It lets you pay for expenses you could not afford with cash, such as a college education, a new vehicle, furniture or a home.

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1 USING CREDIT WISELY<main head> Credit Is An Important Financial Tool <subhead> It lets you pay for expenses you could not afford with cash, such as a college education, a new vehicle, furniture or a home. It helps you build a credit reputation summarized in a credit report that employers, landlords, future lenders and other businesses consider as they make decisions about your creditworthiness. Credit is a privilege and a serious responsibility Unfortunately, it is easy to misuse. Some individuals view credit as a license to spend money they cannot repay. Poor spending decisions can leave them deeply in debt and damage their credit reputation for years ahead. This section contains important information to help you use credit wisely. Practice Healthy Credit Habits <subhead> Use credit responsibly as part of an overall saving and spending plan. Steps To Healthy Credit <sub-subhead) The following healthy credit habits can improve your credit reputation: 1. Set and follow a monthly limit for expenditures. 2. Pay bills on time and in full to avoid interest charges. If you cannot pay in full, you should generally try to pay more than the minimum. 3. Do not skip a payment. 4. Limit the number of credit card accounts you have and set a monthly limit for charges. 5. Do not apply for credit you do not need. 6. Know the due date, terms and conditions of your credit cards and loans. If you have questions, ask the credit card company for an explanation. 7. Keep credit card and loan information in a safe, secure place. Keep copies of sales slips and compare charges when your billing statements arrive. Call your company immediately if there is a discrepancy. Choosing A Credit Card <subhead> Exercise caution when applying for a credit card. Avoid basing your choice on promotions or special offers. Remember The Following: Look for a credit card with no annual fee and low-interest rates. Use caution with credit cards that offer low introductory rates. After a few months, the rate may go up, often higher than credit cards with no introductory rate. Take time to understand the credit card s terms, conditions and fees, making sure you can meet the requirements. Avoid applying for more than one credit card at a time. Each request appears on your credit report and lowers your chances of being approved. Avoid credit cards that start charging interest on items you buy the day each transaction posts to your account. You pay interest on all purchases with this type of card. Most credit cards start charging interest on cash advances as soon as the entry posts to your account. Look for a credit card with no annual fee and low-interest rates.

2 Compare Credit Cards Carefully <subhead> Each financial institution that offers credit cards establishes its own terms. As a result, two cards with the same name may offer very different features. Take time to carefully compare their varying interest rates, terms and features. Annual Percentage Rate (APR) The rate of interest (expressed as a percentage) charged for a loan over a year s time. The APR includes interest, transaction fees and service fees. Fees These may include an annual fee, late payment fee, cash advance fee, balance transfer fee, over-the-limit fee or credit-limit-increase fee. Grace Period The amount of time you have to pay before interest is charged. Other Benefits These may include frequent flyer miles or access to an automated teller machine (ATM). Penalty APRs These increase your interest rate if you are late on a payment. Agreements Make sure you read and understand the credit card agreement. Credit Card Debt Multiplier <subhead> If you only pay the minimum each month, it would take you almost 10 years to pay a $3,000 balance on a credit card charging 18%. Unfortunately, many individuals end up seriously in debt, because they do not use credit wisely and spend more money than they can repay each month. The following example shows how interest compounds when you only pay the minimum amount on your balance. The best strategy is to look for the lowest interest rate you can find, spend wisely and pay the balance in full each month. If you cannot pay the balance in full, pay more than the minimum.

3 DEBT MANAGEMENT <subhead> Warning Signs <sub-subhead> Warning signs of indebtedness appear long before creditors start sending collection notices. Answer the following questions to help determine if you are managing debt appropriately. 1 Are you borrowing to pay for items you once paid for with cash? 2 Is an increasing percentage of your income going to pay debts? 3 Are you paying bills with money reserved for something else? 4 Are you taking money from savings to pay current expenses? 5 Is your emergency fund (which should equal at least 3 6 months of basic living expenses) inadequate or nonexistent? 6 Do you pay only minimums on your revolving charge accounts? 7 Are you making payments in days that you once made in 30? 8 Are you near or at the limit on your credit cards and other sources of borrowing? 9 Do you take out a new loan before an old one is paid in full or take out a new loan to pay an existing loan? 10 Do you take out payday loans? 11 Are you unsure about how much you owe? 12 Are you chronically late in paying your expenses? 13 Are you threatened with repossession of your vehicle, cancellation of your credit cards or other legal action? If You Answered You Are You Should No to all questions Managing debt well. Continue practicing good money management. Yes to any question 1-5 Getting out of control. Stop using credit until current debt balances are paid.

