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Activity
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1………….…………The ABCs of Credit
2……………….……………Credit Scores
3………….…………Establishing Credit
4………….…Maintaining Good Credit
5………….………………….Credit Cards
6……….Managing Credit Challenges
7……………..…………….Identity Theft
8………Prime and Subprime Lending
9……………………..Predatory Lending
10……………………………..Bankruptcy
ACTIVITY 1
The ABCs of Credit
Overview
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•
•
•
2
What is credit?
The five Cs of credit
Pros and cons of using credit
The big decision—Should I use credit?
Credit - Activity 1
CREDIT DEFINITIONS
Credit
Trust given to another person for future
payment of a loan, credit card balance, etc.
Creditor
A person or company to whom a debt is
owed.
3
Slide 1 – Credit Definitions
Lesson Reference: Credit, Activity 1 – Handout 1
THE FIVE Cs OF CREDIT
C = Capacity
C = Capital
C = Collateral
C = Conditions
C = Character
4
Slide 2 - The Five Cs of Credit
Lesson Reference: Credit, Activity 1 – Overhead 1
WHEN TO USE CREDIT
Can you describe a situation when it is
a good time to use credit and when it is
NOT a good time to use credit?
5
Slide 3 – When to Use Credit
Lesson Reference: Credit, Activity 1 – Handout 2
QUESTIONS TO ASK
BEFORE USING CREDIT
1.
2.
3.
4.
5.
6.
7.
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Slide 4 – Questions to Ask
Lesson Reference: Credit, Activity 1 – Handout 3
ACTIVITY 2
Credit Scores
Overview
• Credit scores and their impact
• The factors that make up a credit score
• Strategies to improve your credit score
7
Credit - Activity 2
WHAT IS A CREDIT SCORE?
8
•
A credit score is a number that helps a lender predict
how likely an individual is to repay a loan, or make credit
payments on time.
•
A credit score is a number that changes as the elements
in a credit report change.
•
A credit score has broad use and impact. Your credit past
is your credit future.
•
FICO® scores, one of the most common credit scoring
systems, vary between 350 and 850.
•
VantageScoreSM, a new credit scoring system developed
by the three credit bureaus, ranges from 501-990.
Slide 1 – What Is a Credit Score?
Lesson Reference: Credit, Activity 2 – Overhead 1
WHAT MAKES
UP A
TYPICAL
CREDIT
SCORE?
Source: Fair Isaac and Consumer
Federation of America, 2005
9
Slide 2 – What Makes Up a Typical Credit Score?
Lesson Reference: Credit, Activity 2 – Overhead 2
IMPROVING YOUR CREDIT SCORE
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•
Pay bills on time.
•
Get current and stay current.
•
Don’t open a lot of new accounts too rapidly.
•
Correct mistakes.
•
Shop for loan rates within a focused period of
time.
•
Keep balances low on revolving credit.
•
•
Pay off debt.
Check your credit report.
Slide 3 – Improving Your Credit Score
Lesson Reference: Credit, Activity 2 – Handout 2
ACTIVITY 3
Establishing Credit
Overview
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•
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•
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Types and sources of credit
Credit safeguards
Applying for credit
Questions to ask when applying for credit
Credit - Activity 3
TYPES OF CREDIT
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Cash Credit
I.O.U.
Sales Credit
Single Payment Credit
Secured Credit
Installment Credit
Revolving Credit
Other Types of Credit
Slide 1 – Types of Credit
Lesson Reference: Credit, Activity 3 – Handout 1
SOURCES OF CREDIT
Banks
Mortgage
& Loan
Companies
Retail
Stores
Finance
Companies
Credit Unions &
Caisses
Populaires
Internet Stores
What are other sources of credit?
What sources of credit should be avoided? Why?
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Slide 2 - Sources of Credit
Lesson Reference: Credit, Activity 3 – Overhead 1
STEPS TO TAKE TO AVOID
ABUSIVE LENDING
1. Have you shopped around for the best
deal?
2. Do you feel the lender pressured you to
take the loan?
3. Do you understand the terms of the loan?
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Slide 3 – Avoiding Abusive Lending
Lesson Reference: Credit, Activity 3 – Handout 2
COMMON PARTS OF A
CREDIT APPLICATION
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Reason for Loan
Personal Identification Information
Employment Information
Mortgage/Rental Information
Documentation Required (for some
applications)
Current Debts
Credit References
Collateral (for some applications)
Bank References
Signature and Date
Slide 4 – Parts of a Credit Application
Lesson Reference: Credit, Activity 3 – Handout 3
SAMPLE CREDIT APPLICATION
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Slide 5 – Sample Credit Application
Lesson Reference: Credit, Activity 3 – Handout 3
QUESTIONS TO ASK WHEN
APPLYING FOR CREDIT
1.
