To Your Credit

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To Your Credit
Revised 2006
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Your County Your Name Family and Consumer
Sciences Educating People to Help Themselves
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Qualifying for Credit

• Three Cs of Credit
• Character Will you repay the debt?
• Collateral What if you dont repay the
  debt?
• Capacity Can you repay the debt?

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Shopping for Credit Cards

• Is there an annual fee?
• Whats the interest rate called the Annual
  Percentage Rate (APR)?
• Is the APR fixed, variable, teaser or tiered?
• Is there a universal default rate?
• Is there a grace period?
• How are finance charges calculated?
• Are there other fees or charges?

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Methods of Calculating Finance Charges

• Average Daily Balance
• Including new purchases
• Excluding new purchases
• Two-cycle Average
• Daily Balance

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Minimum Payment Trap

• Balance of 3000
• 120/Month (4 of balance minimum payment)
• 19 interest
• 33 months to pay
• 849.31 in interest charges

• Pay 1 More/Month
• 150/Month (5 of balance)
• 19 interest
• 25 months to pay
• 636.00 in interest charges
• 213.31 savings

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How to Reduce the Cost of Credit Cards

• Select card with lowest interest rate
• Understand average daily balance method
• Use only 2 general purpose credit cards
• Obtain credit card with generous grace period and
  no annual fee

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Co-Signing Beware!!

• Co-signed obligations appear on both the makers
  and the co-signers credit reports!
• The co-signer is liable for the debt if the maker
  doesnt pay!
• If in doubt, DO NOT CO-SIGN!

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Comparison of Loan Costs6,000 Loan
Loan Monthly Finance Total Length
Payments Charge Cost
APR
14 14 15
3 years 205 1,383 7,383 4 years
164 1,870 7,870 4 years 167
2,015 8,015
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Home Equity Loans

• Kinds of Home Equity Loans
• Open End Loans (Revolving Loans)
• Closed End Loans
• Interest Rate
• Adjustable
• Fixed
• Tax Deductibility

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Before you sign a contract, compare
Annual percentage rate Total cost of
loan/contract in dollars Length of payback
time Number of payments Amount of payments Due
Date of payments
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Federal Credit Laws

• Equal Credit Opportunity Act
• Fair Credit Reporting Act
• Fair Debt Collection Practices Act
• Truth in Lending Act
• Fair Credit Billing Act
• Fair Accurate Credit Transactions Act (FACTA)
• Credit Repair Act

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What Do Credit Bureaus Do?

• Collect data
• Personal information
• Employment history
• Credit Use and Repayment history

• Provide information to
• Creditors
• Employers
• Insurers
• Landlords

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Credit Bureaus

• 3 Major Credit Bureaus
• Equifax
• Experian
• Transunion

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Start Here
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Specialty Consumer Reports (1 free report, from
each, annually)

• Medical Information Bureau Reports
• www.mib.com
• C.L.U.E., Employment History and Tenant History
  Reports
• www.choicetrust.com
• Auto-Property Loss Reports
• www.iso.com

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Correcting a Credit Report

• Contact company that reported the error
• Ask company to correct error, in writing, with
  each credit bureau
• Photocopy pertinent documents
• Write credit bureau, explain error and enclose
  documentation
• Send certified mail with return receipt

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What Is A Credit Score?
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Credit Score Ranges

• 780-850 Low Risk
• 740-780 Medium Low Risk
• 690-740 Medium Risk
• 620-690 Medium High Risk
• 620 and Below High Risk or Sub-Prime

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www.myfico.com
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Signs of Credit Trouble

• Exceeding 20 percent rule
• Second salary used to pay debts
• Dishonest about credit use
• Credit not thought of as debt
• Use credit impulsively
• Use cash advances to pay bills

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Signs of Credit Trouble

• Bills paid late
• Paying only the minimum due each month
• Defaulting on payments
• Anticipated income increase committed to credit
• Dont know total amount of debt

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If YOU cant pay...

• NOTIFY creditor before bill or loan is due.
• STOP credit purchases until debts are under
  control.
• CUT living expenses to a minimum.
• DEVELOP a debt repayment plan.
• GET HELP from a credit and debt counseling
  service.

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Debt Repayment Plan

• Determine amount owed
• Decide amount you can pay back and when
• Set up plan for paying debts
• Discuss plan with creditors
• Follow the plan/control spending
• Review and revise,when necessary

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How Do Power Payments Work?
www.powerpay.org

• Make a commitment to stop borrowing or charging
  until current debts are paid
• When one debt is paid, that monthly payment is
  rolled over to the next debt
• Total monthly payment remains the same only the
  distribution of payments changes
• Save interest by paying debts sooner!

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• Check the Yellow Pages for Credit and Debt
  Counseling Services in your area.

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Beware!

• Loan Consolidation
• Credit Repair clinics

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What Happens If You Cant Pay

• Charged Late Fees
• Reported to the Credit Bureaus
• Transferred to Collections
• Possible Judgment
• Possible Wage Garnishment

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Wage GarnishmentA legal procedure withholding a
portion of your earnings for the payment of debt

• Limits of garnishment
• Lesser of 25 of your disposable income or 30
  times the Federal minimum wage.
• You cannot be fired for any one garnishment.

Garnishment is enforced by the Secretary of
Labor through the Wage and Hour Division
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Two Common Types of Personal Bankruptcy

• Chapter 7 - Straight Bankruptcy
• also known as Liquidation Bankruptcy
• Chapter 13 -Wage-Earner Bankruptcy
• also known as Debt Reorganization Bankruptcy

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To Your Credit
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Your County Your Name Family and Consumer
Sciences Educating People to Help Themselves