4 Yes to any question 6-11 On the verge of trouble. Stop using credit. Develop a budget and debt payment plan. Yes to question 12 or 13 Probably overextended. Consult a financial planning professional now, before your financial goals become impossible to achieve. Getting Out Of Debt <subhead> If you become overextended, it takes personal effort and discipline to get spending under control. These tips will help you get back on track: Pay more than the minimum payment due on your credit card account balances. It will help reduce the length of the loans and interest costs you must pay. Continue until all balances are zero. Keep enough credit lines open to manage credit appropriately. You may want to consolidate credit card account balances to your lowest interest rate credit card. Use it for emergencies only. Use a debit card instead of a credit card. Because the money is taken directly out of your checking or savings account, you are spending money you have, not increasing your debt. Pay bills on time to avoid costly late fees and high interest charges. Take advantage of free and low-cost credit advice. Your installation s family support center may offer free credit counseling. Personal financial counselors can help you establish a budget, restructure your spending and develop a plan to get you out of debt. Consult sources of help in the local community, such as the National Foundation for Credit Counseling (NFCC). This nonprofit organization can provide you with advice concerning debt management. Visit their website at nfcc.org or call (800) for more information. Avoid payday loans. Avoid Payday Loans <sub-subhead> Payday loans often carry high interest rates, unaffordable repayment terms and coercive collection tactics. Penalties for extending loan repayment can be severe. Obtaining payday loans is relatively easy. However, they are so burdensome that the Department of Defense (DOD) leadership has identified payday loans as a threat to military readiness. A payday loan may appear to be a short-term solution to a temporary cash flow problem. In reality, it is a high-interest, high-fee loan that can quickly create long-term debt. Payday loans generally range from $100-$1,000 depending on state legal maximums. They are repaid out of your next paycheck (usually within a 2-week period). Problems develop when you do not repay the payday loan from your next paycheck. There are alternatives to payday loans: Create and follow a realistic spending plan. Know your monthly net cash flow and plan expenditures based on your income. Create an emergency fund. Even small deposits can help you avoid borrowing for emergencies, unexpected expenses or other items. Consult your military installation for financial counseling and information on zero-interest emergency loans. Ask about financial institutions that offer lower-interest loans. Research interest rates on loans offered by your financial institution, which can be more competitive. Consider overdraft protection for your bank account.

5 Seek consumer credit counseling. Build A Good Credit Reputation <subhead> By practicing healthy credit habits, you can build a good credit reputation. You have a better chance of being approved for credit. You are more likely to receive higher loan amounts at lower interest rates. You are more likely to get a desirable job, secure an apartment and acquire insurance coverage. The following steps can help you build a good credit reputation: Maintain active checking and savings accounts with no checks returned for non-sufficient funds (NSF). This demonstrates that you can manage money well and have the discipline to save. Pay all bills on time and in full. If you cannot pay the balance in full, pay more than the minimum and use automatic bill payment programs to ensure timely payments. Paying small credit transactions responsibly establishes your creditworthiness. Limit your debt. The following debt-to-income (DTI) ratio calculations can help give you an idea of where you stand. These debt-to-income ratio calculations are guidelines and should only be used to give you a general idea of your situation. Consumer DTI Best to keep it below 20% 1 Add up your total monthly debt payments credit cards, student loans, etc. excluding mortgage or rent. 2 Divide that by your total monthly net income (your take home pay). Example Household debt payments total $400/mo and total take home pay is $2,665/mo Housing DTI Best to keep it below 28% 1 Take your total housing payment (rent, mortgage, condo fees). 2 Divide that by your total monthly gross income (before deductions). Example Housing cost equals $900/mo and your total gross income is $3,750/mo Total DTI Best to keep it below 36% 1 Add your total monthly debt payments and your housing payments. 2 Divide that by your total monthly gross income (before deductions).

