GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 1. Give Yourself Some Credit! A Greylock Federal Credit Union Financial Literacy Guide

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 1 Give Yourself Some Credit! A Greylock Federal Credit Union Financial Literacy Guide

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 2 Contents How Does Borrowing Money Work?..................................................... 3 What Is a Checking Account?........................................................... 5 What Is a Savings Account?............................................................ 7 How to Use an ATM (Automated Teller Machine).......................................... 8 What Are Credit Cards and How Do They Work?......................................... 10 Using Check Cards (Debit Cards)....................................................... 12 How to Plan for the Future............................................................ 14 Making a Budget Worksheet......................................................... 15 What Kinds of Money-Lending Are Unfair?.............................................. 16 What to do if You Have Been a Victim of Predatory Lending............................... 18 What Is a Credit Score and What Does it Mean?.......................................... 19 Quiz................................................................................ 23 Fusion Membership Benefits.......................................................... 24 Developed in collaboration with the Gladys Allen Brigham Community Center. Information in this document is from: http://www.pueblo.gsa.gov/cic_text/money/creditscores/your.htm http://www.myfico.com/ Greylock Federal Credit Union. All rights reserved. 2 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 3 How Does Borrowing Money Work? When there is something that you need, but you do not have enough money to pay for it (like a car or house), you can borrow money from a bank, a credit union, or another lender. This is called a loan. When you have a loan, you agree to pay it back over a set period of time. You also have to pay interest on the money you borrow. Interest is how much it will cost you to borrow the money you need. Borrowing money can be complicated. It is important that you do some research to make sure that you find a loan that works best for you. Here are some important guidelines for borrowing money 1. Find The Best Interest Rate. The interest rate is how much it will cost you to borrow the money that you need. You should call several credit unions or banks to see what their interest rates are. This will give you an idea who to borrow money from. Make sure to find out if there are any other fees or charges for borrowing money from a particular bank or lender. 2. Read The Fine Print. The fine print is all of the details of a loan. You can also ask someone who has borrowed money before to help you understand the details of the loan. You need to know what the details of a loan are before you sign the agreement to borrow money (a loan). MIND OVER MONEY 3

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 4 3. Understand What Happens If You Do Not Pay Your Loan. If you do not pay your loan on time or do not follow the details in the fine print of your loan, you are in what is called default. It is important to know what the bank or lender who gave you the loan will do if you are in default. 4. Understand What Happens If You Pay Your Loan Off Early. It can be a good thing to pay off your loan early. It can also mean that you will have to pay a fee. When you pay your loan off early, you do not pay as much interest to the bank as you said you would when you signed the loan. 5. Know And Improve Your Credit Score. The amount of interest you pay for your loan often depends on your credit score (see What Is A Credit Score And What Does It Mean). If you want to borrow money, check your credit score and learn what you can do to improve it. If you ve missed or not made a payment on any of your bills, you will need to make payments on time for six months (at least) to show that you are responsible with your money. 6. Lenders Want To Know That You Can Pay Them. A lender will ask for credit references and make you fill out a credit application form. Based on your references and answers, you will be given a credit/risk score. If the lender thinks you score highly, you will be given the loan. If the lender thinks you do not score highly, you may not be given the loan. The lender may also consider the following: How much money you make How long you ve been working at your current job (if you have a job) How long you ve been living where you live now The more stable you are and the more responsible you are with your money, the better chance you have of getting a loan. 4 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 5 What is a Checking Account? A checking account is a safe place to store your money. When you open a checking account at a bank or credit union, they store your money for you and give you checks. When you want to use the money, you write out a check to pay for items instead of using cash. Here are some facts about checking accounts 1. When you have a checking account at a bank or credit union, you have to keep some money in the account all the time. You may have to pay a small amount of money to the bank or credit union for them to store your money for you and give you checks. A person who works at a bank or credit union can tell you if there are other fees for having a checking account at their bank or credit union. 2. When you write a check, the bank or credit union takes the money from your checking account and pays the person or business you are writing a check to. Before you write a check, you should make sure you have more money in your checking account than the amount you write the check out for. 3. You need to keep track of the checks you write in a booklet called a check register. You also need to keep track of how much money you have left after you write a check. You will not know how much money you have if you do not do these things. 4. If you write a check and do not have enough money in your checking account, you have what is called an overdraft. This is because you have attempted to draw more money from your account than you have available to you. When this happens, the credit union will charge you a fee that you will have to pay. These charges are different at different banks and credit unions. 5. Some checking accounts have overdraft protection. This is money the bank or credit union lends you when you do not have enough money in your checking account to cover a check that you write. This money must be paid back to the bank or credit union. Some banks and credit unions let you set up your accounts so that money from your savings account is put into your checking account when you write a check for more money than you have available in your checking account. 6. Once every month, the bank or credit union will send you a statement that shows all the checks you wrote during that month. 7. You should compare the statement that the bank or credit union sends you with what you have written in your check register. This is called balancing your checkbook. MIND OVER MONEY 5

