Using Credit Wisely: Curves Ahead

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1 Using Credit Wisely: Curves Ahead

2 What we will cover Types of credit Ownership of credit accounts Credit terms Guidelines for using credit Using credit means greater cost Establishing credit

3 What we will cover Debt-to-income ratio Warning signs of credit crisis Amount of manageable debt Understand the options available to deal with overwhelming debt Best option choices

4 Myth Buster Myth I don t need to check my credit report because I pay my bills on time. TRUE FALSE

5 Free Credit Report Internet : annualcreditreport.com Telephone : Mail : Annual Credit Report Request Service P.O. Box Atlanta, GA Free reports every 12 months, one from each Credit Reporting Bureau.

6 Myth Buster Myth It is up to the credit reporting agency to verify information before they put it on my report. TRUE FALSE

7 Reviewing credit report for errors Check your personal information such as name and social security number Verify your account status information Check your active account dates Look for out of date information

8 Unsecured debt Signature (Personal) loans Credit cards and store cards Payday loans Family and friends

9 Secured debt Mortgage loans Auto loans Pawn shop loans Tax Refund Anticipation Pre-paid credit cards

10 Ownership of credit accounts Individual accounts Joint accounts Authorized user Co-signor or co-borrower

11 Interest rate What is the Annual Percentage Rate or APR? Is the interest rate fixed or variable? How much interest will you pay? Is the interest rate comparable to rates other lenders charge?

12 Other credit terms Default rate Length of loan Finance or interest charge Minimum monthly payment

13 Other credit terms Credit insurance Over limit and late fees Cash advance fee Transaction fee

14 Terms to compare Page 11

15 Guidelines for using credit cards Plan ahead Shop around Pay bills on time Contact creditors for late pay Limit number of credit cards

16 Guidelines for using credit cards Don t overspend Item purchased should outlast payments Use credit infrequently

17 Using credit means greater cost

18 Alternatives to using credit Cash Use debit card Limitations Not as flexible Do not have same rights Not protected under same law Easier to overdraw checking account

19 Building excellent credit history Check credit report (annualcreditreport.com) Develop banking relationship Apply for gas or retail store account Apply for major credit card Apply for secured card Ask for co-signer

20 Keeping Debt Under Control: Avoid detours Keeping Debt Under Control: Avoid Detours 11-08

21 Amount of debt that is right for you

22 Know your debt to income ratio

23 Improve financial control on your own Avoid adding new debt Develop spending plan Reduce expenses Sell assets Increase income Contact creditors

24 Credit Counseling agencies and debt management plans Assess current financial situation Develop spending plan Debt Management Plan (DMP) to repay debt Choose reputable agency

25 Debt consolidation/debt negotiation Debt consolidation Consolidate all debts into one loan payment Temptation to use credit on paid off cards Cost of interest may increase do to longer repayment period Debt negotiation Settle with creditors for lower balance Usually have to pay full balance at time of negotiation May receive IRS 1099 and pay taxes on amount forgiven

26 Bankruptcy Must receive bankruptcy counseling and education Remains on credit report for 10 years Does not eliminate all debt May affect ability to get a job, mortgage/apartment, other credit, insurance

27 Credit repair clinics or services Promise to erase bad credit Costly, ineffective, and risky Cannot erase the truth Can do on your own for free

28 How do I start over? Make a large down payment Pay a higher interest rate Obtain a co-signer or co-borrower Use collateral Secured credit card Establish a banking relationship

29 Myth Buster Myth You need a score above 700 to get a preferred interest rate. TRUE FALSE

30 How is a credit score generated?

31 Summary Good credit is a valuable financial tool Understand terms of credit Using credit costs more Recognize when debt and credit practices reach a crisis

32 Questions? Realize there are options available to deal with overwhelming debt Keep debt to a minimum and pay it off quickly Protect your credit review your credit report at least once a year

33 Improving lives through financial education