Credit Use &

Debt Reduction with Power Pay

Florida Saves 2020“See Your Future Clearly”

What is Credit?• Commits future assets or income to pay for

something today

• You get cash, goods, or services now, and then pay for it later.

• Installment vs. Open-ended/Revolving

Pros and Cons to Using Credit

• Advantages

• Disadvantages

Credit Cards• The National Average on accounts assessed

interest was 13.67% (Federal Reserve, 2011)• Credit card statement

– Previous balance– Purchases– Cash advances– Payments– Finance charge– New balance– Minimum payment due and Deadline– Time to payoff the balance if only paying the minimum

The Credit Score

• Summarizes your creditworthiness based on your credit report

• Married couples have separate scores

• Impossible to have a perfect score unless you’ve had an account open for at least 15 years.

FICO SCORES

•FICO scores provide a guide to future risk based on credit report data •The assumption = the higher the credit score, the lower the risk

10%

10%

15%

30%

35%

Requests for newcredit

Types of credit inuse

Length of credithistory

Current total debt

Payment History

Fair Isaac Corp. – www.myfico.com

Where do Floridians Fall?

Florida’s Average Credit Score

The National Average Credit Score

As of 02/10/2010

Cost of Borrowing

FICO SCORE

The Difference Your Score Makes

760-850 save an extra $36,626

700-759 save an extra $23,526

680-699 save an extra $12,905

660-679

640-659 PAY an extra $26,430

620-639 PAY an extra $60,789

Florida’s Average Credit Score

The Importance of a Positive Credit History

• Ability to gain employment • Cost of Borrowing

– Lower Interest Rates– Ability to get different types of loans

• Renting• Utility and cable companies may check to

start an account

The Cost of Credit ScoreTaking out a Home Mortgage of $200,000 for 30 years

Credit Score

APRMonthly Payment

DifferenceAdditional 30 yr Cost

760-850 4.843 $1055 0Best

option

700-759 5.063 $1081 $26 $9360

680-699 5.239 $1103 $48 $17,200

660-679 5.452 $1130 $75 $27,000

640-659 5.880 $1184 $129 $46,440

620-639 6.423 $1254 $199 $71,640

Report vs. Score

• Reports are based on information obtained by:– TransUnion, Experian,

and Equifax from your lenders

– The data is used for the scores

• Scores created by FICO from reporting agency information – It is lowered with:

• Late payments• Reaching/Exceeding

Limit• High Debt to Income

Ratio• New Credit Requests

New Legislation—More accessible Credit Scores

• Jan. 1, 2011—Risk Based Pricing Legislation

• New disclosure rules regarding credit reports & scores.

• Requires lender to provide applicant with credit score used to determine rate

How To Obtain Credit Report

To request your free credit report go to annualcreditreport.com or call 1-877-322-8228

• Complete the request form and mail to:

Annual Credit Report Request Service

P.O. Box 105281

Atlanta, GA 30348-5281

How to Systematically Reduce Debt

Six Step Process

Step 1: Stop Using Credit

• Stop– Charging new items

• Increases what you owe!

– Taking on additional credit

Step 2: Assess the Problem• Understand what happened

– Job loss?– Didn’t get pay raise?– House/apartment you can’t afford?– Health crisis? – No savings?– Divorce?– Spending problem?– Expect security from wrong sources– Failed communication– Take care of others

Step 3: Break Your Challenge Into Manageable Steps

• Define your goal:– Specific - $10 a day– Time frame - 3 to 5 years– Measurable - Your debt balance

Pay off $8000 credit card in 3 years by paying $300 per month ($10 per day saved from eating out)

Step 3: Break Your Challenge Into Manageable Steps

Debt amount

12%interest

18%interest

24%interest

$ 8,000 $9/day $10/day $11/day

$12,000 $13/day $15/day $16/day

$16,000 $18/day $19/day $21/day

$20,000 $22/day $24/day $26/day

Debt Free in Three Years

Step 4: Track Your Spending

• Receipt

• Envelope

• Calendar

• Notebook

• Checkbook

• Computer

Step 5: Find the Money

• Change your withholding• Reduce your interest rates• Advance Earned Income Credit• Overtime• Second job• Break costly habits• Look for ways to reduce flexible expenses.• Examine ways to restructure or cut fixed expenses.• Overtime or extra job• Managing in Tough Times

Step 6: Fix Debt Problems

• Importance

• High interest rate

• Low balance

• Debt consolidation

• Negotiate and pay-off

Debt Repayment Plan Methods

Step 6: Fix Debt Problems

• Free service online• Compares all previous

methods• Time-line printed

with

www.powerpay.org

Click Florida

Enter an Account

Click Here When Finished

Click Here to See Savings

Without Power Payments

Click Here for Repayment Method

Payment Calendar

To Pay Extra or Schedule Extra

Payments

What will Improve the Score?

• No quick fixes – time is the factor• Use your credit but perhaps only use on specific

purchases• Pay your bill on time, every time, for the full

amount.• Keep balances low on credit cards (i.e. zero)• Pay off high interest first and fast

How Do I Stop Getting Offers!Tired of unsolicited credit and insurance mail?

• You may request that consumer credit reporting companies exclude your name from lists for pre-approved, unsolicited credit and insurance offers.

• To find out more, please call

1–888–5OPTOUT (1–888–567–8688).

Correcting Credit Report Errors

• Get a copy of your credit report, verify information.• Highlight the error's• Write a letter of dispute that includes an explanation of

the error's• Locate and copy

– any additional information that can help establish that the item is an error

• Send to the credit reporting agency– highlighted copy of your credit report, – your letter of dispute,– and a copy of any additional information

After You Dispute the Information

• Ensure that the error is fixed • Your score will be affected if it stays on the

report• If you cannot resolve a disputed item:

– You have the right to attach a 100-word statement, – Explaining the nature of your disagreement free of

charge – Statement will become part of your credit file– It will be included each time your credit file is

accessed.

Take Home Message

• Be responsible with credit

• Self control

• Protect yourself

• Check credit report frequently

• Pay more than the minimum

• Be careful of debt consolidation & credit repair companies