CREDIT BASICS AND CREDIT SCORES Personal Finance Mrs.

CREDIT BASICS AND CREDIT SCORES Personal Finance Mrs.

CREDIT BASICS AND CREDIT SCORES Personal Finance Mrs. Bullock 2.6.2.G1 YOUR PRESENT SELF IMPACTS YOUR FUTURE SELF Credit goods, services, and/or money received in exchange for a promise to pay back a definite sum of money at a future date You receive goods or services ______ With the_________to pay back the determined amount of money (usually in small increments plus interest) in the future Credit availability depends on if lenders trust you will pay back the loan as agreed. Take Charge Today August 2013 Credit Basics Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 CREDIT SOURCES Credit card companies

________ mortgage companies Insurance agents _________ institutions There are many sources of credit including Pawn shops _________ dealerships Government What credit sources provide the most favorable terms? Take Charge Today August 2013 Credit Basics Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 WHEN YOU BORROW YOU ARE SPENDING FUTURE INCOME ___________ is typically paid for the convenience of using credit Tobys Automobile

Loan 8% annual interest rate $10,000 loan Are there other alternatives? Such as taking money out of savings or delaying the purchase. Monthly payments for 3 years $1,280.96 paid in interest Take Charge Today August 2013 Credit Basics Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 MANAGING CREDIT RESPONSIBLY EVALUATE THE CONTRACT A contract outlines how and when you will pay the money back Are the terms (such as interest rate) __________________?

Is the loan feasible _______ in the present and in the future? Are the terms _____________ for the life of the loan? Take Charge Today August 2013 Credit Basics Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 AMOUNT YOU BORROW Amount you _________ Total amount should be_______ than 20% of annual net income Monthly payment should be less than 10% of monthly net ___________ Housing payments are not included as a part of the monthly 10% Take Charge Today August 2013 Credit Basics Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 CLOSED-END CREDIT (INSTALLMENT) What it is Features

Loan which the Examples _____________ _______________ must repay the outlining Mortgage amount in a repayment terms Automobile loan specified number of equal payments Personal loan Student loan $313.36 $313.36 $313.36 $313.36 $313.36 $313.36 Take Charge Today August 2013 Credit Basics Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 OPEN-END CREDIT (R E VO LV I N G )

What it is Features Extended line of credit established Loan may be paid _______ (usually monthly) _______________ in a single payment or series of ______________ payments $20 $20 $30 $50 $40 Example Credit card As long as the minimum payment is made, you can pay any amount. $30 Take Charge Today August 2013 Credit Basics Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

2.6.2.G1 TYPES OF ALTERNATIVE CREDIT PAY DAY LOAN Short-term loan that provides ______________ cash by securing a borrowers written check or automatic withdrawal form The loan Total loan: $350 Lender fees: $60 Amount the borrower receives: $290 On the agreed upon date (usually payday) Lender seeks their fees By depositing the check or withdrawing the money If the borrower does not have money in their account Accumulate fees and

possible legal action Or, pay $60 fee again to keep the existing loan outstanding or take out a new loan Take Charge Today August 2013 Credit Basics Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 TYPES OF ALTERNATIVE CREDIT R E N T-TO -OW N Borrower leases ____________ items with the condition that the item will be owned by the renter if the term of rent is completed Purchase a 50 LCD TV valued at $1,890 Pay$39.99 per week for 104 weeks Total paid: $4,158.96 Interest rate paid:

92% Take Charge Today August 2013 Credit Basics Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 TYPES OF ALTERNATIVE CREDIT TI T L E AN D PAWN LOA N The loan Borrower gives the lender their automobile title or personal property in exchange for cash (based on value of item) To get their item back, the borrower must Pay the lender back cash and fees/interest within a _______________ time period If credit terms are not met The lender ___________ the item

Take Charge Today August 2013 Credit Basics Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 TYPES OF ALTERNATIVE CREDIT R EF UN D A N T I C I PAT I O N LOAN Lender gives borrower a loan based upon their __________ tax refund Lender __________ the borrower a fee for this service Borrower authorizes the Internal Revenue Service to deposit money directly into the

__________ account If the borrowers refund was less than the loan amount, they _______ the lender the difference Take Charge Today August 2013 Credit Basics Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 SHOPPING FOR CREDIT EVALUATE THE CONTRACT CAREFULLY! What is the annual ____________ rate? Are there __________? What happens if the loan is not paid back in

__________? What are the consequences of a missed or _____ payment? Do you trust and feel comfortable with the ____________? Take Charge Today August 2013 Credit Basics Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 HOW TO OBTAIN CREDIT Exact process depends on the _______ of credit and lender Shop around with different lenders, read the contract and ASK QUESTIONS!!!! Credit Typical questions _______________

A form _________ information about a credit applicant Personal information _________ requested Information about your ability to repay the credit Credit history check Evaluate your credit report and ___________ The trade-off to no credit history check is often ___________ interest rates and fees

Take Charge Today August 2013 Credit Basics Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 HOW CREDIT REPORTS ARE CREATED Lender Reports a consumers account history to CRAs Credit Report Agencies (CRAs) Keep a record of a consumers account history (credit history) Credit Reports Record, created by a CRA, of an individuals credit history __________ U.S. Agencies: - Equifax - Experian - TransUnion If credit has never been used (or reported) an individual will ______ have a credit report Take Charge Today August 2013 Credit Basics Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

