personal finance: all about credit reports and credit scores by @phroogal
Post on 22-Nov-2014
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DESCRIPTIONAll about credit reports and credit scores. How to establish, maintain and repair credit reports and credit scores. Learn the ins and outs of credit reports with tips and tools to maintain a healthy credit report and increase credit scores.
- 1. All About Credit Reports and Credit ScoresHow to Build, Maintain and Repair Your CreditJason Vitug@jasonvitug
2. Credit rating is a reflection ofhow you manage credit. 3. Dont like whatyoure seeing?----You have the powerto fix it. 4. Introduction The plan is to introduce credit reports and creditscore fundamentals. The goal is to understand the important role ofcredit and how it impacts your financial future. The takeaway is to know important concepts,factors that impact credit scores, how toestablish, maintain and repair credit, and knowavailable resources.www.phroogal.com@phroogal 5. Credit 1011. Consumer Rights2. Credit Basics3. Advantages andDisadvantages ofCredit4. 3 Cs of Credit5. Types of Credit6. Credit Vocabulary7. How Lenders UseCredit8. The Cost of Creditwww.phroogal.com@phroogal9. Why Credit is Important10. Credit Bureaus11. Credit Reports12. Credit Scores13. Establish Credit14. Maintain Credit15. Rebuild Credit16. Dispute InaccurateInformation 6. Consumer Rights Fair Credit Reporting Act The Fair Credit Reporting Act (FCRA) is a federal law thatregulates how consumer reporting agencies use yourinformation. Fair and Accurate Credit Transactions Act FACT Act contains provisions to help reduce identity theft,such as the ability for individuals to place alerts on theircredit histories if identity theft is suspected, or if deployingoverseas in the military, thereby making fraudulentapplications for credit more difficult. Further, it requiressecure disposal of consumer information.www.phroogal.com@phroogal 7. Credit Basics Credit Rating A creditors evaluation of a persons willingness and ability to pay debts asjudged by character, capacity, and capital; a mathematical model used bylenders to predict the likelihood that bills will be paid as promised. Credit History Another term for the information on your credit report. A record of how aperson has borrowed and repaid debt. A record of an individual that lists alldebts and the payment history for each. Credit Report The report generated from credit history is called a credit report. Lenders usethis information to gauge a potential borrower's ability to repay a loan. Credit Score A credit score is a numerical representation of your credit profile. It makes iteasier for lenders to make loan decisions.www.phroogal.com@phroogal 8. Advantages of Using Credit Purchase Power and Ease of Purchase Credit can make it easier to make purchases. If you don't like to carry large amounts of cash with youor if a company doesn't accept cash purchases (for example most airlines, hotels, and car rentalagencies), putting purchases on a credit card can make buying things easier. Provides the ability to make large ticket buys such as auto or home purchases. Protection of Purchases For instance, credit cards may also offer you additional protection if something you have bought islost, damaged, or stolen. Both your credit card statement (and the credit card company) can vouchfor the fact that you have made a purchase if the original receipt is lost or stolen. In addition, somecredit card companies offer insurance on large purchases. Building a Credit Line Having a good credit history is important, not only when applying for credit cards, but also whenapplying for things such as loans, rental applications, or even some jobs. Having a credit card andusing it wisely (making payments on time and in full each month) will help you build good credit. Emergencies Credit cards can also be useful for emergencies. While you should avoid spending outside yourbudget (or money you don't have), sometimes emergencies (such as your car breaking down or floodor fire) may lead to a large purchase (like the need for a rental car).www.phroogal.com@phroogal 9. Disadvantages of Using Credit Lead to Debt The biggest disadvantage of credit is that they encourage people to spend money that they don'thave. While this may seem like 'free money' at the time, you will have to pay it off and the longer you wait,the more money you will owe. Credit card companies charge you interest each month on the money you have borrowed. Pay Interest Rates Interest is the amount you pay to carry a balance and increases the total cost of the items purchases. Creditors charge you interest on each balance that you don't pay off at the end of each month. How creditors make their money and this is how most people get into debt and possibly bankruptcy. Overspending People often use credit to buy things they cant afford. Sometimes friends or flashy advertisingpressure us to buy things we know we shouldnt.www.phroogal.com@phroogal 10. The 3 Cs of Credit Character From your credit history, lenders may decide whether youpossess the honesty and reliability to repay debt. Creditors willconsider if