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 6 Sample Blank Check Your name and address Who you are paying money to Amount spelled out in letters Cindy Smith 5555 Lake Lane Pittsfield, Ma 01201 Amount Memo (to remind you what you purchased or paid for with the check) 75 Kellogg Street, Pittsfield MA 01201 (413) 443-5114 Your Signature Sample Blank Check Filled Out Cindy Smith 5555 Lake Lane Pittsfield, Ma 01201 Best Food Grocery Store Fifty Three dollars and 00 /100 Sept. 25 08 53.00 75 Kellogg Street, Pittsfield MA 01201 (413) 443-5114 Groceries Cindy Smith 6 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 7 What is a Savings Account? A savings account is a safe place at a bank or credit union to store your money that you want to use at a later time. Here are some facts about savings accounts 1. It is a smart idea to put some of your money into a savings account. 2. You can store money in a savings account for a short or long period of time. 3. A savings account earns interest. Interest is money the bank or credit union pays you for storing your money in one of their savings accounts. The amount of interest you are paid depends on how much money is in your savings account. The more money there is in your savings account, the more interest you will be paid. 4. You do not usually have to pay extra money to have or open a savings account. 5. You cannot write a check for money you have stored in a savings account. 6. A money order is a check the bank or credit union writes using money from your savings account. It is a good way to use the money in your savings account and an alternative to using a checking account or cash to pay for everything. MIND OVER MONEY 7

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 8 How to Use an ATM (Automated Teller Machine) An ATM lets you take money out of your savings or checking account any time of the day, any day of the week without having to go inside the bank or credit union where you have your accounts. It is very convenient to use an ATM. The bank gives you a special ATM card that gives you, and only you, access to the money in your savings or checking account 24 hours a day, 7 days a week. Here are some important facts about using ATM Machines 1. Most banks and credit unions have ATMs. If you use your card at another bank s or credit union s ATM, you will be charged a fee to use that ATM (usually $3.00). You will also be charged a fee by your bank for using another bank s ATM to get your money. To avoid these fees, you should try to use your own bank s or credit union s ATMs. 2. You can use ATMs to see how much money you have in your checking or savings account. 3. Your bank s or credit union s ATM may allow you to deposit money into your checking or savings account using a special envelope available at the ATM. 4. Many banks and credit unions now offer online banking. This is an easy way to keep track of your bank or credit union accounts from anywhere where there is internet service. You can find out how to access your savings or checking account online by asking someone who works at your bank or credit union. 5. Many banks and credit unions have fees for using ATMs that you may not be aware of. Some banks and credit unions charge more than others. The only way to avoid these fees is to be aware, ask questions and do research to find the bank or credit union that is best for you. 8 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 9 Sample ATM Display Screen Receipt Printer Screen Buttons Cash Dispenser BALANCE INQUIRY FAST CASH CASH WITHDRAWAL DEPOSIT Card Reader Deposit Slot Keypad Options to choose from at an ATM Balance Inquiry Select to find out how much money you have in your checking or savings account. Fast Cash Automatically deducts $40 out of your checking account and gives it to you in cash. Cash Withdrawal Lets you choose the amount of cash you want to take out of your checking or savings account. Deposit Lets you choose the amount of money you want to put in to your checking or savings account. MIND OVER MONEY 9

