Questions to Think About:

What are the different types of credit and why is credit important? What are its advantages and disadvantages?

What is a credit report? How do you read it and evaluate it? How can you help a client establish or repair credit?

How does credit impact future financial goals?

Learning Objectives:

Understand the concept and definition of credit Compare the advantages and disadvantages of using credit Identify types of credit Know creditors’ criteria for granting credit Know how to read and evaluate a credit report; understand the importance of

doing so (links to identity theft) Demonstrate understanding of how to correct or improve a credit report Understand the criteria to establish a credit score; understand the impact of a

credit score

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REAL COST OF CREDIT Terminology

Interest : The amount a borrower pays to use someone else’s money

Annual Percentage Rate (APR) : The annual cost of using the credit for the year; the figure includes interest, transaction fees and service charges if any. This is the charge when a borrower carries a balance

Annual Fee : The cost of having the use of a credit card, or having access to the use of the credit per year

Finance Charge : This is the actual amount the borrower pays for using the credit for the year

Origination Fee : The cost of setting up a loan; this usually applies in the case of a mortgage or real estate loan

Loan Term : The period of time over which the borrower has to repay the loan

Late Fees : The penalty that a borrower must pay if a payment is made late. This is in addition to the interest that is calculated.

Minimum Payment : Usually at least 2% of the outstanding balance. Most creditors will set a minimum of $15 or $20/ month. Minimum payments have been rising recently.

Grace Period : The number of days that a borrower will not have to pay interest. A good strategy is to pay off the balance within the grace period whenever possible.

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YOUR FREE CREDIT REPORT

Mail Write letters to the three credit bureaus: Experian, Equifax, and

TransUnion requesting a free copy of your credit report. Your letter should include your:

o Full name including middle initial and suffix (Jr., Sr., II, etc.)o Date of birtho Social Security numbero Current mailing addresso A prior address if your current address is less than 2 yearso If you are married, separate requests should be made for husband

and wife.o Proof of mailing address by copy of 2 utility bills.

Telephone Internet

www.annualcreditreport.com

CREDIT REPORTING

AGENCYADDRESS TELEPHONE

NUMBER WEBSITE ADDRESS

EXPERIANEXPERIAN

P.O. Box 2104Allen, TX 75013

To obtain a report

1-888-397-3742WWW.EXPERIAN.COM

EQUIFAX

EQUIFAX INFORMATION SERVICES LLCP.O. Box 740241Atlanta, GA 30374

To request a report

1-800-997-2493Customer Service1-800-685-5000

WWW.EQUIFAX.COM

TRANSUNION

TRANSUNION CONSUMER SOLUTIONS

P.O. Box 2000Chester, PA 19022

To request a report

1-800-888-4213Customer Service1-800-916-8800

WWW.TRANSUNION.COM

PLEASE NOTE: Each person is entitled to one free copy of a credit report from each one of the 3 credit bureaus each year. If you have already received a free copy from any one or all credit bureaus FOR 2010, you may bring that report so you do not have to pull another report. Credit scores are not free.

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REVIEWING A SAMPLE CREDIT REPORT

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Merged Report – Shows information from all 3 bureaus

Summary page

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Check to make sure addresses are yours

Check employer information Aliases – maiden name,

nicknames, adopting name upon citizenship, name changes

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Scores given by each company may vary based on scale and information available to them

Merged credit score was 615 when information from all 3 reports aggregated

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STRATEGIES FOR CREDIT REPAIR

Immediately report any errors Start paying on time Severely delinquent payments – talk to creditors Obtain secured credit card

To dispute or correct credit reports, make sure you utilize your 100-word statement Write to the Credit Bureau that supplied the information

In your letter be sure to include: Full name including middle initial and suffix (Jr., Sr., II, etc.) Date of birth Social Security number Current mailing address If applicable, the name and account number of the creditor and item in

question The specific reason for your disagreement with the disputed item Your signature

Passage of Time: Negative information reported for 7 years Bankruptcies reported for 10 years Criminal records – no time limit

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Factors impacting score: Balance on

revolving loans too high

Short credit history Too many active

accounts with balance

Not enough Installment Debt Experience

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© January 23, 2013Cities for Financial Empowerment Fund All rights reserved.

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