2.
3.
What is the annual fee?
What is the annual percentage rate (APR)?
When are payments due?
4.
5.
6.
What is the minimum payment required each month?
Is there a grace period?
Are there other fees associated with the credit, such as
minimum finance charges?
What is the credit limit?
7.
8.
9.
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What are the penalties for late or missed payments?
What are the terms and conditions of the credit? What
else is included in the fine print?
Slide 6 – Questions to Ask
Lesson Reference: Credit, Activity 3 – Handout 5
ACTIVITY 4
Maintaining
Good Credit
Overview
• Debt to income thermometer
• Credit process
• Credit reporting agencies
• Credit safeguards for consumers
• Credit reports, ratings and scores
• Establishing a credit history
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Credit - Activity 4
DEBT-TO-INCOME THERMOMETER
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Slide 1 – Debt-to-Income Thermometer
Lesson Reference: Credit, Activity 4 – Overhead 1
THE CREDIT PROCESS
CREDIT HISTORY
•
CREDIT BUREAU
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CREDIT REPORT
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CREDIT SCORE
•
CREDIT RATING
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Slide 2 - The Credit Process
Lesson Reference: Credit, Activity 4 – Overhead 2
SAMPLE CREDIT REPORT
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Slide 3 – Sample Credit Report
Lesson Reference: Credit, Activity 4 – Handout 2
CREDIT SAFEGUARDS FOR CONSUMERS
Bank Act (Cost of Borrowing Regulations)
Consumer Protection Act
Personal Information Protection &
Electronic Documents Act (PIPEDA)
Credit Reporting Acts
Collection Agencies Acts
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Slide 4 - Credit Safeguards for Consumers
Lesson Reference: Credit, Activity 4 – Handout 3
THINGS TO DO TO ESTABLISH
AND MAINTAIN GOOD CREDIT
What can everyone do to establish and
maintain good credit?
1. Pay all bills on time.
2. Avoid late fees.
3.
4.
5.
6.
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Slide 5 - Things to Establish Good Credit
Lesson Reference: Credit, Activity 4 – Overhead 3
ACTIVITY 5
Credit Cards
Overview
• Types of credit cards
• Shopping for a credit card
• Costs of credit
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Credit - Activity 5
TYPES OF CREDIT CARDS
Private Label
• Issued by a single source
• Can only be used at a single source
• Examples: Department Stores, Gasoline
Companies
General Label
• Issued by a single source
• Can be used in many places
• Examples: Bank Card, Major Credit Card
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Slide 1 - Types of Credit Cards
Lesson Reference: Credit, Activity 5 – Overhead 1
SHOPPING FOR A CREDIT CARD
DECISIONS, DECISIONS...
ANNUAL FEE?
APR?
COMPUTATION METHOD?
GRACE PERIOD?
FINANCE CHARGE?
CREDIT LIMIT?
CARD INCENTIVES?
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Slide 2 - Shopping for a Credit Card
Lesson Reference: Credit, Activity 5 – Overhead 2
QUESTIONS TO ASK WHEN
SHOPPING FOR A CREDIT CARD
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Annual fee
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Annual percentage rate (APR)
Minimum payment
Computation method
Grace period
Finance charges
Card incentives
Slide 3 – Questions to Ask
Lesson Reference: Credit, Activity 5 – Handout 1
COSTS OF CREDIT
How much can credit cost? If you make only the minimum
payment for an item, here are some examples of what you
might actually pay and how long it will take you to pay it.
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Slide 4 – Costs of Credit
Lesson Reference: Credit, Activity 5 – Handout 2
ACTIVITY 6
Managing Credit
Challenges
Overview
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•
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Warning signs of credit abuse
Credit card reductions
Correcting credit errors
Resources and assistance
Credit - Activity 6
MEASURING THE SERIOUSNESS
OF CREDIT TROUBLE SIGNS
Rate how serious you think each of the
following trouble signs is.
1 = Not Serious
4 = Very Serious
Trouble Signs
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Delinquent Payments
Default Notices
Repossessions
Collection Agencies
• Lien
• Garnishment
• Others?
Slide 1 – Rating Trouble Signs
Lesson Reference: Credit, Activity 6 – Handout 1
WARNING SIGNS OF DEBT PROBLEMS
1. Delinquent Payments
2. Default Notices
3.
4.
5.
6.
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Repossessions
Collection Agencies
Judgment Lien
Garnishment
Slide 2 – Warning Signs
Lesson Reference: Credit, Activity 6 – Handout 2
CREDIT CARD REDUCTIONS
Paying only the minimum payments on your credit card may
seem appealing, but if only minimum payments are made, it can
take years, and sometimes decades, to achieve full repayment.
Paying the minimum amount due keeps your credit history clean,
but it also costs you more.