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 10 What Are Credit Cards and How Do They Work? Like a loan, credit cards let you borrow money that you will have to pay back. Credit cards also charge you interest for borrowing money. Remember, interest is how much it will cost you to borrow the money you need. Here are some important facts about credit cards: 1. Do Not Use Credit Cards For Impulse Shopping Impulse shopping is when you buy something just because you want it, not because you need it. The money you have left over after paying necessary monthly bills or putting money into your savings account should be used for this purpose. If you do not have the money, do not spend it. 2. Find The Best Interest Rate a Credit Card Can Offer You Interest rates vary from credit card to credit card. It is important to know this information. The higher the interest rate, the more money you will have to pay to borrow the money. 3. Know Your APR (annual percentage rate) The APR is the percent that you will be charged on each item you purchase using your credit card, if you do not pay off all the money you borrow at the end of each month. Know the amount you will be paying on the things you buy using your credit card. The APR for your credit card is based on your credit history. Your credit card company can change your APR without letting you know. These changes raise or lower the finance charge on your credit card. 4. Know How Much You Can Afford To Repay On Your Credit Card It is important to understand how much money you will have available to repay the money you have borrowed and how long it will take you to repay all of the money. 5. Plan For The Unexpected It is a good idea to have some money in a safe place, like a savings or checking account, in case an unexpected expense comes up. This way, you will be able to keep making your credit card payments. 6. Know Your Credit Card Understand all of the details before signing any credit card agreement. Know what you are agreeing to before you use a credit card. 10 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 11 7. Know Your Finance Charges. The finance charge is a fee you pay to the credit card company. When you do not pay all of the money back you have borrowed from the credit card company at the end of each month, you must pay the APR on the amount of money you still have to pay back. If you pay back the credit card company all the money you borrow each month on time, you will not be charged any finance charges. 8. Know If Your Credit Card Has An Annual Fee. Some credit cards have membership or participation fees. These can be $25 to $100 a year or more. 9. Know All The Other Costs Your Credit Card Has Credit cards may also have other costs. Some credit cards charge a fee if you use the credit card to take out cash, make a payment late or exceed your credit limit (the credit limit is the amount of money the credit card company has agreed to let you borrow). Some credit cards charge a monthly fee whether or not you even use the credit card. 10. Do Not Apply For The First Credit Card Offer You See Do some research to find the credit card that is right for you. Remember these tips when you are looking for a credit card Do some research to find the credit card that best fits your needs. Make sure you understand all the details of a credit card before you accept or use the credit card. Remember these tips when you are using a credit card Save your receipts from your credit card purchases so you can make sure your credit card bill is correct each month. Keep your credit card and account number in a safe place. Write down and keep in a safe place (away from your actual credit card) your credit card number, expiration date and the phone number of your credit card company. If your credit card is ever lost or stolen, you will need this information. Carry only the credit card you will use. Some general information from: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre05.shtm MIND OVER MONEY 11

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 12 Using Debit Cards (Check Cards) Debit Cards offer a convenient and secure way to access money in your checking account, either through an ATM or through a retail establishment, without having to write a check. Debit Cards, also referred to as Check Cards, look a lot like credit cards. The principal difference between the two is how they access money. A credit card helps you make a purchase by accessing a credit line that you ultimately have to pay back. A Debit Card accesses available money in your checking account by performing a debit or withdrawal almost as soon as you make the transaction. Like credit cards, Debit Cards can be used practically anywhere. Here are some common questions associated with the use of Debit Cards How do I use it? Debit Cards can be used in a couple of different ways. One, you can use it with a merchant and sign a receipt. You can use it to make a purchase over the Internet, by mail, over the phone or by using it at a machine that will accept a PIN (Personal Identification Number.) Why would I want to use a Debit Card? Well, for one, it s quicker than writing a check. You don t have to worry about carrying cash either. Merchants also like it better than checks because they don t have to worry about collecting the funds on the check or worry about returned checks. The Debit Card guarantees the money for the merchant. If you have trouble qualifying for a debit card but want to use plastic as a means of making purchases, you can use a Debit Card as a buy now, pay now form of transaction. Debit Cards are almost automatically included with checking accounts these days and can be used just like a credit card for making purchases practically anywhere. Is a Debit Card safe? Absolutely. No matter where you are shopping, most if not all check cards provide multiple layers of security. Some offer Zero Liability protection meaning that you re protected against unauthorized use of your card and fraud. You don t have to pay for fraudulent purchases you don t make. Are there fees associated with the Debit Card? There could be. Fees could range from ATM charges to transaction charges through the merchant. Always be sure to check with your financial institution to see what fees may apply to use. 12 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 13 Tips for Responsible Use of the Card Always know your account balance before using the card. You should not spend what you don t have available with a check card and if you happen to, you may be charged overdraft fees just like you would if you wrote a check on insufficient funds. Always take a receipt if available or write down the transaction in a journal or other transaction record. Review your monthly statements or your online transaction history carefully. Remember to record any associated fees in your record along with the purchase or debit amount. If your card is lost or stolen, report it to your financial institution immediately for your own protection. Make sure to choose a unique PIN (Personal Identification Number) that only you would know. Keep your PIN private. Memorize it. Don t write it down where someone could find it and NEVER tell anyone what it is. Remember Sign you save, PIN you pay. MIND OVER MONEY 13

