Transcript Slide 1

Credit Counseling & Repair
The National Economics
Department
Financial Freedom Campaign
NAACP
Agenda
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What is Credit?
Pros & Cons
Types of Credit
Understanding Financial Institutions
Importance of Building Credit
Credit Building V.S. Non Credit Building
What is Predatory Lending
Understanding Credit Scores & Credit Reports
What is CREDIT?
 Credit: Money you
borrow and plan to
repay.
It allows you to make a
purchase without having to
pay the entire price at once.
 Interest: Is the cost of
borrowing money.
Know the FACTS
Pros
Cons
Credit Costs $$$
• Helpful for
Emergencies
Credit =Temptation
• Its Convenient
Easy to lose track
• Increased purchasing
power
Types of Credit
Revolving Credit: Allows you to
borrow money at any time up to
a set limit. The most common
types are credit cards.
Installment Credit: A loan that must
be repaid over a specific period of
time. This type of credit is
common for larger purchases
such as a home, car, or education.
Non-installment or Service Credit:
Allows you to pay for a used
service at a later date usually
without an interest charge. (i.e. A
utility bill)
Types of Credit Continued
• Secured Credit: Requires you to provide
something of value to guarantee that you will
repay your debt.
It is usually used for installment loans. If you fail to repay,
the lender takes your item as repayment
• Unsecured Credit: Does not require a
guarantee (collateral)
Understanding Financial Institutions
• Financial Institutions: Establishments that
provide services, such as investments, loans and
deposits.
• Some offer Depository Services, which means
that you are able to open a checking and savings
account
• Federal Deposit Insurance Corporation (FDIC) &
National Credit Union Share Insurance Fund
(NCUSIF) = Government backed insurance for
your funds
The Importance of Building Credit
 Its hard TO GET credit if you HAVE NOT
ALREADY ESTABLISHED a credit history.
 Without a history, Lenders can’t tell if
you are RESPONSIBLE with your money
(by paying your bills on time, etc.) or
not.
 Building credit is NECCESSARY to proving
your creditworthiness.
Ways To Build Your Credit
• Apply for a secured
credit card
– Your credit card limit will
match the amount you
have deposited into an
account.
• Use a co-signer
– The co-signer’s good
credit will serve
somewhat like an
insurance for your credit
behavior
• Use retailer programs
– (i.e. Gas Station Cards,
etc) They are generally
easier to qualify for and
can help you to establish
a credit record.
• Get a credit card with a
reputable credit
building institution
– An institution that will
protect and help you to
grow your money.
Credit Building Lending
Mission
Credit Building Advantages
•Protects your money
•The money you deposit in a bank is 100% insured (up to $250,000) by the
Federal Deposit Insurance Corporation (FDIC) which means if anything ever
happens to the bank, your money will be returned to you
•Helps increase your money
Banks
These for-profit
financial institutions
are the largest source
of deposits and credit
in the economy.
•Generally, when you open a deposit account with a bank, you earn money
called interest
•Banks offer different interest rates on accounts, but the longer you keep
your money in your account, the more interest your account earns
•Offer helpful services
• i.e. Special Savings Plans for College, or Special Rates on a Car loan, etc.
•Bank accounts make you think twice about how
you spend your money
•Having to make a trip to the bank, write checks, or use the ATM becomes
a conscious decision to spend
•Your money’s there when you need it, but by thinking about your
purchase, you can save more, ultimately, by making wiser decisions
Credit Building Lending
Mission
Credit Building Advantages
Credit Union benefits include the following:
Credit Unions
• Typically offer free accounts with no
minimum balance requirements.
These nonprofit cooperative
financial institutions exist to
serve their members’
financial needs.
•Interest rates on savings, certificates of
deposit, and some checking accounts are
often higher than those offered by banks.
•Also, interest charged for loans and credit
are often lower.
•In fact, some credit unions are regulated
such that the interest rate on loans and
credit cards must not exceed a certain
rate.
Non- Credit Building Lending
Mission
Credit Products & Terms
Alternative Finance
Services
•Alternative Finance Services
usually charge higher interest rates
and more fees then Traditional
Lenders.
•Loans are often short term
These for- profit businesses make
consumer and commercial loans.
They focus on servicing customers
with poor credit histories
Common Examples:
Payday Loans
Car Title Loans
Tax Refund Anticipation Loans
What is Predatory Lending?
Predatory Lending Cont.
Take the following steps to avoid predatory lenders
• Turn away loan offers from anyone who calls you on
the telephone, comes to your door or send you emails
without invitation.
