CREDIT

Why Worry About Credit?

1. You can easily get credit if you have never borrowed before and have not had any credit problems.

Answer: False

2. You can help yourself to obtain larger amounts of financing if you use small amounts of credit first, and repay them as agreed.

Answer: True

3. Interest rates can vary greatly from lender to lender.

Answer: True

4. Applying for as many credit cards as possible will improve your credit rating.

Answer: False

5. Credit cards are convenient but can be risky if not used carefully.

Answer: True

6. A complete history of how you pay your bills is accumulated by companies known as “credit bureaus”.

Answer: True

7. When making a decision on a loan application, a lender does a full review of the applicant’s income, existing commitments and expenses, and past credit experience.

Answer: True

8. Credit bureau information is available to anyone who will pay to receive a report.

Answer: False

9. The most important thing you do when borrowing is to read and understand the loan agreement before you sign.

Answer: True

10. If you have trouble paying bills you should call your creditors to explain the situation.

Answer: True

What is credit? Credit is a promise to repay an obligation.

Who is involved in a credit transaction?

The lender and the borrower are involved in a transaction.

Credit is given based on the “Three C’s of Credit”.

1. Capital

2. Capacity

3. Character

How do you establish Credit?

• Open a checking and/or a savings account • Borrow good credit (Be added to

an active credit account of family member with good standing credit)• Borrow against savings

How do you establish Credit? Cont.

• Take out a small installment loan

• Begin with a single credit card

• Pay attention to your payments

What’s a Good Credit Score?

FICO scores range from as low as 300 (worst) to as high as

850 (best).

FICO SCORES

650 or above :very good credit history

will get credit more quickly

get credit for higher amounts and at better rates

625 – 650:good credit history

lenders will take closer look at you for risks

slower processing of credit acceptance

loans may be smaller with higher rates

620 or lower:

Less favorable credit history

May prevent you from getting reasonable interest rates

May prevent you from getting credit entirely

How FICA Scores are Calculated

Payment History 35%

Amounts Owed 30%

Length of Credit History 15%

Types of Credit Used 10%

New Credit 10%

3 Companies that compute credit scores:

1. Equifax

2. Experian

3. Transunion

The Fair Credit Reporting Act:

Credit Reporting Agencies protect the consumer with confidential procedures that provide businesses with correct and complete information.