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 14 How to Plan for the Future It is never too early to start thinking about your financial future. You should be saving money today, so you can live with comfort and stability in the future. Here are some good ways to save money 1. Pay Back Debt Debt is the total amount of money you owe and need to pay back. Paying back your debt is important. Debt from loans and credit cards can start out small but can grow quickly and become unmanageable. The fees and interest you pay on loans and credit cards can make it even harder to pay back your debt. To pay off debt, you need a plan, a financial plan. Financial planning is a road map to get out of or stay out of serious debt. The longer it takes you to pay back or reduce your debts, the more money you will pay in interest. The sooner you are able to pay back or reduce your debts, the more time and money you will have. There are different ways to pay back or reduce your debt. You can borrow money at a lower interest rate to pay back high interest loans. You can limit your spending. You can also limit the amount of money you place in other accounts. This will give you more money to pay back or reduce your debt. 2. Invest Your Money When you have paid back or reduced your debt, you can place your extra money into a savings account or invest your money in other ways. There are many ways to invest your money. Investing money is when you take money and place it into an account that is designed to turn your money into more money over time. Placing your money into savings accounts, the stock market, retirement funds and Certificates of Deposit (CDs) are just some of the many ways you can invest your money. The earlier you start investing your money, the more money you will have in the future. 3. Spend Less than You Earn Spending money you do not have makes it impossible to invest your money or save for the future. When you spend more than you make, you create more debt that you will have to pay back. A good way to make sure you do not spend more than you make is to create a budget and stick to it. A budget is a map that shows you where your money comes from and where your money goes each month. 4. Plan Ahead It is a good idea to plan for the unexpected and to be prepared. Having extra money in your savings account is also a good idea in case something unexpected comes up, like car repairs or a doctor s bill. 14 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 15 5. Make And Stick To A Budget Making and sticking to a budget is very important. A good budget helps you spend less money then you make. It also helps you spend according to a plan, so you know ahead of time what you will be spending money on. Part of your budget should include placing some money into a savings account. Making a budget is easy. Start with how much money you make in a month. Then, look at all of the things you need to spend your money on, like food, shelter and electricity. Be careful not to confuse what you need to spend your money on with what you want to spend your money on. What you want to spend money on, like a brand new TV or a vacation are things you should save your money to buy. You can use the Making a Budget worksheet to start your own budget. MAKING A BUDGET In order to decide what you can actually afford to spend your money on, you need to know what your basic living expenses are. Monthly Income Rent Utilities (heat, electric, gas) Phone (cell, home) Cable Internet Service Car Payment Gas Insurance (car, renters) Health Care Clothing Food Savings Taxes Entertainment (eating out, movies) Miscellaneous (incidentals, gifts, car repairs) TOTAL MONTHLY EXPENSES: What is left over Some general information from: http://www.the-home-improvement-web.com/information/finance-money/financial-planning.htm http://blog.worldvillage.com/business/planning_your_financial_future.html MIND OVER MONEY 15