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Slide 3 – Credit Card Reductions
Lesson Reference: Credit, Activity 6 – Handout 3
CORRECTING CREDIT ERRORS
1. Circle the incorrect items on your credit report.
2. Write a letter to the reporting agency, telling them
which information you think is inaccurate. Provide
supporting documentation.
3. Send all materials by certified mail.
4. Send a similar letter to the creditor whose reports
you disagree with.
5. The reporting agency will conduct an investigation.
6. If negative information is accurate, it can stay on
your report for 7-10 years.
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Slide 4 – Correcting Credit Errors
Lesson Reference: Credit, Activity 6 – Handout 4
CORRECTING CREDIT PROBLEMS
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Take responsibility for actions.
Communicate with creditors.
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Debt Consolidation
Credit Counseling
Bankruptcy
Slide 5 – Correcting Credit Problems
Lesson Reference: Credit, Activity 6 – Handout 5
ACTIVITY 7
Identity Theft
Overview
• The growing problem of identity theft and how
it occurs
• Strategies to protect your personal information
• Steps to take if your identity has been stolen.
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Credit - Activity 7
IDENTITY THEFT
Identity theft occurs when someone uses your
personal identifying information to either establish
credit under your name or to take over an existing
account that you established without your
authorization.
This information may include:
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• Social Insurance Numbers
• Name
• Mother’s maiden name
• Passwords
• Address
• Date of birth
• PINs
Slide 1 – Identity Theft
Lesson Reference: Credit, Activity 7 – Overhead 1
HOW TO AVOID IDENTITY THEFT
1.
2.
3.
4.
5.
6.
7.
8.
9.
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Monitor your credit report.
Don’t give out personal information to unknown persons
or companies.
Protect your credit and debit cards.
Protect your mailbox.
Protect your wallet.
Use passwords and PINs that can’t be easily guessed.
Use anti-virus software on your computer.
Notify your bank when you change your address or
phone number.
Other suggestions?
Slide 2 – How to Avoid Identity Theft
Lesson Reference: Credit, Activity 7 – Handout 2
WHAT TO DO IF YOUR IDENTITY
HAS BEEN STOLEN
If you think your identity has been stolen, take
the following steps:
• Contact the three major credit bureaus
(Equifax, Northern Credit Bureaus, and
Trans Union).
• Close accounts.
• Contact all creditors involved.
• File a police report.
• Keep a record of your contacts.
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Slide 3 – What to Do
Lesson Reference: Credit, Activity 7 – Overhead 2
ACTIVITY 8
Prime and Subprime
Lending
Overview
• Prime and subprime lending definitions
• Alternative institutions that provide higher-cost
loans
• Strategies to improve credit in order to qualify
for prime loans.
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Credit - Activity 8
PRIME AND SUBPRIME
MORTGAGE LENDING
Prime
Prime credit is typically available to an individual who has paid
his or her outstanding credit on time.
Subprime
A subprime loan is typically available to a person with either
no credit history or a damaged credit history and who is
considered to be a high-risk borrower. Subprime loans have
higher-than-average interest rates.
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Slide 1 – Prime and Subprime Lending
Lesson Reference: Credit, Activity 8 – Overhead 1
THE PRICE OF SUBPRIME LENDING
How much does a subprime loan cost you? If you are making
payments on a car, for example, you could be paying
significantly more just for getting a loan with a higher
interest rate. This added interest is significant over the life of
the loan.
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Slide 2 – The Price of Subprime Lending
Lesson Reference: Credit, Activity 8 – Handout 1
MOVING FROM
SUBPRIME TO PRIME
If you currently have a lower credit score and want to be able
to qualify for prime loans in the future, you should take steps
to improve your credit. The following steps can help.
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Pay bills on time.
Correct mistakes.
Pay more than the minimum required.
•
•
Use credit sparingly.
Work with a reputable nonprofit credit counseling
organization.
Slide 3 – Moving from Subprime to Prime
Lesson Reference: Credit, Activity 8 – Handout 2
ACTIVITY 9
Predatory Lending
Overview
• Characteristics and warning signs of predatory
lending.
• The key targets of predatory lending.
• Common abuses and scams.
• Nonprofit organizations that can help consumers
plagued by predatory lending.
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Credit - Activity 9
PREDATORY LENDING
In communities across Canada, some people are losing their
homes and their investments because of predatory lenders,
corrupt appraisers, mortgage brokers, and home
improvement contractors who:
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Sell properties for much more than they are worth,
using false appraisals.
Encourage borrowers to lie about their income,
expenses, or cash available for down payments in order
to get a loan.
Knowingly lend more money than a borrower can afford
to repay.
And many other scams.
