1

Family Life Resourcespresents

The Credit

System Revealed

2

The TRUTH

The WHOLE TRUTH

NOTHING but the TRUTH

SO HELP ME GOD

You will know

Proverbs 3:5 “Trust in the Lord with all your heart and

lean not on your own understanding;”

Proverbs 3:5 “Trust in the Lord with all your heart and

lean not on your own understanding;”

3

4

Biblical based (Up to the 1960’s)

Mobile society (1970-1980)

World view (1990-present)

Handshake and your word (relationships)

Credit reports and lender’s policies (subjective judgement by creditors)

Credit scoring

(Controlled formula)

Evolution of the Credit System

5

6

The Credit System

FOUNDATION- public law 91-508Consumer credit protection act “Fair credit reporting act”

FOUNDATION- public law 91-508Consumer credit protection act “Fair credit reporting act”

PURPOSE- section 602 FCRA“… That consumer reporting

agencies adopt reasonable procedures FOR MEETING THE NEEDS OF COMMERCE for consumer credit, personnel, insurance, and other information….”

PURPOSE- section 602 FCRA“… That consumer reporting

agencies adopt reasonable procedures FOR MEETING THE NEEDS OF COMMERCE for consumer credit, personnel, insurance, and other information….”

7

The Credit System

To extend creditFor government useFor employment considerationFor eligibility of licenseFor underwriting of insurance For legitimate business need

To extend creditFor government useFor employment considerationFor eligibility of licenseFor underwriting of insurance For legitimate business need

USES- section 604 FERAUSES- section 604 FERA

8

A credit score is a number that indicates how likely you are to pay your credit as agreed.

Developed by the Fair-Isaac Company

•It is known as “The Beacon Score or Fair Isaac Score”•Score Range is 383-830 points

A credit score is a number that indicates how likely you are to pay your credit as agreed.

Developed by the Fair-Isaac Company

•It is known as “The Beacon Score or Fair Isaac Score”•Score Range is 383-830 points

9

Different UsesMortgageAutoCredit Cards

Different Types of Creditors

BanksCredit UnionCredit Card CompaniesFinance Companies

10

11

Key Factors to Your Credit

Score

Key Factors to Your Credit

Scoreoror

When You Think Your Doing it Right,

It’s Wrong

When You Think Your Doing it Right,

It’s Wrong

12

Late Payments Kill Your ScoreLate Payments Kill Your Score

A. Creditors may collect a late payment but report you as on -time ($24 million a month to them)

B. Black marks (late pays) made in the past six months will hurt you more than a bankruptcy 5 years ago.

C. Generally black marks more than 2 years old don’t impact your score as much.

A. Creditors may collect a late payment but report you as on -time ($24 million a month to them)

B. Black marks (late pays) made in the past six months will hurt you more than a bankruptcy 5 years ago.

C. Generally black marks more than 2 years old don’t impact your score as much.

13

Debt is Good (You deserve it)Debt is Good

(You deserve it)

If your total debt is more than 75% of your credit limit

your score is drastically reduced.

If your total debt is more than 75% of your credit limit

your score is drastically reduced.

14

Zero Balances(Proud of the fact that you have no balance on your credit cards.)

Zero Balances(Proud of the fact that you have no balance on your credit cards.)

Consumers with no balances on their cards get lower scores than those with moderate balances.

Consumers with no balances on their cards get lower scores than those with moderate balances.

WHY?

Lenders fear you will go on a buying spree and rack up new debt. Closing out unused cards will raise your score.

WHY?

Lenders fear you will go on a buying spree and rack up new debt. Closing out unused cards will raise your score.

15

Card Sharks(Charging everything and paying it off each month)

Card Sharks(Charging everything and paying it off each month)

Scoring models don’t distinguish between a $5,000 card balance and a debt charged each month and is paid off immediately.

Scoring models don’t distinguish between a $5,000 card balance and a debt charged each month and is paid off immediately.

If you do this, make sure your limit is not near your charge balance or you lose!

If you do this, make sure your limit is not near your charge balance or you lose!

16

Stuffed Wallets(Your pre-approved, Get those cards)

Stuffed Wallets(Your pre-approved, Get those cards)

No bank credit card means lower score.

No bank credit card means lower score.

More than five credit cards means lower score.

More than five credit cards means lower score.

Two to four cards will keep you in the game.

Two to four cards will keep you in the game.

If you close out some cards, be careful not to close out older accounts. Older is better

If you close out some cards, be careful not to close out older accounts. Older is better

17

Inquiring Minds(Sure, check me out, I’m ok)

Inquiring Minds(Sure, check me out, I’m ok)

To many inquires in a short period of time signals a consumer is seeking credit because of a financial problem.

To many inquires in a short period of time signals a consumer is seeking credit because of a financial problem.

The risk of default rises after four inquiries within six months or six inquiries within a year.

The risk of default rises after four inquiries within six months or six inquiries within a year.

Be very careful to whom you give permissionAuto Dealers = Avg. 8 Retailers = Avg. 4

Be very careful to whom you give permissionAuto Dealers = Avg. 8 Retailers = Avg. 4

18

Just say NO!(Balance transfers are great- lower rates, lower payments, etc.)

Just say NO!(Balance transfers are great- lower rates, lower payments, etc.)

Consumers who transfer have a risk of higher default. They use

debt beyond their means.

Consumers who transfer have a risk of higher default. They use

debt beyond their means.Four or more transfers will

lower your score in a major way.

Four or more transfers will

lower your score in a major way.

Make sure if you transfer to close your old account and plan to stay for two years.

Make sure if you transfer to close your old account and plan to stay for two years.

19

Little Things Add UpMarital Status

Married

Single

Dependents3 or less

4 or more

Dependents3 or less

4 or more

Age under 25

25-65

over 65

20

Little Things Add Up

Employment Less than 1 year

More than 6 years

Employment Less than 1 year

More than 6 years

Occupation unskilled skilled

professional

Occupation unskilled skilled

professional

21

Little Things Add UpHousing Rent

Own

Housing Rent

Own

Income Under $1000 a month

Over $3000 a month

Income Under $1000 a month

Over $3000 a month

Debt Finance Companies

Banks

Debt Finance Companies

Banks

22

23

“Trust in the Lord with all

your heart and lean not on your own

understanding;”

“Trust in the Lord with all

your heart and lean not on your own

understanding;”

Proverbs 3:5Proverbs 3:5

24

Get and Review Your Credit

Reports

70% of all credit reports have major errors.

There is no incentive by the bureaus to clean them up.

Bureaus seek negative information.

25

If There Are Problems on Your Report- Get Professional Help

Minor errors you can fix. Such as flat out wrong accounts that are not yours

More than four errors get help because the credit bureaus will pre-judge your effort as frivolous or irrelevant (section 611) and not correct these errors

26

Learn Your Credit Score Yes, your score changes based

upon your activity. But for most of us, it stays within a range.

Know your score and shop for your credit based on your type of need and type of lender.

The cost to you (interest rates and other charges) can be influenced by the knowledge you have. Know thyself!