youve used credit before, paid your bills on timeand how long youve been in your residence or employed. Capital A lender will want to know if you have valuable assets such asreal estate, personal property, investments or savings to repaydebt if income is unavailable. Capacity Referring to your ability to repay debt. Lenders will look on howlong youve worked in your occupation and likelihood it will leadto higher income in the future.www.phroogal.com@phroogal 11. Types of Credit Available Fixed Credit Personal Loans Home Loans (Mortgages, Home Equity) Student Loans Variable Credit Credit Cards Personal Lines of Credit Home Equity Line of Credit Secured Credit Mortgages Auto or Recreational Secured Credit Cards Secured Loanswww.phroogal.com@phroogal 12. Credit Vocabulary Annual Fee A yearly charge by a lender for the right to use a line of credit, such as a creditcard, home equity line of credit or personal credit line. Finance Charge The total cost of credit a customer must pay on a consumer loan, includinginterest. The Truth in Lending Act requires disclosure of the finance charge. Grace Period Grace period in reference to a loan is the period of time where paymentsmaybe made without interest accruing. The amount of time is determined bythe issuer of the loan. Minimum Payment The minimum amount that a lender requires you to pay toward your debteach month.www.phroogal.com@phroogal 13. Credit Vocabulary Billing Cycle The time interval between the dates on which regular periodic statements are issued. Credit Limit The maximum amount of credit that is available on a credit card or other line of credit account. Cash Advance A cash loan requested from your creditor, usually by using your credit card at an ATM machine orthrough a loan advance on your paycheck. These loans include special interest rates charged on theamount of the advance. A cash advance fee typically applies. APR A measure of the cost of credit, expressed as a yearly rate. It includes interest as well as othercharges. Late Payment Fee A fee charged if your payment is received after the due date.www.phroogal.com@phroogal 14. How Lenders Use Credit Rating A lender requests credit reports from one ofthree credit bureaus. In addition to the report, a lender will request acredit score to help with the evaluation of yourloan application. The report informs lenders on the likelihoodyoull repay the loan in full. The better your credit report and higher yourcredit score, the more likely you will be approvedand the lower interest rate you may be offered.www.phroogal.com@phroogal 15. The Cost of Credit If you don't pay off your credit card balanceevery month, the interest assessed on youraccount means youre paying more for thepurchase . The longer you hold onto debt means youllalso be paying more. Without credit or having a low credit scoremeans youll pay more to finance purchases.www.phroogal.com@phroogal 16. Auto FinancingSample $25,000, 60-Month New Car Loan PurchaseCredit Tier APR Monthly Pmt Total Interest PaidA+ 5.75% $475 $4,327A 6.25% $484 $4,669B 8.00% $513 $5,888C 11.25% $547 $8,236D 14.25% $598 $10,498E 17.00% $616 $12,651 A+ to E-paper difference in payment: $139 a month. A+ to E-paper difference in total interest paid: $8,324!www.phroogal.com@phroogal 17. Mortgage FinancingSample $250,000, 30-Year First Mortgage LoanCredit Tier APR Monthly Pmt Total Interest PaidA+ 5.75% $1459 $275,216A 6.25% $1539 $304,145B 6.75% $1622 $333,738C 7.25% $1705 $363,959D 8.50% $1922 $442,022E 9.50% $2102 $506,768A+ to E-paper difference in payment: $643 a month.A+ to E-paper difference in total interest paid: $231,552!www.phroogal.com@phroogal 18. Why is Credit History Important? Credit history is reviewed by different groups toevaluate your financial behavior: You Banks and Credit Unions Credit Card Companies Mortgage Lenders Cell Phone Companies Insurance Companies Landlords Collection Agencies State and Local Child Support Enforcement Agency Employers (must have written consent)www.phroogal.com@phroogal 19. Why Do Employers Check Credit? Some employers review credit reports as part of theirhiring process. An employer can get a copy of your credit report only ifyou agree. A credit bureau cannot provide information about youto your employer or prospective employers withoutyour written consent. Credit report seen by employers is not the same creditreport seen by lenders and does not include a score. Employers cannot check your credit scores. Employment based inquiries do not impact creditscores.www.phroogal.com@phroogal 20. The Credit BureausExperianP.O. Box 9595Allen, TX 75013888-397-3742www.experian.comwww.phroogal.com@phroogalEquifaxP.O. Box 740241Atlanta, GA 30374800-685-1111www.equifax.comTransUnionP.O. Box 2000Chester, PA 19022800-916-8800www.transunion.com Credit bureaus are private companies and not government agencies thatcollect information on individual credit history and financial relationships. A credit bureau may collect information from banks, credit unions,financing companies, credit card companies and others who may providecredit to you. Credit Bureaus do not share information with each other. 21. Whats in a Credit R