You might be book smart, but... ARE YOU CREDIT WISE. A program to teach students the ins and outs of credit and personal finance.

Transcription

1 You might be book smart, but... ARE YOU CREDIT WISE A program to teach students the ins and outs of credit and personal finance.

2 we ve all been there

3 And if you re like most college students:

4 And if you re like most college students: YOU HAVE A CREDIT CARD. (84% DO)

5 And if you re like most college students: YOU HAVE A CREDIT CARD. (84% DO) You even have more than 4 credit cards. ( T H E A V E R A G E C O L L E G E S T U D E N T D O E S )

6 And if you re like most college students: YOU HAVE A CREDIT CARD. (84% DO) You even have more than 4 credit cards. ( T H E A V E R A G E C O L L E G E S T U D E N T D O E S ) YOU MAY USE A CREDIT CARD TO PAY TUITION. (33% DO)

7 And if you re like most college students: YOU HAVE A CREDIT CARD. (84% DO) You even have more than 4 credit cards. ( T H E A V E R A G E C O L L E G E S T U D E N T D O E S ) YOU MAY USE A CREDIT CARD TO PAY TUITION. (33% DO) YOU DON T PAY OFF YOUR BALANCE AT THE END OF EACH MONTH. (LESS THAN 20% DO)

8 You may graduate with a credit card balance of $4000 or more and that s not including student loans. (that s the average)

9 BUT WHY SHOULD YOU CARE? BECAUSE BEING CREDIT-WISE NOW saves you financial heartache IN THE FUTURE.

10 Plus, It s a Whole New World Out There! THE CARD ACT: Regulated Interest Rates Improved Disclosures Capped Service Fees Standardized Grace Periods Communicated Over-the-Limit Fees

11 And, most importantly for you CREDIT CARDS CAN NO LONGER BE ISSUED TO ANYONE under 21 UNLESS THE APPLICANT HAS A CO-SIGNER.

12 It Seems Complicated, But It Doesn t Have to Be. WHAT I LL GO THROUGH TODAY: 1 Creating (and Sticking to) a Budget 2 Understanding Your Credit History 3 Establishing Good Credit 4 Managing a Credit Card 5 Student Loans 6 New Ways to Pay

13 Creating (and Sticking to) a Budget.

14 LET S DIVE IN. First, Assess Where You re At. PAGE 5? AREYOU CREDITWISE * ACTIVITY 1: Income vs. Expenses Fill in your income sources and expenses for either this semester or entire year. CATEGORY TOTAL ($) INCOME Jobs Parents Student Loans Scholarships Financial Aid Miscellaneous INCOME TOTAL Then ask yourself, where can I adjust? EXPENSES Tuition Books Rent / Room and Board Utilities Groceries / Meal Plan Clothing Toiletries

15 AND REMEMBER, THE LITTLE THINGS ADD UP What s a cup of coffee every weekday? $3.50/day $17.50/week $70/month $840/year

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17 P THEN, SET YOUR Financial Goals SHORT-TERM What will I need to afford this semester? MEDIUM-TERM What will I need to afford this year? LONG-TERM What will I need to afford after college and beyond? PAGES 7-9 * Find out how much money you need to save per month in order to achieve your short-term goals for this semester: ACTIVITY 2: Goal Setting Worksheet Short-term goals GOAL New bike for getting to class COST $300 AMOUNT YOU NEED TO SAVE PER MONTH (TOTAL/MONTHS IN SEMESTER) $75 WAYS YOU LL SAVE (INCREASING INCOME OR DECREASING EXPENSES)? AREYOU CREDITWISE Babysit two Friday nights per month ($50); bring lunches to school rather than eat in cafeteria $25)

18 Understanding Your Credit History

19 CREDIT HISTORY Your credit history says a lot about you, and more people look at it than you think.

20 HOW IS YOUR CREDIT HISTORY MEASURED? Credit Reports and Credit Scores Your credit score is like the grade you got on your midterm paper. Your credit report is like the red-inked feedback throughout the paper. It s what determines whether or not you re a good risk. Consumers with the best credit history get the best interest rates.