2.6.2.G1 INFORMATION IN A CREDIT REPORT ________ (personal) Information Information provided to lenders when applying for credi t Name Current and previous addresses Telephone number Full or partial social security number Date of birth Employment history Credit ___________ Information Specific information about each credit account you have or have had. Such as Type of Credit, Loan Amount or credit limit, Date, Account Balance, Payment info Four Categories __________ Record Information Information from federal, state and county public court records Includes collection agencies, bankruptcy,

tax liens and foreclosure _________________ Information Requests for an individuals credit report Must be a result of actions by the consumer Or Be a result of a permissible purpose Take Charge Today August 2013 Credit Basics Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 TYPES OF CREDIT Closed-end credit (installment) Definition Borrower must repay the amount in a __________ number of equal payments Features Usually has a _________ outlining repayment terms Examples

__________ loans Education loans ________________ Open-end credit (revolving) Extended as a line of _________ established in advance Borrower chooses how _______ to pay __________ _________ Take Charge Today August 2013 Credit Basics Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 INQUIRY INFORMATION AND LOAN AMOUNTS / CREDIT LIMIT Closed-end: _________ amount of loan. Normally equal payments. Open-end: Credit _________ (maximum dollar amount that can be borrowed)

Potentially Negative Inquiry Information Typically No Impact Inquiry Information Seeking additional credit Impact is reduced if shopping for the same type of loan within a 14day period. Inquiries not initiated by you Inquiries not related to credit Checking your own report Take Charge Today August 2013 Credit Basics Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 TYPES OF LENDERS WHO REPORT TO CRAS ______________ institutions ___________ card companies Mortgage and ______________ companies

Retail stores that offer _________ accounts Lenders usually report all information, positive and _____________ Take Charge Today August 2013 Credit Basics Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 TYPES OF DATA FURNISHERS WHO REPORT TO CRAS ______________ Cell phone companies Medical providers (payment information only) ___________ accounts Typically only report when money is

_______ to them CRAs are encouraging_____________payment information to be reported to help consumers build a positive credit history. Take Charge Today August 2013 Credit Basics Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 Medical information about where the person was treated and for what Buying _________ Race & _________ Information Not in a Credit Report Religion & _________ __________ background Non-credit depository

institution accounts Take Charge Today August 2013 Credit Basics Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 YOUR PRESENT SELF IMPACTS YOUR FUTURE SELF Always Accounts in good standing 2 years Inquiries Some items remain on your credit report longer than others 7-10 years Public record information 10 years Closed accounts in good

standing 7 years Late or missed payments Take Charge Today August 2013 Credit Basics Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 CREDIT SCORES Most common scoring systems are produced by ________ reporting agencies: Scoring System Score Range FICO 300 - 850 VantageScore 501 - 990 Generally, higher score = higher ________ of credit repayment How the score is calculated depends on the credit scoring model. It is a mathematical number created to help a lender evaluate the risk associated with lending a consumer money Take Charge Today August 2013 Credit Basics Slide 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 CREDIT SCORE IMPACT Credit history helps a lender determine the

terms of credit granted EXAMPLE: $15,000 LOAN (3 YEAR FIXED AUTOMOBILE) Interest Rate Monthly Payment 3 Year Amount 730 6.16% $457 $16,452 660 8.77% $475 $17,100 590 14.43% $516

$18,576 FICO Score $2,124 can be saved over the lifetime of this loan because of a good credit score! Take Charge Today August 2013 Credit Basics Slide 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 CREDIT HISTORY AFFECTS MORE THAN CREDIT __________ Rates ___________ Public Utility __________ ___________ Take Charge Today August 2013 Credit Basics Slide 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 POSITIVE CREDIT HISTORY Pay your bills consistently and

on ________ Positive Credit History ________ Credit Score Maintain _____________ amounts of available credit Check your credit report ____________ Do not have too many of one _______ of account Apply for _____________ sparingly Have a ____ of different types of credit accounts Take Charge Today August 2013 Credit Basics Slide 26

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 STRATEGIES TO BUILD CREDIT Acquire and positively manage _________ lines of credit Small closedend loan From a _____________ institution Set up automatic ______________ Credit card with a cosigner Co-signer person who is ____________ responsible for paying back debt Secured credit card Requires a _________security deposit Ensures the credit card company will be ____________ Authorized user on a credit card

Authorized user is not _________responsible for the debt but they will build a credit history Having no credit history may be just as challenging to a consumer as having a ____________________ history Take Charge Today August 2013 Credit Basics Slide 27 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 REQUESTING A CREDIT REPORT ____________credit report annually from each of the three credit reporting agencies Important to request your report even if you have not ______ credit If __________ credit, the applicant can request a free copy within ______ days Only government-sponsored free website Your credit score must be ordered separately and could cost you a _______.

Take Charge Today August 2013 Credit Basics Slide 28 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona 2.6.2.G1 IF AN ERROR IS FOUND Contact the _______ & company that provided the incorrect information Credit agency has ____ days to investigate If error found, correct information must be provided to all ________ CRAs If dispute is not resolved, consumer may add

a_________ _ statement to their report Take Charge Today August 2013 Credit Basics Slide 29 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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