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By: Lane Cleeton
Talk about what credit it is
Advantages and Disadvantages to having credit and credit cards
Terminology
Tips
Credit in simple terms is having use of something before you pay for it.
Gives you flexibility, pay for expensive items over time, and helps you plan
Several different types of credit◦ Loans
◦ Mortgages
◦ Credit cards
You need credit for many reasons 1. To obtain best interest rates
2. Employers review prior to hiring
3. Insurance premiums
4. Rentals
5. Reflects on how responsible you are
Ability to obtain payment history which is part of your credit score
Flexibility to rent a hotel room or an auto
Access to funds in an emergency
Convenience◦ Carry less cash
◦ Interest free if paid in full when bill is due
◦ Accepted at most retailers
◦ Some credit cards have reward programs to redeem for gifts or cash
Can be costly if you carry a balance and have finance charges
Future income is for paying on balances
Make impulse purchases easier
May not sure item purchased, but still paying for it
Rewards can make you over spend
There are cost associated with credit and credit cards. Knowing what the terms mean will save you money in the long run.
Annual Percentage Rate (APR) – annual rate of interest charged on an outstanding balance
Annual Fee – fee charged yearly to have card Over limit Fee – charged when exceeding
credit limit Balance transfer fee – assessed for
transferring balance from one card to another
Cash Advance Fee – fee for accessing cash from a credit card
Late Fee – not pay the bill on time
Miscellaneous fee – fees can include a replacement card, inactive account, and not carrying a balance
Ask for a due date you can remember
Make on time payments (compensate for mail time)
Read the disclosures
Don’t go over your credit limit
Avoid minimum payment
Universal default clause ◦ If you default on a bill, some credit card companies
will raise your interest rate
◦ Avoid minimum payment
Owe Pay-off time total payments
$1,800 22years $5,600
$2,700 12 years $4,635
As you can see if you only make the minimum payment each period, you will pay more interest and it will take a longer time to pay it off.
New regulations must show this information on your bill.
Convience, track spending, and earn rewards
Charge what you can afford
Pay on time
Have a variety of tools like loans and credit cards
Apply for credit when need it
Do not obtain high interest loans more expense (payday loans)
Repay debts timely
Avoid the following types of loans:◦ Payday loans – high interest of about 300-900%
◦ Title loans – car title loans interest high, hard to repay due to expensive, and can lose your auto
◦ High-cost credit cards – cards that have high fees
Trouble can happen with credit cards if misused.
Do not use cards as extra cash
Signs to watch for◦ Only able to make min. payments
◦ Near or at your credit limit
◦ Using cash advances
◦ Creditors are calling
◦ Lying to family about spending habits
◦ Credit card balances exceed 20% of your income
When establishing credit it can take up to 6-12 months for the payment history to reflect a pattern.◦ Pay bills on time
◦ Open a checking account – keep in good standings
◦ Obtain credit in your own name (small loan or credit card) and use it by charging on the card.
◦ Live with in your means
◦ Track your spending
◦ Save money for an emergency fund then you do not fall back on credit cards or loans
When shopping for a credit card read and understand the fine print.
Watch for low introductory rates
Do not wait for offers – shop on your own
Watch for the universal default rate (explained earlier)
Obtain card with no annual fee
To Prevent Fraud:◦ Do not use easily known PIN & Passwords
◦ Shred Receipts
◦ Use “trusted websites” online
◦ Keep your card numbers & phone numbers in a fileto be able to access them if cards are stolen
◦ Do not respond to unknown emails
◦ Look over your statements
◦ Review your credit report 3 times a year
You should call your card holder immediately to alert them of your loss.
Your liability would be zero (not responsible for fraudulent charges)
Some card companies will have protection on the cards that notify if a transaction is not a common one of yours.
It is coded information which can be confusing.
Credit Report includes:◦ Identifying information about you
◦ Employer information
◦ Payment history & creditors
◦ Bankruptcies, liens, judgments
◦ Inquiries on your credit
FICO means Fair Isaac Corporation which is a firm that developed a credit score system.
Range is 300-850
Higher the better
Changes with activity on your report
Ignores personal information and reflects credit practices (race, occupation, religion, and salary)
To maintain a good score:◦ Keep balances low on credit cards
◦ Don’t open a lot of new cards
◦ Longevity works in your favor
◦ Rate shop
The following can hurt your score:◦ Late bill payments – 30 days past due
◦ Using all credit available to you (using $400 of a $500 limit credit card)
◦ Opening to many new accounts in a short time
◦ Not working with a trusted financial
Many people look at credit such as lenders, landlords, employers, insurance companies.
What affects your credit score
Payment History
Amounts Owed
Length of Credit
History
New Credit
Types of Credit Used
Negative 7 years
Bankruptcies 10 years
Positive info for ever
By law you get 3 free credit reports a year meaning 1 from each bureau.
Visit www.annualcreditreport.com
The 3 bureaus are Transunion, Experian, Equifax
Your report is free and you would have to pay for your credit score
Mistakes can happen by:◦ Clerical error
◦ Applied for credit under a different name (Robert/Bob)
◦ Gave wrong social security number
◦ Payments inadvertently applied to the wrong account
To dispute something on your credit:◦ Tell the credit bureau in writing identifying each
item, explain the dispute, and request your action
◦ Write to the creditor explaining the situation Include copies of statements not originals
Dispute within 30 days
Take copies of sent items
If you have bad credit you can rebuild it by:◦ Paying the creditors and not ignoring them
◦ Don’t use credit cards or get new debt
◦ Ask for advise from your financial
◦ Review your report
◦ Set up automatic payments
◦ Consolidate debt
◦ Reduce credit card solicitations (www.optoutprescreen.com)
http://www.myfico.com/
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