21 HOW CAN YOU GET YOUR CREDIT REPORT? annualcreditreport.com

22 WHAT S A GOOD CREDIT SCORE? Scores range from 300 to mean there s an error. In general, you should check Steer your clear credit of gimmick report or programs credit score thatsix may months chargebefore hiddenyou fees pla a major purchase like a car. credit Thisscore. will give Youyou cantime helpto avoid fix inaccuracies these unauthorized and improve players your by score, if necessary. What s a Good Credit Score? In general, you should check your credit report or credit score a major purchase like a car. This will give you time to fix inaccu score, if necessary. Credit scores calculated by FICO range from 300 to 850. Most people are in the rang Most people are in the range. National Distribution of FICO Scores (% of 27% Population) Credit scores calculated by FICO range from 300 to 850. Most people 8% 2% 5% up to FICO SCORE RANGE What s a Good Credit Score? 18% National Distribution of FICO Scores 15% (% of Population) 12% 8% 2% 5% 12% 27% 13% 18% 15% Source: About Credit Scores. Credit Education Center Credit Basics. Fair Isaac Corporation. Web. up to FICO SCORE RANGE Source: About Credit Scores. Credit Education Center Credit Basics. Fair Isaac Corporation. Web.

23 READING YOUR CREDIT REPORT What s NOT included on your Credit Report? Data on your checking or savings account Demographic information Employment history or salary Non-voluntary inquiries Your credit score

24 READING YOUR CREDIT REPORT READING THE ACCOUNTS SUMMARY SECTION Your credit report will summarize your lines of credit and the payment status on that credit. This is the meat of your credit report and plays a big part in determining your credit score. If you notice any inaccuracies in your credit report, be sure to report them in writing to both the credit rating agency and your lender as soon as possible. They re required by law to help you fix it. The types of credit are listed as: OPEN: Items and services are paid for in a single payment within a given time period after the purchase. Interest is usually not charged. Utility companies, some medical services, travel and entertainment cards REVOLVING: Transactions can occur as long as the total amount does not go over the credit user s assigned dollar limit. Repayment is made at regular time intervals for any amount at or above the minimum required amount. Interest is charged on the remaining balance. Department store cards, bank cards like MasterCard and Visa INSTALLMENT: Items are paid for in two or more regularly scheduled payments of a set amount. Interest is included. PAGES Car loans, student loans, home mortgage? AREYOU CREDIT WISE * ACTIVITY 3: Reading a Credit Report Credit reports from the three credit agencies will appear different, but will include similar information and have a similar format. Typically, reports include sections on negative credit history, positive credit history, credit requests and personal information. P.13 See the next page for a sample credit report from Experian. Read through the credit report and answer the questions based on what you ve learned so far in this workbook. Experian: Sample Credit Report. Digital image. Experian Online Personal Credit Report from Experian for John Q. Consumer. Experian TM, Web. 30 June

25 Establishing GOOD Credit

26 MyTown Bank to do a credit check, but according to his credit report, they Credit Score? ave paid past credit accounts on time WHAT DETERMINES YOUR CREDIT SCORE? lable credit you ve used on open credit accounts redit accounts have been established ines Your Credit Score? ou have and how long t ther or not you have paid past credit accounts on time ercentage of available credit you ve used on open credit accounts ounts tion ICO Score. Credit dit Basics. Fair Isaac. atsinyourscore.aspx According to FICO, factors are: : How long your credit accounts have been established y new accounts you have and how long ned a new account New Credit What types of accounts Types Of Credit Used ders ctors only information t n. some lenders, en look at other factors ng a credit decision. Credit History Length Source: What s in Your FICO Score. Credit Education Center: Credit Basics. Fair Isaac Corporation. Web. crediteducation/whatsinyourscore.aspx 10% Types Of Credit Used 15% Credit History Length According 10% to FICO, factors are: Payment History New Credit 10% 15% 10% 30% 30% Amounts Owed Amounts 35% 35% Payment History 30% 15% 8% 30% 15% 10% 10% 12% P.15 15% 35% 18% 10% 10% 27% P.15 13% 15% 35% 18% 27% P.16 A program to teach students the ins and outs of credit and personal finance Understanding How Credit Missteps Can Affect Your Credit Score You may run into financial difficulties that impact your credit score. Some difficulties may not change your score that much while others can drop your score significantly. What your credit score was before can make a difference. PAGES * ACTIVITY 4: How Credit Lapses Affect People Differently MyFico.com gives a comparison of the impact that credit problems can have on the credit scores of two different people. Here s a snapshot of Alex s and Benecia s credit histories: Alex has a credit score of 680 and: Six credit accounts, including several active credit cards, an active auto loan, a mortgage and a student loan An eight-year credit history Moderate utilization on his credit card accounts (his balances are 40-50% of his limits) Two reported delinquencies: a 90-day delinquency two years ago on a credit card account and an isolated 30-day delinquency on his auto loan a year ago Has no accounts in collections and no Benecia has a credit score of 780 and: Ten credit accounts, including several active credit cards, an active auto loan, a mortgage and a student loan A fifteen-year credit history Low utilization on her credit card accounts (her balances are 15-25% of her limits) Never has missed a payment on any credit obligation Has no adverse public records on file

