Understanding Credit. UMassFive College Federal Credit Union

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1 Understanding Credit UMassFive College Federal Credit Union

2 Objectives Understand the role of credit bureaus Discuss the importance of your credit report Review the components of a credit score Explain the cost of credit Provide tips to improve or maintain your score

3 Three C s of Credit Capacity Ability to repay debt (i.e. reliable income) Character Reliability in paying debt (i.e. payment history) Collateral Insurance for the creditor (i.e. valuables, home, bank accounts, etc.)

4 What is a Credit Bureau? A Credit Bureau is a company that keeps credit history information about consumers and compiles it for prospective creditors to view. There are 3 major credit bureaus in the United States: National Consumer Assistance Center PO Box 2002 Allen, TX To order report: To report fraud: Web site: P.O. Box Atlanta, GA To order report: To report fraud: Web site: Consumer Disclosure Center P.O. Box 1000 Chester, PA To order report: To report fraud: Web site:

5 Access Your Credit Report Free! Completely secure. Free once a year Don t know what it looks like? Access all three at once! If you ve seen your credit report more recently, you can view each one at a different time in the year!

6 Information in Your Credit Report 1. Identifying information Name, Current & Previous Addresses, Social Security Number, Current & Previous Employer, Date of Birth 2. Credit History Bill paying with different creditors (i.eretail stores, mortgage companies, banks and finance companies) 3. Public records Tax Liens, Court Judgments, and Bankruptcies 4. Inquiries A list of companies or organizations that have received your credit report or your name and address to offer you credit.

7 Reviewing Your Credit Report Personal address/information correct? Name spelled correctly? SS# and DOB correct? Balances on accounts accurate? Any mysteryaccounts listed? Any closedaccounts listed? Any negatives reported that can be resolved?

8 Who Can Access Your Credit Report? Don t worry, not everyone can see your credit report! The Fair Credit Reporting Act guidelines: Insurance Purposes Credit Purposes A consumer requested business transaction Government benefits Employers with the consumers written permission

9 What is a Credit Score? A Credit Score is: Numerical forecast of the likelihood of successful repayment of loan Based upon information in Credit Report Automated credit evaluation tool Comparable to your GPA a Credit GPA A dynamic number that changes based on 5 factors of financial activity

10 How is a credit score used? Extending credit, or trust Determining the interest rate Rentals Employment Insurance Issue a Professional License Documenting credit repayment history

11 5 Parts to your FICO Score

12 Your credit cardinterest rate is typically based on your credit score.

13 Credit Score Breakdown Excellent Good Fair High Risk 660 is Subprime Higher Risk Below 560 Highest Risk

14 Improving Your Credit Score Fix errors on your report Get current on any past-due bills Make all future payments on time Try to pay off debt instead of moving it around Keep balances low in relation to available credit Acquire a variety of credit, ie: fixed payment like an auto loan and revolving loans like credit cards Don t open new lines of credit (unless you don t have any credit to start with)

15 Reestablishing Good Credit Make a large down payment Be prepared to pay a higher interest rate Co-signer or co-borrower Use collateral to strengthen loan request Apply for a secured loan Use automatic bill payment systems Avoid credit repair scams

16 Credit is not an extension of income!

17 Cost of Credit Outstanding balance: $ Interest rate: 21.9% Minimum payment: 2.2% Cost of interest only over the loan period $12, Length of loan? 50 years and 1 month

18 What Makes for a good credit card No Annual Fee Low interest rate under 15% No Balance transfer fee No/Low Cash advance fee Locally owned by your institution No penalty default rates Over all lower fees then average

19 Building & Keeping Good Credit Pay bills on time Borrow only what you can repay Read & understand credit agreements Notify creditors if you cannot meet payments Keep track of your store receipts & bill statements Know what is on your credit report Pay down credit cards but don t close the accounts Find the best rates and terms when securing new credit

20 Debt In Focus A free and anonymous service will help bring your debt into focus. You answer a few questions about your income and current debts A simple financial analysis provides information regarding your current financial profile Debt to Income Ratios, Debt Payment Schedules, Personal action strategies to help keep your finances moving forward.

21 What questions do you have?

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