Credit Reports: Our Students and What They Need to Know.

Presented byRenee Gullotto, EdFund andSun Ow, Great Lakes Higher Education

1

What we’ll learn today

•What’s on a credit report•What is a credit score based on•How to “clean up” credit•Identity Theft•Credit Card Law Changes and Public Law

111-24•How to entice your students to attend a

credit workshop

2

Understanding Credit

•What is a credit report?•Checking your credit report•What’s in a credit score?•Credit risk•Benefits of good credit

3

What is a Credit Report?

•History of your ability to manage credit Similar to a transcript

•Lenders report your: Payment history Amount borrowed Credit limits Delinquencies

4

What’s in Your Credit Report?

•Summary of key information Personal information Credit history Public records Inquiries

5

Checking Your Credit Report

•79% of credit reports have errors1

•Check report annually–Name– Address– Birth date– Social Security number– Accuracy of accounts

6

1National Association of State Public Interest Research Groups, 2004 Survey

Credit Report Purpose

• Provides a history of your credit use to current and prospective lenders

• Allows lenders to assess risk of extending

credit or lending money to you

• Used for all forms of credit, including private student loans, apartment rental, etc.

The purpose of a Credit Score

•Probability of paying new loan•Grades of loans

A: the most creditworthy borrower B: the average borrower Subprime: highest risk borrower

•More information www.myfico.com

13

What Determines Your Score?

14

Source: www.Myfico.com

Credit Score Distribution

15

Source: www.Myfico.com

Score = Indicator of Risk

16Source: www.Myfico.com

Credit Score

Buying a Car

17

Source: www.Myfico.com

Buying a House

18

Source: www.Myfico.com

Securing Good Credit

•Pay bills on time•Pay before due date

▫Automatic payments•Pay down outstanding balances•Check credit report periodically•Protect your identity

19

Low Credit Risk

•Stable class schedules•Steady employment•Consistent payments•On-time loan payments•Responsible student loan management

20

High Credit Risk

•Late payments•High balances•Unpaid accounts•Excessive number of open accounts•Many recently opened accounts

21

Charging $100 a Week

End of Period Balance Minimum Payment

1st month $400 $12

1 year $4,713 $146

5 years $2,232 $69

10 years $877 $21

19 years $7 $7

Payments based on 3 percent minimum payment. Interest rate is 18 percent. No additional charges made in years 2-19

The Benefits of Good Credit•Establish and build good credit history•More apartment/house choices•Open a checking account•Better job opportunities•Fast loan decisions•Increased purchasing power

▫Little or no money down on cars▫Lower interest rate▫Save money

23

Credit Repair

• You cannot “repair” poor credit- derogatory credit remains on your report for up to 10 years- avoid paying for “credit repair” services that guarantee to fix poor credit

• You can correct inaccurate information- dispute incorrect credit information- update personal information

• You can improve credit behavior- pay off credit cards in full monthly- make payments on time- don’t have too many open lines of credit

Feeling the Crunch?

• Contact creditors• Create a spending plan• Limit credit card use• Opt out of pre-approved offers• 888.5OPTOUT (888.567.8688)

• Ask for a free credit report• 877.322.8228• www.annualcreditreport.com

25

Getting your Free Credit Report

•www.annualcreditreport.com•877.322.8228 •One free report from

Equifax TransUnion Experian

•All three at once or one every four months

26

How to Report Fraud•File a police report.

•Contact your creditors or bank immediately to close accounts. Keep a record of all calls.

•Each Credit Bureau offers a service that will notify you whenever a new credit card is opened in your name.

•Contact Federal Trade Commission (877)438-4338

Preventing Credit Fraud

• Sign new credit cards immediately

• Store credit cards in secure place

• Limit # of cards you carry

• Do not write PIN on your cards

• Do not print SSN on checks

• Shred any mail with your account # before throwing away

• Notify card issuers immediately if billing statement is incorrect or if you

don’t receive your statement

• Monitor your credit report regularly

Other tips

•Use USPS mailbox & not home mailbox to

send letters

•Stop mail when on vacation

•Request special delivery for check orders

•Keep your purse or wallet in a secure place

•Carry limited # cards and checkbook with you

•Place a fraud alert if you suspect something

Keys to Using Credit Successfully

•Identify your spending habits

•Understand the fine print

•Manage credit wisely

•Have only one card

•Pay balance in full each month

•Ask for help at the first sign of trouble

The Credit Card Accountability Responsibility and Disclosure Act of 2009•Signed into law on May 22, 2009•Amends the Truth in Lending Act and

Covers:▫Protection of Credit Card Holders▫Limits on Fees and Interest Charges▫Application of Credit Card payments▫Rules Regarding Monthly Statements▫Consideration of Ability to Repay▫Late Payment Deadlines and Penalties▫Protection of Young Consumers▫Credit Cards and College Students▫Prepaid Cards, Gift Certificates and Gift

Cards

31

Protection of Credit Card Holders•Written notice of increase in APR, fees and

finance charges 45 days prior to change.•Notice of Right to Cancel in clear & concise

manner.•Closure/cancellation of account by consumer

shall not constitute a default and will not trigger an obligation to pay in account in full.

