Credit Details 0308 Teens FICO Score is the

Credit Details 03/08 Teens

FICO Score is the best-known credit score n Stands for Fair Isaac Corporation n Scores range from 300 to 850 n Median score: 725 n Good credit: Above 720 n Poor credit: Below 600

FICO Score is based on five factors, each of which makes up a percentage of the total score: n 35% - Payment history n 30% - How much you already owe n 15% - Length of your credit history n 10% - New (recently obtained) credit n 10% - Other factors such as your credit mix

Three Major Credit Bureaus There are three major credit bureaus n Equifax n Experian n Trans. Union

Vantage Score Equifax, Experian, and Trans. Union use FICO to report to lenders. However, in 2006 they also created a new credit scoring formula called Vantage. Score with the following range: n A: 901 – 990 (Best) n B: 801 – 900 n C: 701 – 800 n D: 601 – 700 n F: 501 – 600 (Worst)

Vantage Score Break-Down n 32%: Payment History n 23%: Utilization n 15%: Balances n 13%: Depth of Credit n 10%: Recent Credit n 7%: Available Credit

Free Credit Report As a result of the FACT Act (Fair and Accurate Credit Transactions Act), you are entitled to ONE FREE COPY from EACH credit reporting agency every year. Total of 3 free reports each year (one from each agency) n http: //www. youtube. com/watch? v=7 d. Fb. Nw 3 bp. KE

Twentysomething Facts Some facts about twentysomethings: n Nearly 2/3 carry some debt Student-loan debt average: $14, 379 n Credit card debt average: $5, 781 n Installment debt average: $17, 208 n They are more likely to be late paying debt than other Americans n

More About Twentysomethings Nearly HALF of twentysomethings have: Stopped paying a debt, forcing the lender to sell the debt to a collection agency n n Had a car repossessed Sought bankruptcy protection n teens – lesson 8 - slide 8 -E

More About Twentysomethings A few more statistics: 30%: Worry frequently about their debt n n 40%: Are not saving regularly 55%: Are not saving in an IRA or 401(k) for retirement n 28%: Are helped by their parents to meet major expenses n Many are MOVING BACK HOME after college rather than out on their own n teens – lesson 8 - slide 8 -E

Reminder About Installment Debt What is installment debt? n Debt that has a fixed period You know in advance when the last payment is due n n Examples: n Car payments n Mortgage payments n Opposite of revolving credit n Credit cards use revolving credit

Subprime Credit Cards What is a subprime credit card? A credit card with small credit lines and enormous fees up front n n Subprime lenders prey on: n Consumers with bad credit n Young people with no credit history

Subprime Credit Cards Example of the costs of a subprime credit card: n Initial fee: $20 n Recurring Fee: $19/month n Available credit: $51 n Cost for 1 year: $248 APR (with fees): 486% (!!!!!!!) n

Secured Credit Cards What is a secured card? This type of card is guaranteed by a deposit with a lender who then offers a credit line equal to the mount deposited n If payments are made on time for a prescribed period, you can then qualify for a traditional, unsecured, card with a higher limit n

Two Types Of Debt There are two types of debt: n Dumb debt n Smart debt

Dumb Debt What is dumb debt? It is the debt people incur when they use credit unwisely by running up large credit card balances for the purchases of goods or services that have little or no future value. n Examples: food, gas, movie tickets, etc. n

Smart. Debt What is smart debt? It is the debt people incur when they use debt wisely - by using bank loans to purchase things that will have future value n Examples: a home, car, or college education n

What To Do If You’re Denied Credit If you think the reasons for the denial are valid: Ask the creditor if you can provide additional information or arrange alternate credit terms. n n Apply to another creditor whose standards may be different. n See if you can get a consignor to be approved for the loan Do the things to improve your creditworthiness and then reapply n Examples: pay bills on time, increase income, reduce spending, obtain a secured card n

What To Do If You’re Denied Credit If you are not sure whether the reason for the denial is valid: Ask the creditor to explain why you were denied. n n Review your credit history. If you find your credit history contains errors, take steps to correct the errors. n teens – lesson 8 - slide 8 -E

