© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 1 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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Pursuit of New Credit• Assesses how many

accounts have been opened recently and the type of account

• Includes the number of recently opened accounts as well as requests for new credit

• Opening too many types of accounts in a short period of time has a negative affect

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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New Credit• Additional credit

• Shop ‘Til You Drop in August 2008

• Impact of seeking additional credit• Credit score will

go down

HAS ISABELLA PURSUED ANY ADDITIONAL CREDITSINCE JANUARY 2008?IF ISABELLA ACQUIREDANOTHER CREDIT CARD AND SHOPPED FORAN AUTOMOBILE LOAN, WHAT WOULD HAPPEN TO HER SCORE?

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Types of Credit in Use• Analyzes the types

of credit in use• Credit cards, retail

cards, mortgages, automobile loans, etc.

• Variety is generally good to have

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Credit in Use• Types

• Credit card (revolving)• School loan

(installment)• Private school loan

(installment)• Store cards (revolving)

• Additional forms• Mortgage• Automobile loan

WHAT TYPES OFCREDIT DOES ISABELLA HAVE?

WHAT ARE ADDITIONAL FORMSOF CREDIT SHE MAY SEEK?

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Information not included in a FICO score

• FICO score is only based upon credit use• Information not included is:

• Personal information such as age, where you live, marital status, race, color, religion, national origin, gender

• Employment information• Interest rates charged on accounts• Overall wealth (assets an individual may

have)These variables may still be considered when a lender

reviews a loan application.

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Positive vs. Negative Credit Impact

Positive• Informs the lender

a consumer is:• Financially

responsible• Less risk

• Benefits to the consumer• Lower interest rates• Access to additional

credit

Negative• Informs the lender a

consumer is:• Not financially

responsible• May be a higher risk

• Impact on the consumer• May pay higher interest

rates• May not be able to

qualify for credit• May limit employment

opportunities

IS ISABELLA A POSITIVEOR A NEGATIVE RISK?WHY?

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity - What You Do Makes a Difference

1. Instructor will read a scenario2. Determine if the scenario will have

a positive or negative impact on an individual’s credit report

3. Move to the side of the room representing your selected answer

4. Be prepared to explain “why”

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

NegativeJoey owes the store the money which was agreed upon in the contractMay be responsible for additional feesHe may be referred to collections

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

PositiveAn excellent habit for building a positive report

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

NegativeFernando is responsible for the movie replacement

Could be reported to collections

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

NegativeCassie has probably already been referred to collectionsWill owe for the parking tickets and additional fees

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

PositiveDemonstrated the ability to responsibly use credit

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

NegativeAlthough Corey is paying his bill, he is doing so late!

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

PositiveAll payments were made in timeHaving automatic withdrawals with the money in the account is a good practice

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

NegativeThis is too many inquiries for new credit at one time from a variety of types of stores

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

NegativeA variety of types of credit may be good,however, Jessica’s balances are at the maximum level

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Activity

NegativeJon is delinquent on the account.If he contacts the loan company, they may be able to work with him

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Positive Credit Practices

PositivePractice good banking techniques, such as keeping a checkbook balanced, managing accounts online, and not bouncing any checks

Pay bills consistently and on time

Maintain reasonable amounts of unused credit

Apply for credit sparingly, thus keeping credit inquiries to a minimum

Check credit reports annually and search for errors

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Negative Credit Practices

NegativeHaving non-sufficient funds (NSF) when writing checks, also known as bouncing checks

Routinely paying late on credit cards, utility, and cell-phone bills

Maxing out limits on credit cards

Numerous credit applications in a short period of time

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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When Credit is not established

• Although the following are all positive financial habits, no credit is established when:• Credit is never used• Accounts are not in own name• Cash is paid for all major purchases• Phone and utility bills are paid on time

• It only negatively impacts a score if payments are late

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Building credit history• Important for consumers to build a

credit history to be able to purchase items on credit• For example – house, vehicle

• Having no credit history may be just as challenging to a consumer as having a negative history

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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2009 CARD ActChanged how young adults

receive certain types of credit

To receive a credit card:• Generally must be 21 years of

age or olderUNLESS

• Show documentation of sufficient income

• Have a co-signer

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Establishing Credit• Strategies to build credit

include acquiring and positively managing small lines of credit• Co-signer• Secured Credit card

• Require a cash security deposit to ensure payment of the card

• Small loan from financial institution

If someone is a co-

signer on a an

account, they are

equally as responsibl

e and their credit

report is impacted.

If someone is a co-

signer on a an

account, they are

equally as responsibl

e and their credit

report is impacted.

DOES ISABELLA HAVE ANY CO-SIGNERS?WHAT IMPACT DOES HER ACTIONS HAVE ON THEM?

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Requesting A Credit Report

• One free credit report annually from each of the three credit reporting agencies

• Credit scores are available for a small feeAccess the website: annualcreditreport.com

Calling toll free: 1-877-322-8228

Send a written request:Annual Credit Report Request Service

PO box 105281Atlanta, GA 30348-5281

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Annualcreditreport.com

annualcreditreport.com - Only government sponsored Web site

Other sites may be fraudulent or charge a fee

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Mistakes in Credit Reports

• Important to check each credit report annually to correct mistakes

• Two common errors• Fraud (identity theft)• Mistaken identity

• When a lender reports a transaction on the wrong person’s credit report

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Fair Credit Reporting Act

• Gives consumers the right to review and correct their report

• If a person is denied credit, they have the right to request their credit report from the credit reporting agency• If within 60 days it is free of charge

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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

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Correcting Errors on Credit Reports

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – 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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Correcting Errors on Credit Reports

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 30 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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Credit Repair Agencies

• Offer to help a consumer “fix” his/her negative credit report

• According to the Better Business Bureau (BBB) and the Federal Trade Commission (FTC):• Consumers can do just as good of a job repairing

their credit report errors as a fee based debt repair agency

• Be cautious of debt repair agencies promising instant help because there is no immediate fix for negative credit

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 31 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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Advice Isabella was given

From Angie• Credit ratings improve

as people get older and income increases

• Isabella’s credit score will improve when she:• Moves to a better side of

town• Gets a better interest

rate on loans• Is promoted

From George• Shopping around too

much for credit is not good because it increases inquiries

• Opening new accounts, even if not used, provides evidence of credit worthiness

• Close old accounts, including those with loans not paid on time to wipe the slate cleanWAS THE ADVICE GOOD? WHY OR WHY

NOT?

© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 32 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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• Will Isabella receive her dream job?

• What advice would you give Isabella to improve her credit report and score?• What should she do immediately?• What recommendations would you suggest

she employ in the near future?

CREDIT REPORT DETECTIVES ADVICE