Why are we talking about credit?

(C)2012 National Endowment for Financial Education | Lesson 2-1 Using Credit2

Why are we talking about credit?

When is it OKto borrow money?

When is borrowing money

not a good idea?

What this means for you?


Credit Options• Revolving credit (example: credit card)

– Borrow for multiple purchases without going over credit limit– Repay what is owed each month

• Installment credit (example: car loan)– Borrow a specific amount of money to buy something now– Make regular payment to repay over time by a set date

• Cash loans– Borrow a specific amount of cash to repay later by a set date

• Service credit (example: cellphone, electricity)– Promise to pay for services used each month

(C)2012 National Endowment for Financial Education | Lesson 2-3 Credit Rating4

CREDIT RATING: Applying for Credit• Full, legal name• Current address and

phone number• Date of birth and

Social Security number• Current employer•Monthly income• Bank name and

account number•Monthly rent or

mortgage payment

• Cam N. Tran • 515 Canyon Circle, SLO, CA• 805-654-9851• June 16, 1993; SS: 111-22-3333• Ms. Tran is the Campus

Ambassador of Cal Poly for CalCPA

• Ms. Tran started working at CalCPA five years ago today and currently earns $5,100 per month.

• Cam has a savings account (#123-45-6789) at a Wells Fargo

• Pay $975 per month for mortgage

CREDITKARMA.com



Credit ReportingA history of how you have used credit:• Where you live and work• Credit account amounts (balances and

limits)• Payment history (on time or late)• Recent inquiries from creditors• Any collection or legal action to collect

debt


Starting Out

Ask someone to cosign on

the agreement.

Show evidence of steady

employment.

Use a checking account

responsibly; have money in

the bank.Establish a relationship

with a bank or credit union.

(C)2012 National Endowment for Financial Education | Lesson 2-4 Rights and Responsibilities

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Know the Limit: The 20-10 Rule

Monthly Payments* < 10% Monthly Net IncomeMonthly Debt Payments

Total Debt* < 20% Total Annual Net IncomeTotal Debt

*This rule does not included mortgage-related debt.


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Which will help your rating?Do the following actions help your credit score?1. Pay your bills on time.

Yes, paying on time is the single best way to get a good credit score.

2. Open several accounts in a short period of time.No, opening several accounts in a short time frame hurts your score, especially when starting out. This makes you look desperate to borrow.

3. Own a credit card you don’t ever use.No, creditors want to see how well you use credit. If there’s no activity for a long time, the account may be considered inactive.


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Do the following actions help your credit score?

4. Frequently move credit card balances to new cards with better interest rates.No, card hopping decreases the average age of your credit accounts, and lenders like to see long-term relationships.

5. Get a credit card when you already have a carand student loan.Yes, adding a credit card when you only have loans can help because lenders prefer to see a mix of credit types.


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Win Loans and Influence InterestDo the following actions help your credit score?6. Close a credit card that you made a lot of late

payments on.No, closing an account with negative items won’t help. The account will still remain on your credit report for upto 10 years, whether inactive or closed.

7. Use a debit card responsibly.No, debit card usage doesn’t show up in a credit report because these transactions are withdrawals from your own bank account rather than borrowing from someone else.

(C)2012 National Endowment for Financial Education | Lesson 2-5 Identity Fraud12

Lets look at the stats…• 10 percent of U.S. youth had someone else using their Social

Security Number• Identity fraud is growing for minors. Teens 15 – 18 years old

are the main target.• Fraud may go undiscovered for years:– Businesses only see clean credit history when someone applies.– Credit reports are not available for minors to check for any

activity.• Fraud often detected only when the victim applies for a loan

or credit card in his or her own name.Source: Richard Power, Child Identity Theft, Carnegie Mellon CyLab Report


What’s in your wallet/backpack?Give yourself a point for each of these items listed below.__ Credit card (The actual number of

cards)__ ID card with photo (school,

employment)__ $5 bill__ Change (coins) totaling $2 or more__ Original Social Security card__ Picture of a close relative__ Computer password

(The actual number of passwords)__ Bank/Credit Union ATM PIN number__ Library card

__ Paycheck stub__ Bank or credit union deposit

slip__ Any type of money-saving

coupon__ Car keys__ Flash drive for computer__ Cell phone__ Driver’s license__ Membership card


7 Tips to Thwart Thieves• Keep sensitive information close to the vest. • Lighten up your wallet. • Never leave blanks on a charge slip. • Stick to secure web pages. • Shred ruthlessly. • Be computer safe by using firewalls, anti-spyware

and anti-virus software. • Guard your Smartphone too!

What is a Roth IRA?


ROTH IRA

STOCKSBONDS

MUTUAL FUNDS

Should I get a Roth IRA?• Withdrawing Money

• Debt Interest vs. Money gained from IRA

• Employer Contributions


Where to get a Roth IRA?• Your current bank

• T Rowe Price

• Other Institutions


Documents

Why are we talking about credit?