you
manage it.
What Can Happen If You have
“Bad” Credit?
What Can Happen If You Have
“Bad” Credit?
 Be declined for a loan
 Be turned down for employment
 Have higher interest rates on your loans
 Be turned down for auto insurance
 Be turned down to rent a home/apartment
Which situations below would be a
good reason to request credit?
 A) To purchase a car
 B) To take your friends out to dinner
 C) To pay for college
 D) To purchase a new cell phone
How Is Credit Determined?
 You Credit Score, also known as a FICO Score is a
three-digit number rating that helps determine your
Credit Risk. While there are many uses for your
credit score, the most popular reason is to determine
your creditworthiness. A higher credit score indicates
less risk to the lender.
What are the Credit Score Ranges?
 There are 3 Credit Reporting Agencies; Equifax, Experian and
TransUnion. Credit Scores range from a low of 350 to a high of 850.
The higher your score, the better rate and term you will be offered.
 A credit score of 720 or above is considered excellent. You will
typically be rewarded with the lowest interest rate offered.
 A credit score of 680-719 is considered good. You will still be rewarded
with lower rates and better terms.
 A credit score of 620-679 is considered average. You will find lenders
that will be able to offer you options, however you will begin to notice
that your rates may be higher and your terms may be less favorable.
 A credit score of 619 or under is considered poor. You will begin to
find that lenders will decline your request for credit. If you are
approved for credit, your interest rate will be significantly higher than
normal.
How is your Credit Score
Calculated?
 Your credit score is based on a formula created by the
Fair Isaac Company. While their exact calculation is
not known, it is broken into 5 Major Categories:
 Payment History is 35% of your score
 Amount Currently Owed is 30%
 Length of Credit History is 15%
 Newly Established Credit is 10%
 Type of Credit Used is 10%
Types of Loans
Consumer Installment Loan
 A consumer installment loan is used to pay for personal
expenses for you and your family. Consumer Installment
Loans typically have a fixed number of payments with a
step interest rate and set monthly payment amount.
Examples are:
Auto Loan
Unsecured Loan
Student Loan
Types of Loans
Credit Cards
 Credit cards give you the ongoing ability to borrow
money for household, family and other personal
expense. Credit cards should be used primarily for
emergencies. Having a credit card does not mean you
have the money to pay for a purchase! You need to be
able to pay your monthly credit card bill, as well as
have a plan to pay the balance off in full.
Types of Loans
Home Loans
 Home Loans are secured by your home. There are three main
types of home loans:
Purchase Home Loan:
This is used for the purpose of buying a home.
Refinancing Home Loan:
This is used to take advantage of a lower rate or to
reduce your payments.
Home Equity Loan:
This is typically used for home improvements;
however it can be used for many other reasons, such as
paying for college, or putting in a pool!
What Decision Would You Make?
 You are a loan officer with ABC South bank. You have
a client, Mr. James, who would like to request a
personal loan. He would like to borrow $6,000 to
pay off his 2 credit cards.
 Mr. James works at Smith Plumbing. He has worked
there for 7 years and his annual income is $33,500. He
has lived at 126 Mable St for 4 years.
 When you pull Mr. James’s credit report, this is what
you see:
What Decision Would YOU Make?
Equifax Credit Report Report Dated:
Client Full Name:
Thomas K. James
January 24 2013
Employer of Record:
Smith Plumbing
Collections Reported:
Address of Record:
126 Mable St.
Greenville SC 29611
None on file
Trade Lines Reporting:
Creditor
Open
Date:
Credit Limit:
Balance
Owed:
Past Due:
30/60/90/120/+
Minimum
Payment:
BankOne
R1 02/1999
$11,000
$3,032
0/0/0/0
$61.00
Every Bank
R1 05/1995
$8,000
$2,856
0/0/0/0
$55.00
Chase Mortgage M1 11/2008
$109,000
$78,356
0/0/0/0
$713.00
Bank of America I1 04/2007
$21,900
$0
0/0/0/0
$0.00
SunTrust
$19,700
$0
0/0/0/0
$0.00
I1 05/2001
Number of Inquiries:
1
Percent of credit in use:
30.99%
Equifax Credit Score:
795
What Decision Would YOU Make?