27 HOW CAN YOU ESTABLISH GOOD CREDIT? Pay your monthly balance in full if you can and pay it on time Know your credit limit and don t go over it Keep your monthly balance low in relation to available credit Hold off on signing up for new credit cards for one-time coupons Avoid opening multiple accounts in a short period of time

28 HOW CAN YOU ESTABLISH GOOD CREDIT? Don t close unused cards as a short-term strategy Avoid paying one card off with another Avoid credit-repair agencies that charge a fee to improve your score Let your issuer know if you will be late on a payment and negotiate a plan Don t worry about having unused available credit

29 HOW CAN YOU ESTABLISH GOOD CREDIT? Review your credit report regularly and dispute any inaccuracies Report lost or stolen cards right away Shop around for APR if you start high, build good credit history and go back to negotiate with your issuer AND MOST IMPORTANTLY BORROW ONLY WHAT YOU CAN REPAY!

30 Managing a Credit Card

31 AND BEFORE YOU DECIDE TO GET A CREDIT CARD, WEIGH THE PROS AND CONS: PROS Buy needed items now Creates an online record of purchases Convenience Builds your credit Can help you avoid liability on certain types of fraud CONS Easy to overspend, lose track Interest Possible fees Easy to buy on impulse It s a loan you have to pay it back!

32 SO, IF YOU CHOOSE TO GET A CREDIT CARD, WHAT SHOULD YOU LOOK FOR? Annual Percentage Rates (APR) differ from offer to offer Fees can come in many shapes and sizes Cards with benefits may not be that beneficial at all PAGES 22 A program to teach students the ins and outs of credit and personal finance * ACTIVITY 5: Choosing a Credit Card So, you received a pre-approved offer in the mail. Is it a good deal? Is this offer a good deal? Why or why not? The bottom line: read the fine print and pay attention to changes to your account.

33 Student Loans

34 When you re still in school: ONLY USE STUDENT LOANS FOR EDUCATION EXPENSES. IF YOU CAN, AVOID PAYING FOR TUITION WITH A CREDIT CARD.

35 And When You re Out of School WHEN YOU HAVE YOUR EXIT INTERVIEW WITH A FINANCIAL AID ADVISOR, YOU CAN CONSIDER THESE REPAYMENT PLANS: Standard payment plan Extended payment plan Graduated payment plan Income-contingent payment plan Income-sensitive payment plan Income-based payment plan

36 New Ways to Pay

37 Prepaid Cards A good way to learn how to use a credit card Accepted everywhere credit cards are accepted Safer and more convenient than carrying cash Easy to get there is no credit check Prepaid Card Types: Everyday Gift Travel

38 Prepaid Cards The CARD Act limited expirations and increased the disclosure of fees You re not liable for unauthorized purchases if your card is lost or stolen Easy to reload online and at thousands of retailers across the country

39 Debit Cards Looks like a credit card, but it s not a loan, so there s no interest Comes straight out of your checking account Widely accepted Helps build good credit practices Can be a good budgeting tool

40 and now you can CONSIDER YOURSELF CREDIT-WISE