Transcript You and Your Money - Virginia Guilford

You & Your Money
Class 3, Part 1 – Your Credit
International Center
at Catholic Charities Community Services
December 2013
Instructor: Virginia Guilford
Class Schedule
• Class 1 - Thursday December 5, 3:30 -5 PM
– Your Income
– Your Taxes
• Class 2 – Thursday December 12, 3:30 -5 PM
– Your Budget
– Your Bank Accounts
• Class 3 – Thursday December 19, 3:30 -5 PM
– Your Credit
– Learning More
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Please Be Aware
• This course does not give you professional
advice
– I am not a lawyer.
– I am not an accountant.
– I am not a banker.
• This course explains the basic concepts and
vocabulary that you need for understanding
work, taxes, budgeting, banking and credit.
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Your Credit
• A lender will generally loan you money if:
– You have a regular, verifiable source of income
– You have a good credit score.
• Sometimes, the lender also wants to have an
extra guarantee that you will pay the money
back
– Security
– Collateral
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Managing Credit
• Good Credit vs Bad Credit
• How Much Debt is Too Much?
– No more than 28% of your gross income should
go to paying all debt for home ownership
(mortgage payment, property taxes and home
owner’s insurance).
– No more than 36% of your gross income should go
to all debt: your home ownership debt plus credit
card debt and auto loans.
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Your Credit Score
• Your credit score is based on five
factors, each weighted
differently.
– Payment History – 35% - how
good you are at always paying
your bills on time.
– Amount Owed – 30% - how
much you owe.
– Length of Credit History – 15% how long you have been using
credit.
– New Credit – 10% - how much
credit have you recently asked
for.
– Types of Credit Used – 10% how many different types of
credit do you have.
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Your Credit Score
• Credit Scores range between 300 – 850
– 780 to 850 – Excellent
– 720 to 780 – Very good, above average
– 650 to 720 – Average, OK
– Under 650 – Not so good, ‘sub-prime’
Improving Your Credit Score
To improve your credit score:
• Pay your bills on time.
• Keep your credit card balances low, ideally,
below 25% of your available credit limit.
• Increase the length of your credit history by
keeping the same credit card for a long time.
• Minimize the frequency of new card requests.
Don’t sign up for a lot of new credit cards.
• Keep a combination of different types of debt
– car loans and mortgages and credit cards.
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Credit Reporting Agencies
Credit reporting agencies are required to
provide you with a free copy of your
credit report once a year.
The three main credit reporting agencies:
• Experian
• Equifax
• TransUnion
The web site Annual Credit Report can show you how to make this request.
www.annualcreditreport.com/cra/index.jsp
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Consumer Credit
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Bank Credit Cards
Bank Debit Cards
Store Credit Cards
Pre-paid Debit Cards
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Bank Credit Cards
• How do Credit Cards Work?
– Accepted widely; many locations in the US
and Worldwide
– You receive your purchase, payment is not
due until the next billing date
– If you don’t pay the whole amount, you will
owe interest on the remaining amount due
• Rewards Cards
– Frequent flier miles
– ‘Points’ good for purchases
– Cash back
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Choosing a Credit Card
• Things to Consider When Choosing a Card
– APR (Annual Percentage Rate) or Finance Charge (Average
for all credit cards is about 14%
– Balance Calculation Method
– Grace Period
– Fees
• Web Sites to Help You Choose a Card
– www.credit.com
– www.CreditCardConnection.org
– www.LowCards.com
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Bank Debit Cards
• Bank Debit Cards are not credit cards.
– Debit cards can be used in many places that take
credit cards.
– The payment is taken immediately from your bank
account.
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Store Credit Cards
• Can only be used in the store that issued the
card.
• Don’t open a store credit account unless you
really need it and will use it.
• Too many store credit card accounts may
reduce your Credit Score.
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Prepaid Debit Cards
• Examples
– Green Dot Visa or MasterCard
– Rush Visa
– Net Spend Visa or MasterCard
• Technically, not credit cards at all
• You purchase the card with cash, and
then use the card until it is empty.
• Most Prepaid debit cards charge a
monthly fee.
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Other Kinds of Credit
• Mortgages
• Auto Loans
• Student Loans
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Mortgages
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•
Down Payment
Term Length
Mortgage Rate – Fixed or ARM
Interest or Principal
Risk of Foreclosure
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Mortgage Down Payment
• Down Payment – a percentage of the value of
the home paid in cash
– The down payment proves to the bank that you
are disciplined enough to be able to save money
– A bigger down payment means less that you need
to borrow with the mortgage
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Mortgage Term Length
• Term Length – the amount of time that you
have to pay back the mortgage
– A mortgage usually gives you a longer time than
other kinds of debt
• 15 years
• 20 years
• 30 years
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Mortgage Rate
• Mortgage Rate – Fixed
– Rate is fixed for the entire term of the mortgage
– Is good if you want to know for sure how much you will have to pay
each month
• Mortgage Rate – ARM
– Rate is adjustable and can change.