Using your Credit Report handout, answer the
following questions:
 What is Mr. James’s Credit Score? Is that an Excellent, Good, Average or
Poor score?
 Has Mr. James ever had a past due monthly payment?
 Has Mr. James has been responsible with his credit? What would you
base that on?
 Would you approve Mr. James’s loan request? Why or Why not?
What Decision Would You Make?
Scenario #2
 You are a loan officer with ABC South bank. You have
a client, Mrs. Loomis, who would like to request a
personal loan. She would like to borrow $2,500 to go
on vacation.
 Mrs. Loomis works at Johnson Enterprises as a
receptionist. She has been there for 6 months. She is
full time and makes $8.50 an hour, which is $17,680 per
year.
 When you pull Mrs. Loomis’s credit report, this is what
you see:
What Decision Would You Make?
Scenario #2
Equifax Credit Report
Report Dated:
Client Full Name:
Sue Jane Loomis
Employer of Record:
Johnson Enterprise
Smith Tire
Dollar Tree
City of Greenville
January 24 2013
Address of Record:
9 Dillon Rd
Greenville SC 29607
Collections Reported: Greenville Hospital System: Past Due/Collection Item Balance Due $1,759
Verizon Wireless: Past Due/Collection Item
Chase Bank: Past Due/Collection Item
Balance Due $915
Balance Due $1,256
12/2012
12/2012
11/2012
Trade Lines Reporting:
Creditor
Open
Date:
Credit Limit:
EveryBank R4
02/2012
Chase Bank R9
05/2011
Number of Inquires:
6
Balance
Owed:
Past Due:
30/60/90/120/+
Minimum
Payment:
$1,000
$972
3/2/0/0
$50.00
$1,000
$1,256
5/2/1/1
$55.00
Percent of Credit in Use:
111.4%
Equifax Credit Score:
519
What Decision Would YOU Make?
Scenario #2
Using your Credit Report handout, answer the
following questions:
 What is Mrs. Loomis’s Credit Score? Is that an Excellent, Good, Average
or Poor score?
 Has Mrs. Loomis ever had a past due monthly payment?
 Has Mrs. Loomis has been responsible with her credit? What would you
base that on?
 Would you approve Mrs. Loomis’s loan request? Why or Why not?
The True Cost of Alternate
Financial Solutions
Rent to Own Services
 Rent-to-own service let you use an item for a period of time by making
monthly or weekly payments. If you want to purchase the item, the
store will set up a plan for you to rent it until you pay enough to own it.
 The store is the legal owner of the item until you make the final
payment. If you miss a payment, the store can take the item back. If
this happens, you will not own the item, and you will not get your
money back.
 Rent-to-own agreements are technically not loans, so no interest is
charged. However, the difference between the cash price and your total
payments is like the interest you pay on a loan. Generally, using rentto-own services is more expensive than getting a consumer installment
loan to buy the item outright.
The True Cost of Alternate
Financial Solutions
Pay-Day Loan Service
 Pay-day loans are usually made to people who need money right away
and plan to pay it back with their next paycheck.
 Pay-day loans should be used only for emergencies If you cannot fully
repay the loan within a few pay periods, you should consider a longer
term loan from a financial institution.
 If you do not have the money to pay the loan within the agreed-upon
time period, the lender will renew the loan and charge you additional
fees. This increases the total amount you owe.
The True Cost of Alternate
Financial Solutions
Refund Anticipation Loan Services
 Refund anticipation loans are short-term loans secured by your income
tax refund. Although the business preparing your income tax return
will give you the money, you are actually receiving a loan from a bank or
finance company.
 Because you do not have to pay any fees associated with obtaining a
refund anticipation loan at the time you receive the money, you may
not realize how much this loan is really costing you. When you
electronically fine (e-file) you tax return and request direct deposit,
your refund is often deposited in your bank account within 2 weeks.
Sometimes refund anticipation loans take just as long, yet cost you
substantially more money.
Where Do I Go From Here?
Often, this is the point where many students begin to ask
how they can insure that they build strong, healthy
credit. There are MANY resources available to you!
www.livesolid.com
www.annualcreditreport.com
www.bbb.com
Your Bank
Remember, it is never to early or too late to build a
strong financial foundation!