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 16 What Kinds of Money-Lending are Unfair? Predatory lending is when a lender tries to trick someone into accepting an unfair loan with hidden fees. This makes it difficult or impossible for the borrower to pay back the loan. When this happens, the borrower may lose the item they took out the loan for (for example, their house). Here are some examples of the most common kinds of predatory lending Excessive Fees Sometimes there are additional costs for borrowing money called points or fees. These extra costs are in addition to the interest (the amount you pay to borrow money) and can be added to or hidden in the loan without the borrower knowing. For most home loans, it is normal to be charged about 2% of the total loan amount. For example, if you apply for a home loan in the amount of $100,000, you can expect to pay around $2,000 in fees. Many predatory home loans will charge fees that total more than 5% of the total loan amount (for a loan of $100,000, that means more than $5000 in fees!). It is important to make sure your lender tells you about ALL of the points or fees you will pay as part of the loan. You should not sign anything until you are sure of all the details. Unfair Penalties for Paying Back Your Loan Early A subprime loan is a loan with a higher interest rate that lenders can give to borrowers with poor credit scores or poor credit history. Up to 80% of all subprime home loans have a penalty for paying back the loan ahead of time. Borrowers with higher-interest loans want to refinance their loans when their credit improves. When borrowers refinance their loans, they borrow money at a lower interest rate to pay off their higher interest rate loan. This decreases the total amount of money they have to pay back on the loan. An unfair penalty for paying back your loan early can cost you more than the interest you pay on the loan for six months (which can be thousands of dollars). This penalty can stay in effect for three years or more once you sign the loan papers. Only 2% of home loans that are not subprime carry a penalty for paying off the loan early. Payments (Kickbacks) to Brokers A loan broker is another kind of lender. A loan broker finds loans that lenders can then make available to borrowers. A loan broker may find a loan with one interest rate, but tell the lender to charge the borrower a higher interest rate. When this happens, the lender will pay the loan broker (a kickback) for making the loan more expensive for the borrower and more profitable for the lender. For example, if a loan broker found a loan with an interest rate of 8%, but told the lender to offer the loan to a borrower with an interest rate of 10%, the lender could pay the broker for making the interest rate higher. Remember, the higher the interest rate and the more interest a borrower pays, the more money the lender gets. 16 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 17 Loan Flipping Flipping a loan is when a lender refinances (redoes) a borrower s loan for no good reason. Every time a loan is refinanced, the borrower has to pay additional fees for the work it takes to refinance the loan. Loan flipping can decrease the equity a borrower has and increase the amount of money the borrower pays each month. Equity is the difference between what your property is worth and how much money you owe. Unnecessary Insurance and Products When lenders include unnecessary insurance or other products in a loan without telling the borrower, the borrower ends up paying more money than is necessary. If you notice any difference in the amount of money you asked to borrow and the amount of the loan you are being offered, make sure to ask for an explanation. DO NOT sign anything you are not sure of ever! Binding Mandatory Arbitration (BMA) Some loans require binding mandatory arbitration. This means that if the borrowers are in danger of losing their home because their loan has illegal or predatory terms, they are not allowed to go to court. Instead, they must use a private, independent party to handle the situation. What is worse, because the BMA is binding, the borrower must do whatever the arbitrator (the private, independent party) decides. The borrower cannot appeal the decision and may even have to pay money to go through the arbitration process. Steering and Targeting Predatory lenders often give subprime loans to borrowers, even if the borrowers qualify for a regular loan. Predatory lenders do this so that the borrowers pay them more money in interest. Predatory lenders may unfairly target certain individuals who they think will be easier to fool, like the elderly, young adults or people who are new to the United States. Predatory lenders are pushy and will lie to borrowers to get them to pay more money than they should. One estimate says that up to half of all borrowers who have subprime home loans could have qualified for better loans. Although predatory lenders usually target certain individuals, there are victims of predatory lending everywhere. MIND OVER MONEY 17

