Building and Understanding your Credit

 

  • What exactly is credit?
    Credit is utilizing something now (e.g. education, car or home) and paying for it over a period of time.

    3 C’s of Credit

    Character – How well do you honor your financial obligations?

    Capacity – How easy will it be for you to repay the debt?

    Collateral – Will the loan be secured by something?

  • How is a credit card different from a debit card?

    Credit Card

    A powerful but dangerous tool.

    Used to make a purchase now and repay the amount at a later date.

    If the amount due is not paid in full by the due date, interest is charged.

    Builds credit history as it is used.

    Provide fraud protection.

     

    Debit Card

    Used to make a purchase now and funds are immediately withdrawn from your bank account.

    No interest charges.

    Does not build credit history

    A replacement for checks or cash.

    Does not provide fraud protection.

  • Who can review my credit?
    • Employers
    • Landlords
    • Automotive dealers
    • Professional licensing boards
    • Insurance companies
    • Financial lenders
    • Others
  • What information is contained in my credit report?
    • Names, current & previous addresses, employers, date of birth
    • Credit granted and history & timeliness of repayment, revolving, installment or open ended, payment patterns for past 7 years
    • Records found on public documents: bankruptcies, collection accounts, overdue child support
    • List of creditors and agencies who have requested your credit report
  • What information is contained in my credit score?
    • FICO Scores range – 300 to 850
    • Only 18% of population have a FICO Score of 800 or better
    • 7% of population have scores below 500

     

    • Forecast of how well you will repay a loan as agreed during the next 24 months – the higher the score, the better the forecast that you will repay
    • Snapshot of your credit history at a particular point in time
    • Only includes factors related to an individual’s credit
    • Always changing – you can improve it!
  • What is the difference between delinquency and default?
    • Your loan becomes delinquent the first day after you miss a payment. Loan servicers report all delinquencies of at least 90 days to the three major credit bureaus.
    • To default means you failed to make your payments on your student loan as scheduled according to the terms of your promissory note. For credit cards, you are typically considered to be in default after you’ve failed to make a payment for 180 days. For most federal student loans, you will default if you have not made a payment in more than 270 days.
  • How can I protect my credit?
    • Use credit wisely and pay your bills on time and in full.
    • Limit the amount of personal information you make available on social media.
    • Use strong passwords and change them frequently.
    • Don’t leave personal belongings unattended.
    • Protect your computer with anti-virus software.

     

    • Check your credit report three times a year.

    www.Annualcreditreport.com

    Receive a free copy of report from each of 3 bureaus; Equifax, Experian, TransUnion.  Order your report every 4 months.