What To Do If You’re Denied Credit If you believe the reason for the denial is invalid and that the creditor has discriminated against you: Notify the federal enforcement agency whose name you were given by the creditor. n. The federal enforcement agency will investigate and report back to you. n If you can afford it, hire an attorney to file suit against the creditor. If the court determines the creditor did discriminate, the creditor will be required to pay you actual damages plus punitive damages. n n Contact the Better Business Bureau and your state representatives n Cc them on letters to the creditor

Dealing With Billing Errors Fair Credit Billing Act (1974) Sets up a procedure for the quick correction of mistakes that appear on consumer credit accounts. n You can challenge a billing statement for errors such as charges for unauthorized purchases, charges for items that were never delivered, failure to credit a payment, etc. n You must notify the creditor of a disputed item within 60 days. n DO THIS IN WRITING! teens – lesson 8 - slide 8 -G

Dealing With Billing Errors Fair Credit Billing Act (1974) n Creditor must investigate and, within two billing periods, either correct the mistake or explain why the charge is not in error. n You cannot be billed for or forced to pay the disputed amount until the creditor has finished the investigation. teens – lesson 8 - slide 8 -G

Dealing With Billing Errors Fair Credit Billing Act (1974) n If it is determined that you are responsible for the bill, you must be given the usual amount of time to pay it. n Your credit history is protected during the dispute process. n Creditor must supply customers with a statement of their rights: n at the time the account is opened n at least twice a year thereafter

Credit Card Protections prompt credit for payment n. A card issuer must credit your account on the day the issuer receives your payment, unless the payment is not made according to the creditor’s requirements.

Credit Card Protections refunds of credit balances n When you return merchandise or pay more than you owe, you have two options keeping the credit balance on your account n receiving a refund. n

Credit Card Protections unauthorized charges n If you report your card lost before it is used, you cannot be held responsible for any unauthorized charges. n If your card is used before you report it lost, you are liable for $0 if reported within two business days. n After that, you’re liable for no more than $50. 00.

Credit Card Protections disputes about merchandise or services n In some circumstances, you have the right to withhold payment for unsatisfactory merchandise or services.

Identity Theft DVD Time! n We are going to watch a DVD about identity theft

Identity Theft Statistics: n Victims n n About 1, 000 per day Between 350, 000 – 500, 000 per year n There are over 400 ways the Internet can be used to steal your identity n It takes years to build good credit and only ONE MISTAKE to destroy it forever

Identity Theft How to prevent identity theft: n Don’t carry your social security card with you n Carry only one credit card, if possible n Don’t give personal information over the phone n Don’t keep personal information in your car n Shred unused credit card applications n Don’t respond to “phishing” emails.

Identity Theft How to prevent identity theft n Remove your name from marketing lists of the 3 credit agencies n Get your credit report every 6 -12 months and check for strange activity n Cancel and destroy any credit cards you haven’t used in the last 6 months n Those are the most likely targets

Identity Theft What to do if you become a victim: n React quickly and keep a record of all conversations n Six steps to take if you become a victim: n 1. Call the 3 credit reporting agencies and ask them to add a victim statement to your account. n 2. Contact credit card issuers and get replacement cards with new account numbers n 3. Monitor future card statements to make sure it doesn’t happen again

Identity Theft n Six steps to take if you become a victim: n 4. Report the crime to local police and the federal Secret Service n 5. Notify your bank of theft and get new bank account numbers n 6. Avoid commonly used names and passwords n Mother’s maiden name (make up a different name than the actual answer)

Credit Card Do! shop around n Look n Go at various sources. with the best longterm deal

Your Responsibilities read and understand the contract n Read the contract carefully. n Don’t rush into signing anything. n Once a contract is signed, get a copy of it.

Your Responsibilities know your costs n Figure out total price when paying with credit. n Make the largest payments possible n n It is best to pay the entire balance!!! Know the penalties for missed payments. teens – lesson 8 - slide 8 -I

Your Responsibilities know your costs n Don’t be misled into thinking small payments will be easy. n n They are only easy in the short term They are a serious source of stress and financial struggles in the long term

Reading A Credit Card Statement n Reading a Credit Report

The End