•Limits on Interest Rate, Fee and Finance charge increases on outstanding balances.

• Interest Rate Reduction- specific rules that must be considered before creditor reduces rates.

TILA Sections 127, 171

32

Protection of Credit Card Holders• Annual rate, fee or finance charge may not

be increased for the first year• Promotional annual rate may not be

increased for at least 6 mos. from the beginning date the promo rate takes effect.

• TILA Sec.172

33

Limits on Fees and Interest Charges•Opt-in is required for Over-The-Limit

Tranactions if fees are imposed.▫Consumer must be informed of the fee

amount.▫Customer has to elect that their credit line

be extended to cover in excess of credit limit.▫Customer must be notified of the right to

revoke their election.▫Amount of fees must be reasonable- late fees,

over the limit fees and penalty fees/charges

▫ TILA Sec. 127

34

Application of Credit Card Payments• Payments in excess of the minimum payment

are to be applied to the card balance with the highest interest.

• If card issuer makes a change that causes a delay in crediting a payment over a 60 day period, no late fee or finance charge may be applied.

TILA Sec. 164

35

Rules Regarding Statements

•Payment date must be the same each month•If the payment due date is a day the

creditor does not receive or accept payments, the creditor may not treat a payment received on the next business day late for any purposes.

• TILA 127

36

Consideration of Ability to Repay

•A card issuer must consider the consumers ability to make required payments under the terms of the account prior to:

▫Opening an account▫Increasing the credit limit on an account.

▫ TILA Sec 150

37

Payoff Timing Disclosures•The billing statement must have the following

information in a prominent location:▫A statement that making only the minimum will

increase the interest you pay.▫The number of months to pay the entire balance▫Total cost to consumer, including interest and

principal payments.▫Monthly payment amount required to eliminate

the balance within 36 mos.▫A toll free number to obtain credit counseling.

▫ TILA Sec 127 (b)(11)

38

Requirements on Late Payment Deadlines and Penalties

•Late payment deadline is required to be disclosed in conspicuous location and must include:▫The date payment is due▫The date the late fee is charged▫Amount of late fee.The statement “If one or more late payments

on a credit card account may result in an increase in interest rate.”

TILA 127 (b)(12)

39

Requirements on Late Payment Deadlines and Penalties

Brick and Mortar: If the creditor maintains branches or offices that accepts payments, the date the payment is made must be used for determining whether a late fee or penalty may be imposed.

TILA 127(b)(12)

40

Extensions of Credit to Underage Consumers

•Credit cards may not be issued to, accounts opened by or on behalf of a consumer under the age of 21 unless a written application that meets application requirements is obtained.

•Application Requirements for consumers under 21 shall require:▫A co-signer indicating joint liability until the

consumer turns 21.▫The consumer to submit financial information

showing a means to repay obligation.

TILA 127(C)

41

Issuance of Credit Cards to Certain College Students

•No credit increase may be made to accounts that have a co-signer due to the consumer being under the age of 21 unless:

▫The co-signer approves the increase in writing

▫Assumes joint liability for the increase

▫ TILA Sec 127(p)

42

Privacy Protection for College Students•An institution of higher education must

publicly disclose any contract for the purpose of marketing a credit card.

•Card issuer or creditors may not offer tangible items as an inducement to students to apply for credit card offers if the offer ▫Is on campus▫Near the campus or▫At an event sponsored or related to campus

▫ TILA 140

43

Privacy Protection for College Students•Congress believes colleges should

consider adopting the following policies:▫Card issuers that market credit cards on

campus should notify the institution of the location the marketing will take place.

▫The number of locations that marketing of credit cards takes place should be limited.

▫Credit card and debt education/counseling sessions should be offered as a regular part of any orientation program for new students.

TILA 140

44

General Use Prepaid Cards, Gift Certificates and Store Gift Cards

•It is unlawful to sell or issue a gift certificate, store gift card, or general use prepaid card that has an expiration date unless:▫Expiration date is at least 5 years from the

date the certificate was issued.▫Card funds were last loaded to a store gift

card or general-use prepaid card and ▫Terms of expiration are clearly stated.

*Credit Card Act Overview and information obtained on EDFUND.org

45

How to Get the Students To Attend Credit Workshops-

Ideas…

46

Thanks for coming!

47