Unlocking The Confusion of Credit!

Provided by:The Credit Education Bureau585-256-6080

Keys to understanding credit:

Why having good credit matters. What is APR? How to use your credit wisely. The rules of the road: What happens

when… How to protect yourself. How credit card companies work.

The First Key: Knowing Why Good Credit Matters

Good Credit is the best way to prove to lenders you’re trustworthy. Having good credit is

like having a 4.0 GPA.– Everybody trusts you.

Having bad credit is like having a few F’s.– Everyone can’t help

but wonder.

Lenders Will Look at Three Things: How much you earn

versus how much it costs you to live.

What loans you already have or had.

If you pay your bills on time.

How do Lenders Figure it Out?

They contact the credit bureaus.– Agencies who compile your credit

history information. The bureaus then supply a credit

report.– A transcript of your personal

payment history.

The credit report has a credit rating. A system developed to determine

how credit worthy you are based

on your history.

Credit report

A Credit A Credit ReportReport

4 Basic Elements4 Basic Elements•Personal identificationPersonal identification•Public records Public records •Payment historyPayment history•InquiriesInquiries

Reporting Reporting PeriodsPeriods•2 years - Inquiries2 years - Inquiries•7 years - Negative 7 years - Negative informationinformation•10 years - Bankruptcy 10 years - Bankruptcy (CH. 7)(CH. 7)

The Good News…

You Can Get a Copy!

Call one of the three major credit bureaus:

– Experian: 800-422-4879

– Trans Union: 800-916-8800

– Equifax: 800-685-1111

Each copy is $8.50.

The Second Key: Knowing About APR

Figuring Out the Combination:

APR = Annual Percentage Rate.

APR calculates The total annual cost of a loan.

APR consists of:– The principal

– The interest rate

– The finance charges

Here’s How APR Will Affect You:

Lets say your credit card has an APR of 18%

You purchase a new computer for $750

You only pay the minimum payment of $15

The interest owed would be $12– The APR of 18% = 1.5%

interest per month You still owe $747

How Credit Cards Work“The Imaginary Card”

Big Bank USA Mastercharge credit card.

$500 limit. 20% APR. What would you

like to buy?

M a s t e r C h a r g e

Big Bank USA C re d i t C ard

J o h n & J a n e S m i th

5 5 5 5 9 9 9 9 0 0 0 0 1 1 1 1

E x p . 0 8 /0 3

How Long Will it Take to Pay Off?

Minimum Payment $10 each month.

9 years to pay off. $584 in interest.

=

=

How Long Will it Take to Pay Off?

Twice the minimum payment $20 each month.

2 years and 8 months to pay off.

$152 in interest.

=

=

The Third Key: Knowing How to Use Your Credit Wisely

Everything You Need to Know, But Didn’t Know to Ask.

Looking at the fine print!

What kind of APR am I being charged? Variable rate

– Changes as the economy changes

Fixed rate– You are given a precise

number that doesn’t change without notification

What are the rules about fees?

Fees are usually charged if a customer violates their agreement terms

Companies may charge for things like: late payments, returned checks, or going over credit limits

What is a “grace period”?

It’s the period of time between your purchase and when your payment is due

It’s also the period of time when no finance charges are added

How is my minimum payment calculated?

It’s different for each issuer

For the most part, it is 2% to 3% of your balance

The Fourth Key: Knowing What Happens When…

…You’re late?

Being as little as 30 days late can affect your credit

In most cases you will be charged a late fee

And it will be reported to the credit bureaus

…You can’t even pay the minimum? They may suspend

your charging privileges

They may turn you over to their collection department

They may report you to the credit bureaus

Advice: Call the credit card issuer

…You lose a credit card?

The most they can hold you liable for is $50 of any unauthorized charges

Call the credit card issuer ?

…You get charged for something you didn’t buy? You must dispute the

item Call or write your

credit card company You can withhold

payment on the disputed amount

You will not be charged interest if the dispute is correct

Oops!

The Fifth Key: Knowing How To Protect Yourself.

Being Credit Wise: Understand the terms of your

credit cards: APR, fees, fine print, etc.

Don’t leave credit card receipts in the open

Keep your issuer’s phone numbers in a file in case you lose your card

Check your statement each month for erroneous charges

Also: Don’t give your account

number out over the phone to callers you’re not familiar with

If you get in over your head, call your creditors to make arrangements

Tear up pre approved credit card solicitations before throwing them away

The Sixth Key: Knowing How Credit Card Companies Work

The road to shopper awareness

Understanding The Industry:

Networks– Visa, Master Card,

American Express, Discover

Issuers– Banks and financial

institutions (They carry the loan)

How Do They Make Money?

By charging cardholders interest

By charging cardholders an annual fee

By charging penalty fees: late payments, cash advances, etc

They charge stores for each sale

Final Summary

Know that your credit history will affect your future.

Know the pitfalls of credit cards- APR, fees, penalties, etc.

Know how to protect your personal information.

Understand how the industry works.