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