6 Example Total debt payments equal $1,300/mo and your total gross income is $3,820/mo Your Credit Report <subhead> Your credit report is a monthly record of your payment history with creditors. It is this report that employers, lenders, landlords, insurers and other businesses evaluate to make decisions about your creditworthiness. IT SHOWS THE FOLLOWING: How much credit you are using. How well you pay your debts. Who is inquiring about your credit. Information on bankruptcies or federal income tax liens. You can request your free annual credit report through the Annual Credit Report Request Service, a centralized contact created by the three nationwide consumer reporting agencies, Equifax, Experian and TransUnion. To request your free annual credit report, visit annualcreditreport.com Review your credit report annually for accuracy and any changes that may indicate fraudulent activity. Your Credit Score <subhead> In addition to your credit report, creditors may look at your credit score, a three-digit numerical summary of your credit report. The higher your score, the better. Factors Determining Your Credit Score <sub-subhead> Payment History Debt Length of Credit History Types of Credit Used New Credit

7 If your score is high enough, you may qualify for the best rate on a loan or credit card account. A low score may cause you to be denied credit. Depending on the credit scoring model, credit scores may range from 300 to 850. Most lenders consider scores above 700 good credit risks. Scores below 660 may indicate credit problems. Your score can change as new information is received by consumer reporting agencies. No single factor determines your score. But one or more of the factors may affect the final score more than others, depending on the overall information in your credit report. Your score today could be different from your score 3 months from now. Applying for new credit is generally what lowers your score. Ordering a copy of your own credit report or credit score does not impact your score. To understand how lenders evaluate you, review your credit scores from all three consumer reporting agencies. You will have to pay a fee to obtain your credit score. Your Credit Responsibilities <subhead> When you receive your credit report, you have the responsibility to review it and act on any errors you find. Understand the entries on the credit report. Each consumer reporting agency s credit report contains information such as how long an account has been tracked, the highest amount charged, the account balance at the time of the report and the type of account. Other entries identify creditors that have viewed your credit history. Codes indicate debtors arrangements, repossessions and bad debts, if applicable. Ensure the credit report is accurate. Common errors include incorrect personal information, missing information and failing to correct damaging information after problems are resolved. Take action to correct errors. Document your actions and follow up until the problem is resolved. Inform creditors of errors. The credit reporting agency must investigate the items in question usually within 30 days unless they determine that the dispute clearly lacks merit. Retain your written account of errors or discrepancies in your file. If an investigation does not resolve the dispute to your satisfaction, you have a right to add a statement to your credit report file contesting the accuracy or completeness of the disputed information. Credit Card Debt Relief Scams <sub-subhead> Credit repair organizations target consumers with poor credit histories with promises to clean up their credit report so they can get an auto loan, a home mortgage, insurance or even a job once they pay them a fee for the service. The tactics that some of these organizations use are illegal. No one can legally remove legitimate negative information from your credit report. The fact is there is no quick fix for creditworthiness. You can improve your credit report legitimately, but it will take time and effort on your part by developing and following a personal debt repayment plan. Exercise Caution <sub-subhead) Be cautious if a credit repair organization: Asks you to pay for credit repair services before providing them. Does not inform you of your rights and the steps you can take to help yourself at no cost. Recommends you do not contact any of the three consumer reporting agencies directly. Tells you they can remove most or all of the negative credit information in your credit report, even if that information is

8 accurate and current. Advises you to dispute all the information in your credit report, regardless of its accuracy or timeliness. Suggests you create a new credit file by applying for credit using an Employer Identification Number (EIN) along with a new address, instead of your Social Security number (SSN). The use of your EIN for legitimate business purposes is legal; an attempt to defraud a creditor is punishable under federal and state law. The Credit Repair Organizations Act <sub-subhead> The Credit Repair Organizations Act requires credit repair organizations to give you a copy of the Consumer Credit File Rights Under State and Federal Law before you sign a contract. They must also provide you a written contract that spells out your rights and obligations. Make sure you read and understand the contract before signing anything.