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So What is Credit Anyway?
The truth about credit and credit reports
Credit
An arrangement for deferred (delayed) pay-back of purchases or cash
Measured by a number known as a credit score Typically 300 – 850 The higher the better!!!
Positive Credit A consumer can build positive
(high/good) credit by being responsible with credit choices
◊ Practice good banking techniques
◊ Pay bills consistently and on time
◊ Keep public records free of bankruptcy
◊ Keep a reasonable or small amount of debt
◊ Apply for credit sparingly, keeping credit inquiries low
◊ Hold a low number or credit/store cards
◊ Check credit report annually to remove errors
Negative Credit
This results from irresponsible (poor/bad) credit choices
Bouncing checks Routinely paying bills
late Having a criminal
record Holding a large
amount of debt
Carrying many credit/store cards
Defaulting on a loan Having cards over the
limit
NO Credit
If you continuously pay cash for all purchases and never apply for credit/bank accounts, you will not have the chance to build your credit
Can result in being denied credit for future purchases (car, house, etc.)
It is IMPORTANT to build some credit
5 Categories for Credit Scoring
1. 35%-Payment history- Timely manner in which a consumer pays debt
2. 30%-Outstanding debt-Amount of debt currently held
3. 15%-Credit history-How long the consumer has held credit accounts and
how often they are used
4. 10%-Pursuit of new credit-How much credit is acquired over the length of the
consumer’s credit history
5. 10%-Types of credit in use-May include credit cards, gas cards, store cards or
accounts, loans, etc.
Other Credit Score Factors
◊ Length of time at current address◊ Current income◊ Financial information◊ Late payments
General Rule!
• Keep the amount of debt currently held at 25% of the total amount of available credit
For example - if Sue’s total amount of credit available is $1,000, her current amount of debt should not exceed $250
Credit Report
◊ a record of a consumer’s credit history
◊ Credit history - a record of transactions involving credit use
◊ Individuals do not have a credit report if they have not previously used credit
Information on Credit Reports Name and aliases Current and past
addresses Marital status Date of birth Employment
history
Public records◊ Criminal/financial
Payment History Loans Open/existing
credit Number of credit
inquiries (requests for credit)
CRA’s (Credit Reporting Agencies)
Keeps track of consumer’s credit transactions and compiles credit reports
Equifax Trans Union Experian
Who reports to CRA’s?
◊ Store accounts◊ Credit card
companies◊ Mortgage and other
loan lenders◊ Financial institutions◊ Landlords◊ Courts◊ Utility accounts◊ Cellular phone
companies◊ Delinquent accounts
Credit Cards – friend or foe?
The Pros and Cons of Credit Card Use
Top 4 Companies Visa
Mastercard
American Express
Discover
Credit Card Pro’s
Virtually “free” money! More secure than carrying cash Flexible spending Rewards for spending! Helps you pay on time when your
in a bind Build credit!!!
Credit Card Con’s
Most Expensive Debt (highest interest rates – typically 18 – 20%)
More prone to fraud/identity theft Makes it easier to overspend Pay for more than you purchased
(sometimes more than double!!)
Tips for Positive Credit Card Use Record your purchases to keep
track of spending (basket of receipts)
Avoid purchasing things you know you can’t pay off short-term
Choose a card with NO annual fees and sensible reward options
ALWAYS pay more than the minimum balance
Things to look out for…
Annual Fees (yearly cost for owning the card)
Interest Rates (charge on borrowed money each month it’s not paid back)
Restrictions on Rewards Additional Benefits (i.e. checks) Misc. Charges
Possible Benefits!
Cash Back/Rebates Reward Points Investment
Rewards Frequent Flyer
Miles Gas Rewards Automobile
Rewards Hotel Rewards
Theme Park Rewards
Dining/Restaurant Rewards
Brand Name Rebates
Low Interest Cards
Charitable Contributions
Some examples!! VISA
Disney, Bucks Back, Amazon, VW, Wawa, Marriott, BP, Home Improvement
MasterCard Home Rebate, Toys R Us, Driver’s
Edge American Express
Delta, JetBlue, Hilton, The Knot Discover
Miles, Open Road, Student, Business
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