Credit Made Simple Presented by the Financial Aid Office and the Medical Alumni Association.

Credit Made SimpleCredit Made SimpleCredit Made SimpleCredit Made Simple

Presented by the Financial Aid Office and Presented by the Financial Aid Office and the Medical Alumni Associationthe Medical Alumni Association

What is credit?• “Credit” is a promise to pay later, under

designated terms, for goods and services

• Your “credit” means your credit file, or credit report

• There are three credit reporting agencies: Equifax, Experian, and TransUnion– Each agency keeps a separate credit file for you,

and each may have different information– Each agency has its own scoring model and its own

score for you, but all scores range roughly from 350-850

What is a credit report?• A credit report is the collection of your credit

history and records maintained by a credit reporting agency

• The report includes personal identifying information, as well as a history of your credit usage and payments– Negative information (such as late payments) stays

on for seven years, except bankruptcy - which can stay on your credit report for up to 10 years

• Get your credit report for free at

www.annualcreditreport.com

How to Read a Credit Report

Every credit report will look different!

The personal information section lists your name, social, date of birth, addresses, employer, and any consumer statements. It is common to have errors and misspellings in this section of your credit report.

This example is from Equifax and is available on their website.

Summary

The summary section shows all of your accounts, listing the total balances and how many accounts are past due.

SummaryThe summary section will give a list of your accounts and their information in short format.

Your credit report may also have a more detailed summary section, where accounts are listed by status: Open, Closed, In good standing, Past Due, etc.

Account Detail

Closed accounts will continue to show on your credit report for seven years.

Your credit report will then show details for each credit account that you have, whether it’s open or closed. The account details show the type of loan, your balance, loan terms, payment amounts, and payment history.

Revolving Account Detail

Revolving accounts, such as credit cards, will show the current balance, the “high credit” (highest balance ever held), and the credit limit.

It is not unusual for your payment history to be missing for some months. A payment status of “NR” (Not Reported) is fine.

InquiriesAfter your account information, your credit report will show all of the inquiries about you.

There are two types:Hard inquiries: Inquiries into your credit history as a result of you attempting to obtain credit.

Soft inquiries: Not caused by you seeking credit. Could be a promotional inquiry from a credit company, or one of your existing creditors monitoring your credit report.

Other information

Your credit report will also list any collections and public records such as judgments, bankruptcies, and liens.

Errors on your credit reportIf you find an error:• Contact the creditor and ask them to fix it

– They have 30 days to respond

• File a dispute with the credit bureau– Send the credit bureau documentation when possible

• If it’s corrected, the bureau must send you a copy of your new report

• If it’s not, the bureau must tell you who investigated the error, and you can add a statement to the report

• Mortgage companies can use a rapid rescoring service to correct errors

What is a credit score?• In theory, it is an estimate of the likelihood

you will pay your debt• Formula was created by the Fair, Isaac

Company• The majority of scores range from 500-850,

yours will be different at each reporting agency

What determines my score?

Payment history -35%

How much youowe - 30%

Credit age - 15%

New credit - 10%

Credit types - 10%

Estimate your credit score: http://money.msn.com/credit-rating/your-credit-score.aspx

The exact formula is a secret, but this is the overall breakdown:

Are credit scores accurate?• Mostly – that’s why creditors use them.

PERCENTILE   % OF PEOPLE  SCORE DELINQUENCY

RATE 

          2nd           2%   300-499                87%

          7th           5%   500-549               71%

          15th           8%   550-599               51%

          27th           12%   600-649               31%

          42nd           15%   650-699               15%

          60th           18%   700-749               5%

          87th           27%   750-799               2%

          100th           13%   800-850               1%

Source: creditscoring.com

Why do I need good credit?• Your credit history is one of the things a lender

looks at when evaluating an application for credit, along with your income, assets, and other debt

• A good credit history makes it easier to get new credit when you need it

• Having good credit will get you the best interest rates on new credit, including mortgages and car loans

– Generally a score over 720 will get you the best rates

• Many landlords and employers check credit

• Utility companies and insurance companies may check your credit

How can I build my credit?Build good credit by paying your bills on time.• If you have no credit history, there are several ways to

begin:– Get a credit card (use it wisely!)

• May have to start with a secured credit card• A debit card or check card won’t do it

– Get added as a joint owner to your parents’ or spouse’s existing credit card

– Apply for a credit card at a local store– Have your parents or spouse co-sign for a credit

card or loan – keep in mind, this legally obligates them to pay the loan back if you don’t!

http://www.ftc.gov/gettingcredit/

How to improve your credit

There is no quick fix!

• Get a copy of your credit report– Look at what is helping and what is hurting, and

check for errors

• Pay off your debt

• Pay all of your bills on time, even if it’s just the minimum payment

• Don’t apply for new credit

• Use no more than 30% of your available credit

How to hurt your credit• Pay Late

– Late payments remain on your credit report for seven years. Bankruptcies remain for ten years.