Slide 1 – Predatory Lending
Lesson Reference: Credit, Activity 9 – Overhead 1
IDENTIFYING
PREDATORY LENDING
Predatory lending is not defined by provincial law except to
the extent that a loan is a high-cost loan and contains one of
a fixed list of terms or conditions. Predatory or abusive
lending practices can include:
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•
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Packaging a loan with single-premium credit insurance
products
Repeatedly refinancing a loan in a short period of time
Charging excessive rates and fees to a borrower who
qualifies for lower rates and fees
Slide 2 – Predatory Lending
Lesson Reference: Credit, Activity 9 – Handout 1
TEN WARNING SIGNS OF
PREDATORY MORTGAGES
1.
2.
3.
Unreasonably high interest rates
Multiple refinancing
Unnecessary debt consolidation
4.
5.
6.
7.
Balloon payment
Negative amortization
Door-to-door solicitation
Back-dating of documents
8. Large loan broker fees
9. Kickbacks between lender and broker
10. Single-premium credit life insurance
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Slide 3 – Ten Warning Signs
Lesson Reference: Credit, Activity 9 – Handout 1
COMMON SCAMS
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Advance fee schemes
The prize that will cost you
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Online auctions
Fraud jobs
Moneymaking schemes
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Bogus charities
Scam schools
Slide 4 – Common Scams
Lesson Reference: Credit, Activity 9 – Handout 2
TOP STRATEGIES TO AVOID SCAMS
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Don’t become a victim.
Investigate strangers who have deals too good to be true.
Always stay in charge of your money.
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Don’t be fooled by appearances.
Watch out for salespeople who prey on fears.
Monitor your investments.
Report fraud or abuse.
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Do your homework.
Be wary of door-to-door solicitations.
Slide 5 – Top Strategies to Avoid Scams
Lesson Reference: Credit, Activity 9 – Handout 2
ADDITIONAL RESOURCES
• PhoneBusters - The Canadian Anti-fraud Call Centre (888) 495-8501; http://www.phonebusters.com;
info@phonebusters.com.
• Office of Consumer Protection - Quebec Provincial Government
- There are 11 regional offices of the Office of Consumer Protection.
One toll-free number serves them all: (888) 672-2556.
• Office of Consumer Affairs - Canadian Federal Government (800) 328-6189; http://www.consumer.ic.gc.ca.
• Ministry of the Attorney General – Ontario - (416) 326-2220.
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Slide 6 – Additional Resources
Lesson Reference: Credit, Activity 9 – Handout 3
ACTIVITY 10
Bankruptcy
Overview
• Personal bankruptcy and consumer proposal
• Provisions of the new bankruptcy legislation
• Strategies to avoid bankruptcy
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Credit - Activity 10
BANKRUPTCY
Personal Bankruptcy wipes out all allowable debts and
allows certain personal property exemptions. The debtor gives
up all property unless the state deems it necessary to support
the debtor and his or her dependents. Eligibility is determined
by a means test that measures income against expenses.
Consumer Proposal is a negotiated settlement between a
debtor and his or her creditors. A typical proposal will involve
the debtor making monthly payments for a maximum of five
years, with the funds distributed to their creditors.
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Slide 1 – Bankruptcy
Lesson Reference: Credit, Activity 10 – Overhead 1
PROVISIONS OF THE CANADIAN
BANKRUPTCY REFORM
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Debtors who have surplus income will no longer be
eligible for an automatic discharge after nine months.
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Bankrupt individuals with more than $200,000 in
personal income tax debts will not be eligible for an
automatic discharge.
•
Student loans may be written off.
•
A consumer can file a consumer proposal that is as
high as $250,000.
Slide 2 – Provisions of Bankruptcy Reform
Lesson Reference: Credit, Activity 10 – Handout 1
THINGS TO CONSIDER BEFORE
FILING FOR BANKRUPTCY
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A bankruptcy filing could determine whether or
not you get a job.
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Your insurance rates could rise.
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You may find it difficult to rent an apartment or
qualify for a home loan.
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Bankruptcies stay on your credit report for 10
years.
Bankruptcy can lower your credit score.
•
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Slide 3 – Things to Consider
Lesson Reference: Credit, Activity 10 – Overhead 2
THINGS TO DO BEFORE DECIDING
TO FILE BANKRUPTCY, CONT.
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Reduce your spending
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Talk with your creditors.
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Talk with a nonprofit counseling agency.
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Talk with an attorney and understand the
consequences of declaring bankruptcy.
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Consider consolidation carefully.
Slide 4 – Things to Do
Lesson Reference: Credit, Activity 10 – Handout 2
TIPS TO REMEMBER
• Keep track of your daily expenses.
• Save money on a regular basis.
• Make changes right away if you see yourself
starting to get into financial trouble.
• Pay attention to your household finances,
especially if you are married.
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Slide 5 – Tips to Remember
Lesson Reference: Credit, Activity 10 – Handout 2