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Overview• Debt to income thermometer• Credit process • Credit reporting agencies• Credit safeguards for consumers• Credit reports, ratings and scores• Establishing a credit history
One of the primary objectives behind the Fair and Accurate Credit Transaction Act (the FACT Act) is to help consumers fight the growing crime of identity theft. The following are some highlights of the Act.
• Free credit reports
• Fraud alerts and Active Duty alerts
• Truncation: credit cards, debit cards, Social Security Number
• Red flags
• Disposal of consumer reports
• Credit scores23
Slide 6 - Things to Establish Good Credit Lesson Reference: Credit, Activity 4 – Overhead 3
THINGS TO DO TO ESTABLISHAND MAINTAIN GOOD CREDIT
What can everyone do to establish and maintain good credit?
1. Pay all bills on time.
2. Avoid late fees.
3.
4.
5.
6.
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Credit - Activity 5
ACTIVITY 5
Credit CardsOverview
• Types of credit cards• Shopping for a credit card• Costs of credit
How much can credit cost? If you make only the minimum payment for an item, here are some examples of what you might actually pay and how long it will take you to pay it.
Credit - Activity 6
ACTIVITY 6
Managing CreditChallenges
Overview
• Warning signs of credit abuse• Credit card reductions• Correcting credit errors• Resources and assistance
CREDIT CARD REDUCTIONS Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment.
Paying the minimum amount due keeps your credit history clean, but it also costs you more.
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CORRECTING CREDIT ERRORS
1. Circle the incorrect items on your credit report.
2. Write a letter to the reporting agency, telling them which information you think is inaccurate. Provide supporting documentation.
3. Send all materials by certified mail.
4. Send a similar letter to the creditor whose reports you disagree with.
5. The reporting agency will conduct an investigation.
6. If negative information is accurate, it can stay on your report for 7-10 years.
Identity theft occurs when someone uses your personal identifying information to either establish credit under your name or to take over an existing account that you established without your authorization.
This information may include:
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• Social Security Numbers
• Name
• Address
• Date of birth
• Mother’s maiden name
• Passwords
• PINs
HOW TO AVOID IDENTITY THEFT
1. Monitor your credit report.
2. Don’t give out personal information to unknown persons or companies.
3. Protect your credit and debit cards.
4. Protect your mailbox.
5. Protect your wallet.
6. Use passwords and PINs that can’t be easily guessed.
7. Use anti-virus software on your computer.
8. Notify your bank when you change your address or phone number.
9. Other suggestions?Slide 2 – How to Avoid Identity Theft
Slide 3 – What to Do Lesson Reference: Credit, Activity 7 – Overhead 2
WHAT TO DO IF YOUR IDENTITY
HAS BEEN STOLEN
If you think your identity has been stolen, take the following steps:
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• Contact the three major credit bureaus (Equifax, Experian, and Trans Union).
• Close accounts.
• Contact all creditors involved.
• File a police report.
• Keep a record of your contacts.
Credit - Activity 8
ACTIVITY 8
Prime and Subprime Lending
Overview
• Subprime and prime lending definitions• Alternative institutions that provide
higher-cost loans• Strategies to improve credit in order to
qualify for prime loans.
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PRIME AND SUBPRIME MORTGAGE LENDING
Prime Prime credit is typically available to an individual who has paid his or her outstanding credit on time.
Subprime A subprime loan is typically available to a person with either no credit history or a damaged credit history and who is considered to be a high-risk borrower. Subprime loans have higher-than-average interest rates.
Slide 1 – Prime and Subprime Lending Lesson Reference: Credit, Activity 8 – Overhead 141
THE PRICE OF SUBPRIME LENDING
How much does a subprime loan cost you? If you are making payments on a car, for example, you could be paying significantly more just for getting a loan with a higher interest rate. This added interest is significant over the life of the loan.
Slide 2 – The Price of Subprime Lending Lesson Reference: Credit, Activity 8 – Handout 142
MOVING FROM SUBPRIME TO PRIME
• Pay bills on time.
• Correct mistakes.
• Pay more than the minimum required.
• Use credit sparingly.
• Work with a reputable nonprofit credit counseling organization.
Slide 3 – Moving from Subprime to Prime Lesson Reference: Credit, Activity 8 – Handout 243
If you currently have a lower credit score and want to
be able to qualify for prime loans in the future, you
should take steps to improve your credit. The
following steps can help.
Credit - Activity 9
ACTIVITY 9
Predatory LendingOverview
• Characteristics and warning signs of predatory lending.
• The key targets of predatory lending.• Common abuses and scams.• Nonprofit organizations that can help
consumers plagued by predatory lending.
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PREDATORY LENDING
• Sell properties for much more than they are worth, using false appraisals.
• Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan.
• Knowingly lend more money than a borrower can afford to repay.
In communities across America, people are losing their homes and their investments because of predatory lenders, corrupt appraisers, mortgage brokers, and home improvement contractors who:
IDENTIFYING PREDATORY LENDING
• Packaging a loan with single-premium credit insurance products
• Repeatedly refinancing a loan in a short period of time
• Charging excessive rates and fees to a borrower who qualifies for lower rates and fees
Predatory lending is not defined by federal law except to the extent that a loan is a high-cost loan and contains one of a fixed list of terms or conditions. Predatory or abusive lending practices can include:
TEN WARNING SIGNS OF PREDATORY MORTGAGES
1. Unreasonably high interest rates
2. Multiple refinancing
3. Unnecessary debt consolidation
4. Balloon payment
5. Negative amortization
6. Door-to-door solicitation
7. Back-dating of documents
8. Large loan broker fees
9. Kickbacks between lender and broker
10. Single-premium credit life insuranceSlide 3 – Ten Warning Signs
• Federal Trade Commission (For federal lending violations involving mortgage and consumer finance companies.) (877) FTC-HELP (382-4357); TTY (202) 326-2502; www.ftc.gov.
• Federal Reserve Board of Governors of the Federal Reserve System — Division of Consumer Affairs. (202) 452-3693; www.federalreserve.gov/pubs/complaints.