CREDIT DEFINITIONSCreditTrust given to another person for future payment of a loan, credit card balance, etc.

CreditorA person or company to whom a debt is owed.

Slide 1 – Credit Definitions Lesson Reference: Credit, Activity 1 – Handout 1 1

Slide 2 - The Five Cs of Credit Lesson Reference: Credit, Activity 1 – Overhead 1

THE FIVE Cs OF CREDIT

C = CapacityC = CapitalC = CollateralC = ConditionsC = Character

2

WHAT IS A CREDIT SCORE?• A credit score is a number that helps a lender

predict how likely an individual is to repay a loan, or make credit payments on time.

• A credit score is a number that changes as the elements in a credit report change.

• A credit score has broad use and impact. Your credit past is your credit future.

• FICO® scores, one of the most common credit scoring systems, vary between 350 and 850.

• VantageScoreSM, a new credit scoring system developed by the three credit bureaus, ranges from 501-990.

Slide 1 – What Is a Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 13

WHAT MAKES UP A

TYPICAL CREDIT SCORE?

Slide 2 – What Makes Up a Typical Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 24

Source: Fair Isaac and Consumer Federation of America, 2005

IMPROVING YOUR CREDIT SCORE

• Pay bills on time.• Get current and stay current.• Don’t open a lot of new accounts too

rapidly.• Correct mistakes.• Shop for loan rates within a focused

period of time.• Keep balances low on revolving credit.• Pay off debt.• Check your credit report. Slide 3 – Improving Your Credit Score

Lesson Reference: Credit, Activity 2 – Handout 25

Slide 1 – Types of Credit Lesson Reference: Credit, Activity 3 – Handout 1

TYPES OF CREDIT Cash CreditSales CreditSecured CreditRevolving Credit

6

I.O.U.Single Payment Credit

Installment CreditOther Types of Credit

Slide 2 - Sources of Credit Lesson Reference: Credit, Activity 3 – Overhead 1

SOURCES OF CREDIT

What are other sources of credit?

What sources of credit should be avoided? Why?

Banks

Mortgage & Loan

Companies

RetailStores

FinanceCompani

es

Credit Unions & Caisses Populaires

Internet Stores

7

STEPS TO TAKE TO AVOID ABUSIVE LENDING

1. Have you shopped around for the best deal?

2. Do you feel the lender pressured you to take the loan?

3. Do you understand the terms of the loan?

Slide 3 – Avoiding Abusive Lending Lesson Reference: Credit, Activity 3 – Handout 28

Slide 4 – Parts of a Credit Application Lesson Reference: Credit, Activity 3 – Handout 3

COMMON PARTS OF A CREDIT APPLICATION

• Reason for Loan• Personal Identification Information• Employment Information• Mortgage/Rental Information• Documentation Required (for some

applications)• Current Debts• Credit References• Collateral (for some applications)• Bank References• Signature and Date

9

SAMPLE CREDIT APPLICATION

10 Slide 5 – Sample Credit Application Lesson Reference: Credit, Activity 3 – Handout 3

QUESTIONS TO ASK WHEN APPLYING FOR CREDIT

1. What is the annual fee?2. What is the annual percentage rate (APR)?3. When are payments due?4. What is the minimum payment required each

month?5. Is there a grace period?6. Are there other fees associated with the credit,

such as minimum finance charges?7. What is the credit limit?8. What are the penalties for late or missed

payments?9. What are the terms and conditions of the

credit? What else is included in the fine print? Slide 6 – Questions to Ask Lesson Reference: Credit, Activity 3 – Handout 511

Slide 1 – Debt-to-Income Thermometer Lesson Reference: Credit, Activity 4 – Overhead 1

DEBT-TO-INCOME THERMOMETER

12

Slide 2 - The Credit Process Lesson Reference: Credit, Activity 4 – Overhead 2

THE CREDIT PROCESS

CREDIT HISTORY•

CREDIT BUREAU•

CREDIT REPORT•

CREDIT SCORE•

CREDIT RATING

13

SAMPLE CREDIT REPORT

14 Slide 3 – Sample Credit Report Lesson Reference: Credit, Activity 4 – Handout 2

Slide 1 - Types of Credit Cards Lesson Reference: Credit, Activity 5 – Overhead 1

TYPES OF CREDIT CARDSPrivate Label• Issued by a single source• Can only be used at a single source• Examples: Department Stores,

Gasoline CompaniesGeneral Label• Issued by a single source• Can be used in many places• Examples: Bank Card, Major Credit

Card15

Slide 2 – Warning Signs Lesson Reference: Credit, Activity 6 – Handout 2

WARNING SIGNS OF DEBT PROBLEMS

16

1. Delinquent Payments2. Default Notices3. Repossessions4. Collection Agencies5. Judgment Lien6. Garnishment

CORRECTING CREDIT PROBLEMS

• Take responsibility for actions.• Communicate with creditors.• Use certified mail.• Debt Consolidation• Credit Counseling• Bankruptcy

Slide 5 – Correcting Credit Problems Lesson Reference: Credit, Activity 6 – Handout 517

Slide 1 – Identity Theft Lesson Reference: Credit, Activity 7 – Overhead 1

IDENTITY THEFT

This information may include:

18

• Social Security Numbers• Name• Address• Date of birth

• Mother’s maiden name

• Passwords• PINs

HOW TO AVOID IDENTITY THEFT

1. Monitor your credit report.2. Don’t give out personal information to unknown

persons or companies.3. Protect your credit and debit cards.4. Protect your mailbox.5. Protect your wallet.6. Use passwords and PINs that can’t be easily

guessed.7. Use anti-virus software on your computer.8. Notify your bank when you change your address

or phone number.9. Other suggestions? Slide 2 – How to Avoid Identity Theft

Lesson Reference: Credit, Activity 7 – Handout 219

Slide 1 – Prime and Subprime Lending Lesson Reference: Credit, Activity 8 – Overhead 120

Federal Student Loans• Payment Deferred • Fixed Interest• Potentially Subsidized

Interest• No Credit Check• May not cover all of your

debt

Private Student Loans• Pay before graduation• Variable Interest• No subsidization• Credit Check• Will cover full debt

• Stafford ($31,000 - $57,500)– Direct (From Gov)– Family (From Bank)

• Perkins ($27,500)• Parent PLUS