– The later the payment, the more it hurts

• Lose touch with your lenders• Fail to correct mistakes on your report• Close old accounts• Fail to pay traffic and parking tickets and

fines• Co-sign for a loan• Settle a debt for less than you owe

Things that don’t matter• Demographic information on your credit

report• Your race, gender, or age• Your job, salary, or geographic area• Interest rates on existing accounts• Consulting a credit counseling service• Checking your own credit• Promotional and other “soft” inquiries• Multiple inquiries for a mortgage or car loan

within 14-45 days: shop around!• Getting married

Credit Cards• You only need one to build your credit• Use it and pay it off every month (your usage is

still reported to the credit bureaus)• Avoid annual fees if possible• Avoid fees and rate increases for going over the

limit or paying late• If you do carry a balance: Try to negotiate

better rates• Safer than carrying cash• Might cause you to spend more• Read the fine print for both terms and

protections you might not know about

2009 Credit Card Leglisation

• Credit card companies must wait until you’re at least 60 days late to impose a penalty interest rate

• Regain previous rate by paying on time for 6 months• No other retroactive rate hikes• No more rate hikes for being late on another

account• Must give 45 days’ notice before raising rates on

new balances• Must send out bill at least 21 days before due date• Payments made by 5 p.m. on due date are on time• If payment date is on a weekend or holiday, next day

is considered on-time • Late fee no more than $25 (unless late twice in 6

months)

2009 Legislation, cont’d• Must credit payments to highest-rate debt first• New limits on increasing the minimum amount

due• Borrowers can now decide whether to be allowed

to go over their credit limit, only 1 over-limit fee per cycle, and the fee cannot exceed the amount over the limit

• Non-penalty fees may not equal more than 25% of the limit

• Inactivity fees have been banned• No more than one fee per transgression• Students under 21 with no income need co-signer• New rules regarding gift cards (like Visa gift card)

Keep in mind:• Only payments over the minimum go to

highest-rate debt first• Credit card companies have to get money

somehow• Look out for new fees• New transparency laws only help if you read

your mail– Read everything, OPT OUT to changes

• Switch cards if necessary – shop around

Student Loans• Stafford loans have no credit check• PLUS loans require a basic credit check• UVA School (need-based) loans have no credit

check• Student loans show on your credit report as

an installment loan, similar to a mortgage or car loan, but their existence generally doesn’t help or hurt

– While you’re in school, amount due is “0”– Paying late can hurt your score– Once you’re in repayment, will help build

history– These loans will affect your debt-to-income

ratio once you’re in repayment

Using credit to your advantage

• Your goal should be to pay no interest

• Many credit cards offer “points” or “miles” or cash-back for every purchase

• Good credit can get you a better rate on your car insurance

• Good credit may mean you do not have to pay a deposit to your utility companies

• Using a credit card, especially on large purchases, protects you

• Using a credit card may help you with budgeting – or it may hurt you!

Credit PitfallsBeware:• Easy credit • High credit limits and interest rates• Free stuff and discounts for signing up• Low- or no-interest promotional offers• Fees: overlimit fees, late fees, annual fees, new

made-up fees– Banks are looking to make up for lost debit card

revenue

• Bills may be due soon when you get them in the mail

• Never pay late – borrow from family if necessary

What to do if you’re in trouble

• Contact your creditor immediately

• Make a budget, with a plan to pay off your debts: Good credit begins with a good budget

• Come talk to your financial aid counselor

• If you need a credit counselor, find someone accredited with no or low up-front fees, like www.clearpointcreditcounselingsolutions.org

You may need a credit counselor if:

• You can’t even pay the minimums on your credit cards

• You’re consistently late on your regular bills• Your efforts to work with your creditors have failed• You are being harassed by collection agencies

Identity Theft“Identity theft” is when someone uses your

accounts, or uses your personal information to obtain credit accounts

Common ways identity thieves get info:– Phishing scams– Skimmers on ATMs or other card-reading devices– Phone scams– Financial documents in your trash or mail– Stealing your purse or wallet

You are not liable for the damage caused by an identity thief, but fixing it can take a lot of time and energy.

How to prevent identity theft

• Shred sensitive documents• Get your bills by email and pay bills online• Never respond to phone or email requests for

information– Nearly all legitimate companies will request

information by regular mail. If you have any concerns, contact the company directly.

• Carry only necessary documents in your purse or wallet

• Usually it’s not worth paying a monitoring service unless you have reason to believe you are at risk

Steps to takeIf you think someone has your information, or if

you are a victim of identity theft:• Review your credit report• Place a fraud alert on your credit report

– Equifax: 1-888-766-0008, www.equifax.com– Experian: 1-888-397-3742, www.experian.com– TransUnion: 1-800-680-7289, www.transunion.com

• Close the affected accounts• File a complaint with the local police• File a complaint with the FTC:

www.consumer.gov/idtheft

Resources• The Federal Trade Commission:

www.ftc.gov/credit• Opt out of unsolicited credit card offers:

1-888-5-OPTOUT (1-888-567-8688) www.optoutprescreen.com

• Personal Finance on CNN Money: money.cnn.com/pf

• Planning on MSN Money: money.msn.com/credit-and-debt/

• Glossary of credit terms:

help.equifax.com/app/answers/detail/a_id/241/noIntercept/1/kw/terms

The Financial Aid Office

For help with budgeting, credit, or any financial concerns, come by the Financial Aid Office any

time, Monday-Friday, 8-5.

Dennis (A-H)

Margaret (I-R)

Nancy (S-Z)