© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

Free Credit Report. ComFree Credit Report first 6 commercials

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

Chapter 7: Objective: Understand the significance of the New Credit card laws• New credit card laws (Credit

Cardholder’s Bill of Rights Act) went into effect on February 22, 2010

• These notes are updated to include all the new laws.

• AnnualCreditReport.com (truly Free)

What is Credit?Credit is “extended” to you when

someone is willing to loan you money—called principal—in exchange for your promise to repay it, usually with interest.

Interest is the amount you pay to use someone else’s money.

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona4-C-3

• Credit History is a record of your behavior related to borrowing and repaying loans.

• Credit Report is a detailed record of your personal credit and financial transactions.

• Credit Score is a rating used by credit reporting companies to help lenders decide whether and/or how much credit can be extended to a borrower.

• Default is when you fail to repay the loan or credit card bill.

The Language of Credit

43 of

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona4-C-3

• You build a credit ________ (score, history, report) which is then recorded and shows up on your credit _____, (score, history, report) which is then used to calculate your credit _____, (score, history, report) which is then used to decide if you can get a loan or a credit card, and how much interest you should pay.

• You build a credit history, which is then recorded and shows up on your credit report, which is then used to calculate your credit score, which is then used to decide if you can get a loan or a credit card, and how much interest you should pay.

Putting the words together:

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

Types of Credit History• 1. No Credit• Someone who has never borrowed

money or never had a credit card has no credit.

• Banks rarely lend money to someone with no credit because it is risky.

• If they do lend you money, you will pay a high interest rate.

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

Types of Credit History• 2. Good Credit• Someone who has borrowed and

paid the loan back regularly has good credit.

• Someone who has a credit card and always pays their bill on time has good credit.

• A person with good credit will get a lower interest rate when they borrow money.

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

Types of Credit History• 3. Bad Credit• Someone who has borrowed money

and not paid the loan back regularly has bad credit.

• Someone who has a credit card and does not pay their bill on time has bad credit.

• A person who has defaulted on a loan or credit card has bad credit. (doesn’t pay at all)

• A person with bad credit will be denied loans and credit cards, or be charged a high interest rate when they need a loan.

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

Who looks at credit Histories and Scores?• Any lender you want to get a loan

from• Any lender you want to get a

credit card from• Any landlord you want to rent from• Any employer you want to work for• Any insurance company you want

to purchase from.• Any cell phone company you want

to sign a contract with.

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

How do they get my credit history?• Lenders buy your credit history and

score from three national credit reporting agencies (also called credit bureaus):

• Equifax, Experian and TransUnion.• For a fee, companies and others

who have been approved can look at your credit history/score.

• You must be told that your credit will be checked.

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

How to build a Good credit history:

• Establish a steady work record.• Keep a checking account and

don’t overdraw.• Keep a savings account and add

to it regularly.• Always pay all bills on time

(including medical bills).• Apply for a credit card at a

store, which is often easier than a bank card. Pay your bill on time and don’t “max it out.”

• Apply at the bank where you keep your checking account for a credit card.

• Apply for a gas credit card.

© Family Economics & Financial Education –Updated April 2009– Credit Unit – Understanding a Credit CardFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

How to build a credit history:

• Ask a parent to co-sign a credit card application or car loan and then pay it back, on time.

• Apply for a secured credit card. You deposit money in an account and charge against that amount.

• If you are renting a place after high school, make sure at least one of the utility bills is in your name and pay it on time.

• Report lost or stolen cards immediately. If someone uses your identity it can ruin your credit.

Closure

How is a credit score number assigned?FICO

Fair Isaac CorporationWhat’s your score?