• Be wary of high pressure sales pitches, such as claims
that an offer is only good for a limited time
• Consult with a local nonprofit or consumer credit
counseling agency whenever possible
• Avoid loans that include extras that you do not need
• Try to read all document’s before signing
• Investigate Interest
Ask yourself….
• Is this purchase a need or a • How will this credit
want?
• Do I really need the item
right now, or can I wait
until I have the cash?
• How much do I have to
pay to borrow this money?
payment affect my
household budget each
month?
• Will I still have this item
when I finish paying for it?
• Should I go home and
sleep on my decision
before using my credit to
make a purchase?
The Credit Score
• A Credit Score: is used to predict how
likely an individual is to repay a new
loan based on the financial institutions
experience with consumers.
– There are various computer models used. In
general the computer model assigns points to
information on a credit report
• A FICO Score: The credit scores used by
the credit bureaus are produced from a
software developed by the Fair Isaac
and Company.
U.S. Credit System
Creditors
Collection
Agencies
Public Records
Credit
Bureaus/Inquiries
Data Furnishers
TransUnion
Equifax
Experian
The FICO Score:
Factors that influence credit
• 35% Payment History
• 30% Amounts Owed
• 15% Length of Credit
History
• 10% New Credit
• 10% Type of Credit in Use
Racial Credit Score Disparities
Racial Disparities in Credit Scores
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Fair Isaac: The percentage of
individuals from high minority areas
with relatively low credit scores was
twice as large as the share of
individuals from other areas
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Federal Reserve: Fewer than 40% of
consumers who lived in highminority areas had credit scores over
701, while nearly 70% of consumers
who lived in mostly white
neighborhoods had scores over 701
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Harvard’s Joint Center for Housing:
Median credit score for whites in
2001 was 738, but for Blacks it was
676 and Hispanics it was 670
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Freddie Mac: Blacks were three
times as likely and Hispanics twice as
likely to have FICO scores below 620
as whites
The Credit Report: Explored
• Credit Report: A record of how you have
paid your credit card debt and other
loans.
It reflects the following:
– How much debt you have
– If you’ve made your payments on time
– Whether or not you’ve paid back your loans
The Credit Report: Explored
Credit reports are
complied by national
credit reporting agencies
called credit bureaus
• There are three Credit
Bureaus:
– TransUnion
– Equifax
– Experian
Credit Report: Explored
Note:
• There are multiple credit
scores available for you.
• Different scoring models
are used with different
institutions (Vantage
Scoring System v. FICO
Scoring system).
• The FICO score is the
most commonly used
one, as it is the one used
by the three credit
bureaus.
The Credit Report: Explored
Information typically included:
• Indentifying Information
– Name, Address, Social
• Credit Information
– Dates opened, credit limits
• Public Record Information
– Bankruptcy, Foreclosures
• Inquiries
– Others who looked at report
Common errors on the
report
• Duplicate Information
• Uninvited Inquiries
• Items that should no longer be
listed on your credit report
Want GOOD Credit???
• Tip 1: Pay your bills on time
• Tip 2: Contact your lenders
immediately if you foresee a
payment problem
• Tip 3: Borrow at a minimum
• Tip 4: Do not overdraft
accounts
• Tip 5: Understand loan
terms/agreements before
signing
Protecting Your Finances
 Keep the original copies
of your documents in a
safe place.
 Keep your important
computer files safe.
 Make copies of all of
your important
documents.
 Keep a copy of your
important papers in safe,
or storage that is secure
and outside of the home,
in case of an emergency
 Monitor your accounts
regularly
Recognizing Credit Repair Scams
YOUR RIGHTS
• Each of the nationwide consumer reporting companies
Equifax, Experian, and TransUnion — is required to
provide you with a free copy of your credit report once
every 12 months, if you ask for it.
• It doesn’t cost anything to dispute mistakes or outdated
items on your credit report.
• No one can legally remove accurate and timely
negative information from a credit report
Where To Get Help
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Annual Credit Report: www.annualcreditreport.com
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Experian:
www.experian.com
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Equifax:
www.equifax.com
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TransUnion: www.transunion.com
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National Foundation For Credit Counseling: www.nfcc.org
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Federal Trade Commission: Choosing a Credit Counselor www.ftc.gov
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Department of Justice: List of Credit Counseling Agencies- http://1.usa.gov/2P1Bq4
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Better Business Bureau: See if there are any alerts on the organization you are considering
www.bbb.org
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Association of Independent Consumer Credit Counseling Agencies: www.aiccca.org