– Often starts at a low rate, but can increase
– Some ARMs have a limit on the amount of increase, or when the first
increase can occur
– Might be good if you are only planning to live there for one or two
years
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Mortgages – Interest & Principal
• Interest – the amount you are paying extra as a
charge for the loan
• Principal – the basic amount that you borrowed
• Each mortgage payment will include some payment
for interest, and some payment against the principal.
– The balance between principal and interest in each
payment will change over the life of the mortgage.
– If you ever get extra money, you might make an extra
mortgage payment. But make sure that the payment goes
toward paying off the principal that you owe.
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Mortgages - Foreclosure
• Risk of Foreclosure
• Your home is used for collateral for your
mortgage
• If you stop making your mortgage payments,
or if you don’t make your payments on time,
the bank can foreclose (take back) your home.
– You can no longer live in your home
– You lose all the payments you have made so far
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Auto Loans
• Your Car is your Collateral
– If you miss some car loan payments, or if your payments are late, the
lender can ‘repossess’ the car
– You will lose the car
– You will lose any of the payments you have made up to that date
• Auto Loan from a Bank
– Check out the cost of an auto loan at your bank
• A bank auto loan may have a lower rate
• Knowing what you qualify for helps in negotiations
• Auto Loan from the Car Dealership
– Dealers sometimes offer a special rate, but you won’t know if it is a
good deal or not unless you can compare it to your bank’s offer
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Student Loans
• Types of Student Loans
– Federal
– Private
– Available from a bank, credit union, or directly from
the government
• Repayment of Student Loans
– Repayment does not start until you have left school
– Missing one semester may trigger the start of repayment
• Student Loans and Bankruptcy
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Credit Card Security
• Basic Security
– Keep passwords for credit & debit cards private &
secure, even in your own home.
– Shred bills with account numbers or other
identifying information before discarding
– Review all bills & statements regularly.
– Request credit score reports – you are entitled to
a free report once a year from each of the three
major credit reporting agencies
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Signs of Identity Theft
• Signs You May be a Victim of Identity Theft
– Your bank account has withdrawals that you do not recognize.
– Mysterious charges appear on your bills and statements (especially
credit card bills or cell phone bills).
– You get disruptive phone calls from debt collectors trying to collect on
bills that you don’t recognize.
– You receive “final notice” bills in the mail for products or services
you’ve never bought.
– Your credit report lists an address that you’ve never lived at.
– Your credit report lists credit accounts (such as a credit card or loan)
that you’ve never applied for
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Identity Theft
• If You Think You Are a Victim of Identity Theft
– Contact the Federal Trade Commission (FTC) to report the situation at
(877) 438-4338, or online at
http://www.consumer.ftc.gov/features/feature-0014-identity-theft
– Contact your local Post Office, if you think that your address has been
changed by someone else.
– Contact the Social Security Administration if you think that your social
security number is being used by someone else.
– Contact the IRS if you suspect tax fraud.
– Report your information to the fraud unit of each of the three credit
reporting companies:
• Equifax - (800) 525-6285
• Experion - (888) 397-3742
• TransUnion - (800) 680-7289
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You & Your Money
Class 3, Part 2 – Learning More
International Center
at Catholic Charities Community Services
December 2013
Instructor: Virginia Guilford
Learning More
• This course cannot be the final word about
your finances.
• Banks and Credit Card companies are always
changing.
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Evaluating Information & Advice
• Credible Information
– Believable information.
– Trustable information.
• Disinterested Advice
– Advice from someone who will not be affected by
what you choose to do.
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General Sources
• finance.yahoo.com/personal-finance
• money.cnn.com/pf/
• www.nytimes.com/pages/yourmoney/index.html
• www.forbes.com/
• www.kiplinger.com/
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Financial Institutions & Organizations
• www.bankofamerica.com/studentbanking/
• www.schwabmoneywise.com/home/index.php
• https://online.citibank.com/US/JRS/pands/detail.
do?ID=PlanningOverview
• www.findabetterbank.com/
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Loans & Credit Cards
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www.finaid.org/calculators/loanpayments.phtml
www.annualcreditreport.com/cra/index.jsp
www.credit.com
www.CreditCardConnection.org
www.LowCards.com
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Government Sites
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http://www.fdic.gov/quicklinks/consumers.html
http://www.occ.treas.gov/
www.tax.state.ny.us/
www.irs.gov
www.consumer.ftc.gov
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Instructional Videos
• Bank of America in partnership with Khan
Academy.
• Simple, conversational, self-paced videos
– Understanding Credit
– Home Buying
– Saving and Budgeting
• http://www.bettermoneyhabits.com
You & Your Money Glossary
• Contains simple definitions of the most
commonly used financial terms.
• Log on to www.virginiaguilford.com and
download the Word document from the “Docs
and Links” page. (The PowerPoint
presentations used in this class are also
available there)
• Or send your request to
[email protected]
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