The Need for Credit

1
The Need for Credit

• At some point in your life you will probably
  need to borrow money. You might want to
• start a business or buy a
• or a
• or or

2
The Need for Credit

• Who will lend you the MONEY???

3
The Importance of Credit

• Parentsmaybe
• Friendsprobably not
• CreditorYes, IF you can pass the test on
• The Three Cs of Credit

4
The Three Cs of Credit

• Creditors have to determine a consumers credit
  worthiness. Basically, they are trying to decide
  when it is a good idea to extend credit or lend
  money to people. Lenders generally evaluate
  borrowers on
• The Three Cs

5
The Three Cs of Credit

• CharacterWill you repay the debt?
• From your credit history, does it look like you
  possess the honesty and reliability to pay credit
  debts?
• Have you used credit before?
• Do you pay your bills on time?
• Do you have a good credit report?
• Can you provide character references?
• How long have you lived at your present address?
• How long have you been at your present job?

6
This Presentation is a Game?
The Three Cs of Credit

• CapacityCan you repay the debt?
• Have you been working regularly in an occupation
  that is likely to provide enough income to
  support your credit use?
• Do you have a steady job?
• What is your salary?
• How many other loan payments do you have?
• What are your current living expenses?
• What are your current debts?
• How many dependents do you have?

7
This Presentation is a Game?
The Three Cs of Credit

• CapitalWhat if you dont repay the debt?
• Do you have any valuable assets such as real
  estate, savings, or investments that could be
  used to repay credit debts if income is
  unavailable?
• What property do you own that can secure the
  loan?
• Do you have a savings account?
• Do you have investments to use as collateral?

8
How are the 3 Cs Measured?

• Credit bureaus, such as Equifax, Experian and
  TransUnion, maintain credit files on millions of
  borrowers. These files are called credit reports
  and contain
• What types of credit you use
• The length of time your accounts have been open
• Whether you've paid your bills on time
• How much credit you've used
• Whether you're seeking new sources of credit

9
How are the 3 Cs Measured?

• The information in your credit report is
  summarized into a credit scoresimilar to how
  your teachers summarize your performance during a
  semester into a grade.
• Scores range from 300-850
• The higher the score the better
• Higher scores lower interest rates

10
How are the 3 Cs measured?

• Credit scores are calculated based on 5 key
  elements

Credit scores are one of the tools used by
lenders to measure credit worthiness. Consumers
can learn how to improve their scores similar to
the way students can improve their grades by
studying.
11
Are you prepared to use credit responsibly?

• Are YOU prepared to use credit responsibly?
• Find out by
• taking the Get
• Smart About
• Credit Quiz
• (Ice Cream Quiz)

12
Achieving a GOOD Credit Score

• Payment Tips
• Pay your bills on time.
• If you have missed payments, get current and stay
  current.
• If you are having trouble making ends meet,
  contact your creditors or see a legitimate credit
  counselor.
• source myfico.com

13
Achieving a GOOD Credit Score

• Amounts Owed Tips
• Keep balances low on credit cards and other
  "revolving credit".
• Pay off debt rather than moving it around.
• Don't make purchases on credit cards unless you
  already have the money to pay for the purchases.
• Don't open a number of new credit cards that you
  don't need, just to increase your available
  credit.
• source myfico.com

14
Achieving a GOOD Credit Score

• Length of Credit History Tip
• If you have been managing credit for a short
  time, don't open a lot of new accounts too
  rapidly.New accounts will lower your average
  account age, which will have a larger effect on
  your score if you don't have a lot of other
  credit information.
• Also, rapid account buildup can look risky if
  you are a new credit user.
• source myfico.com

15
Achieving a GOOD Credit Score

• New Credit Tips
• Do your rate shopping for a given loan within a
  focused period of time.
• Re-establish your credit history if you have had
  problems.
• Note that it's OK to request and check your own
  credit report.
• source myfico.com

16
Achieving a GOOD Credit Score

• Types of Credit Use Tips
• Apply for and open new credit accounts only as
  needed.
• Have credit cards - but manage them responsibly.
  
• Note that closing an account doesn't make it go
  away.
• source myfico.com

17
Using Credit Cards Responsibly

• Consumers generally begin establishing their
  credit history by using a credit card.
• Consumers who use credit cards responsibly
  understand the terms used by creditors
• Annual fee Some cards charge an annual fee for
  the privilege of using their card, while others
  may not.
• APR The annual percentage rate (APR) is the
  percentage of interest you are charged on the
  balance you carry on the card.
• Introductory rate Some cards offer a low
  introductory rate that will later switch to a
  higher rate. Make sure you know how long the
  introductory rate lasts and what the new rate
  will be. The introductory rate is often
  terminated if you send a late payment.

18
Using Credit Cards Responsibly (continued)

• Consumers who use credit cards responsibly
  understand
• Finance Charge The actual dollar amount you pay
  in interest when you carry a balance.
• Minimum Payment This is the least amount of
  money that must be paid to remain current on
  payments. Many consumers fall into the trap of
  paying only the minimum payment each month.
• Grace Period Many credit cards offer a 25-day
  time period for you to pay off your total balance
  without paying a finance charge. The grace period
  runs from the date printed on the bill, not the
  date you receive it or the date you make a
  purchase.
• Due Date The date when the creditor expects
  payment.
• Cancellation Cutting up your card may not be
  enough. Many banks require you to contact them
  directly to cancel. Failure to do so may result
  in you having to pay the annual fee. Moreover, if
  you fail to pay the annual fee, it could impact
  your credit record negatively.

19
Using Credit Cards Responsibly (continued)

• Consumers who use credit cards responsibly
  understand
• Other fees In addition to finance charges and
  annual fees, credit card companies also make
  money by charging
• Late Feescharge for making a late payment.
• Over-the-limit Feesfee for charging more than
  your credit limit. For example, if you have a
  credit card with a limit of 2000 and you owe
  1950 and charge 100 more you will be over your
  limit and the credit card company will include an
  over-the-limit fee on your next bill.
• Transaction Feesgetting a cash advance or doing
  a balance transfer with a credit card generally
  involves paying a transaction fee which may be
  anywhere from a few dollars to 2 or 3 percent of
  the cash amount.
• Cardholder agreement (fine print) Discloses the
  specific terms for using the card and these terms
  can change. Make sure you understand the
  agreement before you use the card. Also, file
  this document along with your other financial
  records for future reference.

20
Are you prepared to use credit responsibly?

• Are YOU prepared to use credit responsibly?
• Find out by
• taking the Get
• Smarter About
• Credit Quiz
• (Prize Quiz)