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 18 What to Do if You Have Been a Victim of Predatory Lending If you think you have been a victim of predatory lending, there are Federal agencies that can help you. Please read the list of agencies below and contact the one or ones that you think can help you the best. Government Agencies That Can Help The FDIC, the NCUA and the other federal banking regulators listed on For More Information have publications, Web sites, staff and other resources that can help answer questions and direct you to the appropriate state or federal agency that regulates a particular lender. The Federal Trade Commission works to prevent unfair business practices. For more information, including brochures and procedures for filing a complaint against a nonbank lender, call toll-free 877-FTC-HELP (877-382-4357) or go to www.ftc.gov. The U.S. Department of Housing and Urban Development (HUD) enforces fair lending practices involving home loans backed by the federal government, including Federal Housing Administration (FHA) loans. HUD also maintains a list of approved housing counseling agencies that can give advice. Call toll-free 800-569-4287, go to www.hud.gov, or write to HUD, 451 7th Street, SW, Washington, DC 20410. The Federal Consumer Information Center is a clearinghouse for free and low-cost booklets published by various federal agencies on topics such as getting a mortgage or home equity loan. One such brochure is Looking for the Best Mortgage: Shop, Compare, Negotiate, published by 11 federal agencies, including the FDIC. For a free catalog, call toll-free 888-878-3256. Or, read or order the publications online at www.pueblo.gsa.gov. Your state government s consumer protection or Attorney General s office can respond to your questions or concerns about a lender. Check your local phone book or other directories. Some general information from: http://www.fdic.gov and http://www.ncua.gov 18 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 19 What Is a Credit Score and What Does It Mean? A credit score is a number used to rate your credit. Lenders and others use this number to predict how likely you are to make your credit payments on time. Each score is based on the information found in your credit report. Why Does A Credit Score Matter? Credit scores can determine if you can get any credit at all. Credit scores also determine what you pay for credit cards, auto loans, mortgages and other kinds of credit. In most cases, higher credit scores mean you are more likely to be approved and pay a lower interest rate on new credit. For example: If you wanted to rent an apartment, you may need good credit scores. Without good credit scores, your application may be turned down by the landlord. Your credit scores also may determine how much money you will have to pay up front to get telephone, electric or natural gas services. Lenders look at your credit scores all the time. They look at your credit scores when figuring out what interest rate to charge you and when deciding to lower or raise your credit limit (the amount of money you can borrow) on a credit card. They also look at your credit scores when deciding if they should send you a preapproved credit offer through the mail. Having good credit scores helps to make your life a lot easier when it comes to money. That s why good credit scores are so important. What is a Good Credit Score? When lenders talk about your score, they usually mean the FICO score developed by Fair Isaac Corporation. FICO is today s most commonly used scoring system. FICO scores range from 300-850. Most people score in the 600s and 700s (higher FICO scores are better). Lenders buy your FICO score from the three national credit reporting agencies (also called credit bureaus): Equifax, Experian and TransUnion. Lenders see FICO credit scores above 700 as very good and a sign of good financial health. They see FICO scores below 600 as not so good, which can make them charge higher interest rates or turn down a credit application. There is More Than One Credit Score There are many types of credit scores. These scores are developed by independent companies, credit reporting agencies, and lenders. No matter what kind of credit score, a higher credit score is always better. Each credit reporting agency calculates your score. Each score may be different because the credit history each agency has about you may be different. With smaller loans like credit cards or car loans, lenders may make a decision based on one agency s score. With larger loans, like mortgages and home equity loans, lenders usually look at all three credit scores. MIND OVER MONEY 19

