Understanding Credit. Megan Stearns, Credit Counselor

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1 Understanding Credit Megan Stearns, Credit Counselor

2 Obtaining your free credit report will lower your credit score.

3 Closing old accounts can help your credit score.

4 Paying off the balances on your credit cards each month positively affects your credit score.

5 Paying off installment credit accounts early will improve your credit score.

6 Your age, income and gender have no effect on your credit score.

7 If you dispute negative information on your credit report, even if it s true, it will be removed from your credit report.

8 Credit card offers do not affect your score.

9 Agenda Importance of credit Credit reports Credit scores How to improve your score Credit cards Fraud

10 Why is good credit important? Rent or buy things you want or need Save money by borrowing at a lower interest rate Get a job Lease property Open a checking account Establish utility services in your name Obtain insurance at a lower rate

11 Who stores your credit information? Credit bureaus Also known as Credit Reporting Agencies (CRAs) Three national reporting agencies: TransUnion Equifax Experian

12 What is on a credit report? Information about: Last known and previous address Last known employer Public records (financial) Collection accounts Monthly debts Loan repayment history Credit balances vs. available limits Inquiries

13 What should I know about credit reports? Credit reports and scores can be different depending on which agency it is being pulled from and for what purpose Auto loan Mortgage Credit card Employment Renting an apartment or home

14 How to request your credit report. Free copy of credit report every 12 months from each of the credit bureaus Allows you to ensure your credit history is accurate

15 What is a credit score? A complex statistical model developed from thousands of consumer files Analyzes consumers reports to see what data would lead someone to miss a payment FICO score Fair Isaacs Corporation

16 What is the credit score range? Excellent Good Average Poor

17 What makes up your score? 10% 15% 10% 35% Payment History Debts Owed to Creditors Length of Credit History New Credit Credit Types You're Using 30%

18 Payment history is 35%. Many factors are considered including: Past-due items on file Amount past due on delinquent account or collection accounts Severity of delinquency (how long past due)

19 Payment history is 35%. Timeframe and the approximate weight assigned to each year: Most Recent 12 months = 40% Prior 12 to 24 months = 30% Prior 24 to 36 months = 20% Prior 36 to 48 months = 10% Older than 48 months = 0% Items may not fall off your credit report for 7 10 years

20 Debts owed to creditors is 30%. Three components considered: Installment balances compared to original loan amounts Revolving account balances compared to credit limit on the account Total revolving account balances compared to individual's total revolving credit limit

21 Debts owed to creditors is 30%. Keep balances low on all revolving credit The utilization percentage should not exceed 25% Take the total balance (amount owed) and divide it by the total credit limit Avoid consolidating to one account with a higher balance when possible Credit score weighs capacity heavily because most individuals will start to use their credit cards to supplement lost income

22 Length of credit history is 15%. Think twice about closing older accounts Lenders look for long credit history Rapid buildup of accounts may look risky

23 Types of credit is 10%. Looks at overall mix of credit Try to balance the mix Do not open credit cards or loans just for this reason Unlikely this alone will improve score

24 New credit is 10%. Based on how many recent new accounts you have established: Number of accounts Length of history Recent requests for credit Length of time since credit report inquires were made by potential lenders

25 New credit is 10%. Inquires Do rate shopping within two-week period Will only count once within two-week period Mortgages Auto loans Student loans Does not count if individual goes directly to credit reporting agency to check credit

26 What about your credit score? What factors don t affect my credit score? Income Length of residence Length of employment Your race, religion, national origin and marital status Your age Interest rate being charged on your accounts

27 How do common mistakes affect FICO scores? Credit Mistake 680 Score 780 Score Maxed-out credit card Down 10 to 30 points Down 25 to 45 points 30-day late payment Down 60 to 80 points Down 90 to 110 points Debt settlement Down 45 to 65 points Down 105 to 160 points Foreclosure Down 85 to 105 points Down 140 to 160 points Bankruptcy Down 130 to 150 points Down 220 to 240 points

28 How can you improve your score? Payment history tips: Pay your bills on time! If you have missed a payment, get current and stay current If you are having trouble, get help

29 How can you improve your score? Amounts owed tips: Keep balances low on revolving accounts Pay off debt rather than move it around Don t open new credit cards that you don t need

30 How can you improve your score? Length of credit history tips: If you have been managing credit for a short time, don t open a lot of new accounts too rapidly New accounts will lower your average account age

31 How can you improve your score? New credit tips: Do your rate shopping in a focused period of time Re-establish your credit history if you have had problems Note that closing an account doesn t make it go away Note that it is okay to request and check your own credit report

32 Create a positive history. Consistently use your complete name when applying for credit Set up a budget Review your credit report 60 to 90 days before making a major purchase (home or car)

33 Are you falling behind? Contact your lenders immediately Stop using your credit limits until your finances are under control Look to professionals for help National Foundation for Credit Counseling NFCC.org

34 Where can you go for help? Purdue Federal Credit Union We have credit counselors available to help. Joe Redmon , ext Megan Stearns , ext Investment Services located at Purdue Federal Credit Union is available for investment and financial planning help. Call

35 What is a credit card? A credit card is a loan No set time to be paid back There s a pre-determined credit limit Money spent can be paid back in full or in installments Anything not paid back in full is assessed a finance charge

36 What are advantages of credit cards? Convenient Immediate: Use of item now No need for cash Zero liability on fraud Spending record

37 What are disadvantages of credit cards? Can be easy to overspend May include additional fees Interest rate (APR) may go up Can be lost or stolen risk of fraud Credit history damaged if misused

38 Protect yourself from fraud. Never leave receipts lying around. Shred old receipts, bills and unwanted card offers. Protect your credit history. Review your credit report. Review statements carefully. Immediately report any discrepancies or errors on the monthly statement.

39 Protect yourself from fraud. Report a lost or stolen card immediately. Protect personal information. You should never give out your credit card number unless making a telephone, mail order or online purchase. Do not let anyone else use your credit card and do not charge purchases for other people.

40 Questions?

41 Upcoming Presentations Credit Cards November 13 th and 19 th at 11am Fraud and Identity Theft December 4 th and 17 th at 11am

42 Megan Stearns Phone: Website: PURDUEFED.COM Student Blog: PURDUEFED.COM/STUDENTS

Credit Cards. Megan Stearns, Credit Counselor

Credit Cards. Megan Stearns, Credit Counselor Credit Cards Megan Stearns, Credit Counselor Agenda What is a credit card? Types of credit cards Shopping for a credit card Advantages and disadvantages Using credit cards wisely Fraud What is a credit