CREDIT DEFINITIONS

CreditTrust given to another person for future payment of a loan, credit card balance, etc.

CreditorA person or company to whom a debt is owed.

Slide 1 – Credit Definitions Lesson Reference: Credit, Activity 1 – Handout 1 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?

Slide 3 – When to Use Credit Lesson Reference: Credit, Activity 1 – Handout 22

WHAT IS A CREDIT SCORE?• 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 13

WHAT MAKES UP A

TYPICAL CREDIT SCORE?

Slide 2 – What Makes Up a Typical Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 24

Source: Fair Isaac and Consumer Federation of America, 2005

IMPROVING YOUR CREDIT SCORE

• 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 25

SAMPLE CREDIT APPLICATION

6 Slide 5 – Sample Credit Application Lesson Reference: Credit, Activity 3 – Handout 3

QUESTIONS TO ASK WHEN APPLYING FOR CREDIT

1. What is the annual fee?

2. What is the annual percentage rate (APR)?

3. When are payments due?

4. What is the minimum payment required each month?

5. Is there a grace period?

6. Are there other fees associated with the credit, such as minimum finance charges?

7. What is the credit limit?

8. What are the penalties for late or missed payments?

9. 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 57

Slide 1 – Debt-to-Income Thermometer Lesson Reference: Credit, Activity 4 – Overhead 1

DEBT-TO-INCOME THERMOMETER

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SAMPLE CREDIT REPORT

9Slide 3 – Sample Credit Report

Lesson Reference: Credit, Activity 4 – Handout 2

Slide 4 – Costs of Credit Lesson Reference: Credit, Activity 5 – Handout 210

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.

Slide 2 – Warning Signs Lesson Reference: Credit, Activity 6 – Handout 2

WARNING SIGNS OF DEBT PROBLEMS

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1. Delinquent Payments2. Default Notices

3. Repossessions

4. Collection Agencies

5. Judgment Lien

6. Garnishment

Slide 3 – Credit Card Reductions Lesson Reference: Credit, Activity 6 – Handout 3

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 1 – Identity Theft Lesson Reference: Credit, Activity 7 – Overhead 1

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 Security Numbers

• Name

• Address

• Date of birth

• Mother’s maiden name

• Passwords

• PINs

HOW TO AVOID IDENTITY THEFT

1. Monitor your credit report.

2. Don’t give out personal information to unknown persons or companies.

3. Protect your credit and debit cards.

4. Protect your mailbox.

5. Protect your wallet.

6. Use passwords and PINs that can’t be easily guessed.

7. Use anti-virus software on your computer.

8. Notify your bank when you change your address or phone number.

9. Other suggestions?Slide 2 – How to Avoid Identity Theft

Lesson Reference: Credit, Activity 7 – Handout 214

Slide 3 – What to Do Lesson Reference: Credit, Activity 7 – Overhead 2

WHAT TO DO IF YOUR IDENTITY

HAS BEEN STOLEN

If you think your identity has been stolen, take the following steps:

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• Contact the three major credit bureaus (Equifax, Experian, and Trans Union).

• Close accounts.

• Contact all creditors involved.

• File a police report.

• Keep a record of your contacts.

COMMON SCAMS

• Advance fee schemes

• The prize that will cost you

• Online auctions

• Fraud jobs

• Moneymaking schemes

• Bogus charities

• Scam schools

Slide 4 – Common Scams Lesson Reference: Credit, Activity 9 – Handout 216

BANKRUPTCY

Chapter 7 wipes out all allowable debts and allows certain personal property exemptions.

Chapter 13 is a court-approved repayment plan.

Chapter 11 is typically used for business bankruptcies.

Slide 1 – Bankruptcy Lesson Reference: Credit, Activity 10 – Overhead 117

NEW PROVISIONS OF THE BANKRUPTCY LAW

• A test to determine eligibility to file bankruptcy

• Determining what you can afford to pay

• Tougher homestead exemptions

• Lawyer liability

• Credit counseling and money management

• New debt may not be discharged.

• Quicker collections processSlide 2 – Provisions of the Bankruptcy Law

Lesson Reference: Credit, Activity 10 – Handout 118

THINGS TO CONSIDER BEFORE FILING FOR BANKRUPTCY

• A bankruptcy filing could determine whether or not you get a job.

• Your insurance rates could rise.

• You may find it difficult to rent an apartment or qualify for a home loan.

• Bankruptcies stay on your credit report for 10 years.

• Bankruptcy can lower your credit score.

Slide 3 – Things to Consider Lesson Reference: Credit, Activity 10 – Overhead 219

THINGS TO DO BEFORE DECIDING TO FILE

BANKRUPTCY, CONT.

• Reduce your spending

• Talk with your creditors.

• Talk with a nonprofit counseling agency.

• Talk with an attorney and understand the consequences of declaring bankruptcy.

• Consider consolidation carefully.

Slide 4 – Things to Do Lesson Reference: Credit, Activity 10 – Handout 220

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.

Slide 5 – Tips to Remember Lesson Reference: Credit, Activity 10 – Handout 221