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 20 Your credit score changes. When your information changes at a credit reporting agency, your credit score changes. This is good news! You can improve a poor credit score over time by improving how you handle your credit. Insurance companies use something like a credit score. They use what is called a credit-based insurance score. This helps them decide how much to charge you for insurance. You may be able to improve your credit-based insurance score by improving how you handle your credit. This can lower your payments on auto or homeowners insurance. Some credit scores given to people are estimates. These are different from the credit scores lenders use, but can be similar. Consumer reporting agencies and other companies can use an estimated credit score to show how risky it may be to lend money to a person. If you think your credit score has been estimated, you can ask if the credit score is used by most lenders. If it is not, it is probably an estimated score. Five Parts to Your FICO Credit Score Credit scores look at the credit-related information on your credit report. How they do this can be different depending on what scoring system is being used. Since FICO scores are used a lot, this is how these scores rate what is on your credit report. 1. Your payment history = about 35% of a FICO score Late payments and other negative items can hurt your credit score. On-time payments help your score. 2. How much money you owe = about 30% of a FICO score FICO scores look at how much you owe on all your accounts and how much of your available credit you are using. The more money you owe and the less available credit you have, the lower your credit score will be. 20 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 21 3. Length of your credit history = about 15% of a FICO score A longer credit history increases your credit score. You can also get a high credit score with a shorter credit history if your credit report shows that you use your credit responsibly. 4. New credit = about 10% of a FICO score If you have applied for or opened new credit accounts recently, this can affect your credit score. The number of time you apply for credit and the time period for those requests can also affect your credit score. Many requests over a short period of time can lower your FICO score. If you need a loan or credit card account, it is a good idea to do your research over a shorter period of time (like 30 days) to avoid lowering your FICO score. 5. Other factors = about 10% of a FICO score A few small things can also improve or damage your score. For example, having different kinds of credit on your credit report can help your credit score. Credit cards, mortgages, car loans and personal loans are all different kinds of credit. Your FICO score is determined by different things on your credit report. These things can be grouped into five categories (shown below left). The percentages in the chart show how important each of the categories is in determining your FICO score. Learn Your Credit Scores It is easy to get your credit scores to check how you are doing financially. You can get your credit scores securely over the Internet, by telephone or by U.S. Mail. You can get a free credit report once a year from all three credit bureaus. To check more often, you have to pay a small amount of money. You also have to prove you are who you say you are to make sure your information is not given to the wrong person. Helpful Tips Once You Learn Your Credit Scores 1. When you get your credit scores, find out the highest and lowest scores possible. You should also learn what things influenced your scores. These things can help you learn how to improve your credit scores. 2. Getting your credit scores or credit reports will not affect your credit scores if you order them from Equifax, Experian or TransUnion. 3. Review your credit reports to make sure the information is correct. Mistakes and missing information on your credit reports can affect your credit scores. If you see an error, contact the credit reporting agency and the creditor whose information is incorrect. 4. If you have questions or problems with your credit scores, contact the company that provided them to you. MIND OVER MONEY 21

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 22 Increase Your Credit Scores Your credit scores change when things about your credit change. Your scores will improve over time when you manage your credit responsibly. Here are some things you can do to improve your credit scores Pay your bills on time, all the time. Keep the amount of money you owe on your credit cards low. Pay off debt instead of putting it on another credit card. Apply for and open new credit accounts only when you need them. Check your credit report regularly to make sure the information on it is correct. If you have missed any payments, pay them right away and make sure to make future payments on time. Improving your credit scores can help you Lower your interest rates Speed up credit approvals Reduce deposits required by utilities Get approved for apartment rentals Get better credit card, auto loan or mortgage offers 22 MIND OVER MONEY

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 23 Quiz Name Address Member Number 1 What is a loan? 2 What is a checking account? 3 What is overdraft protection? 4 What is a savings account? 5 An ATM lets you take money out of your savings or checking account any time of the day, any day of the week: True False 6 Please list two important facts about credit cards: 1. 2. 7 Debit Cards may also be referred to as Check Cards: True False 8 What is Debt? 9 What is predatory lending? 10 What is a credit score? 11 There are five parts to your FICO Credit Score, Please list two: 1. 2. 12 Improving your credit score can help you get approved for apartment rentals: True False Give Yourself Some Credit! A Greylock Federal Credit Union Financial Literacy Guide

GFCU_FusionBookofMoney.qxd 4/15/11 9:47 PM Page 24 Fusion Membership Benefits Free Checking Free Home Banking Free Bill Pay Free E-Statement Free Direct Deposit Free Visa Debit Card* Free college funding information Free subscription to brass magazine and website (ages 16-21) College Savings CD Young Adult Club Ages 13-22 * Network fee waived, foreign ATM fees may apply. Member Owned Value Driven SM Pittsfield Adams Great Barrington Lee Lanesborough North Adams Williamstown WWW.GREYLOCK.ORG FEDERALLY INSURED BY NCUA