A friend of a friend comes to you and asks to borrow a large amount of money. You have plenty of money, and lending to them would not inconvenience you, but you do want to make sure you’ll get the money back.

What information would you want from them to help you decide whether or not to lend them the money.

Lenders check your credit history by looking at:

Credit Report

Credit Score

Credit Report – a record of your credit history including loans and lines of credit (like credit cards).

Credit Report consists of:

Payment History (35%) – On time every month? Ever sent to collections?

Amounts Owed (30%) – What % of your credit limits do you owe?

○ Want balance to average ~30% of credit limit.

Length of Credit History (15%) – How long have your credit accounts been open/active?

New Credit (10%) – How many accounts have you opened or applied for recently?

Who tracks my credit?

Credit bureaus – companies in charge of

collecting and recording your credit history. 3 bureaus in the US are:

Experian

Equifax

TransUnion

How do credit bureaus make money? Your DATA is as good as GOLD!

Credit inquiry – when you or a company look at your credit report. Hard inquiry – creditor looks at your report because you have

asked them for a line of credit.

Soft inquiry – you or another agency look at your report to check for errors or to advertise offers to you.

Fair Credit Reporting Act (FCRA) – gives you rights including a FREE copy of your credit report from all 3 bureaus 1 time a year. ○ Go to www.annualcreditreport.com (WWW. ANNUAL CREDIT REPORT .COM)

○ Type this accurately. If website says you have to pay… it is the WRONG ONE!

What if you believe there’s a mistake on your credit report?

“File a dispute” – Send a letter or fill out a form online (thru the credit bureau’s website) to report this “claim”. If you have evidence (check stub, receipts, etc.) send a

copy! Bureau has 30 days to investigate. While investigating, disputed claim is pulled from your

record, or a note is made that the item is under investigation.

A statement on your credit report – “your side of the story”, if an item can’t be removed from your history.

Credit Score:

Your FICO credit score is a numeric summary of all the information collected in your credit report.

It represents the risk that you will not pay back what you borrow.

○ Higher score = lower risk.

○ Lower score = higher risk.

Scores range from 300 to 850.

Why should I care about my credit score?

Typical $160,000 30-year fixed-rate mortgage.

Typical $25,000 5-year fixed-rate auto loan.

Typical $160,000 30-year fixed-rate mortgage.

Typical $25,000 5-year fixed-rate auto loan.

Typical $160,000 30-year fixed-rate mortgage.

Typical $25,000 5-year fixed-rate auto loan.

Typical $160,000 30-year fixed-rate mortgage.

Typical $25,000 5-year fixed-rate auto loan.

Typical $160,000 30-year fixed-rate mortgage.

Typical $25,000 5-year fixed-rate auto loan.

It determines how much of my income goes to paying interest to lenders!

How to improve your credit score or maintain a good score:

ALWAYS pay bills on time. (Shoot for paying early, just in case.)

Pay down existing debt.

○ Debt-to-credit ratio should be low.

Avoid taking on additional debt.

○ Esp. w/ revolving credit – only charge what you can pay off in full @ end of month.

How to improve your credit score or maintain a good score:

Check your credit report @ least once a year!

○ Fix errors

○ Report identity theft

○ File a statement if needed

Keep old accounts

○ The longer it’s been open, the more it helps your record look reliable!

How to improve your credit score or maintain a good score: Avoid excess credit applications!

○ The 10% off is NOT worth it!!!

○ Every time you apply for credit, your credit score decreases a bit – even if you are not approved.

Be patient. ○ Mistakes won’t haunt you forever.

○ Worst case scenario? 7 – 10 years.

○ Payment history from past 2 years is most important.

Basically… it all sums to this:

When you apply for credit, lenders are looking for the “4 Cs of Credit”: Character – How stable are you?

Capacity – How much money do you have available? How much debt do you have?

Collateral – What can we repo. if you default?

Conditions – How’s the market? That determines the rates/risk the lender is willing to make.

Your Assignment:

Part 1

Get your check your credit report. Due next class.

Most of you won’t have one.

If you do… make sure there aren’t any errors.

Print out copy, cut out sensitive info.

Your Assignment: Part 2:

With your group, make a 1 – 3 min video illustrating what we have discussed today.

Video must include at least 5 new vocab. words from today’s notes in the script.

Video must be educational – someone who was not in class today should learn from your video.

Graphics, special effects, other fun stuff is optional… but always appreciated

Email video or YouTube link to Ms.Hale ○ By Tuesday the 26th at 11:59 pm. We will watch the

videos in class on Wednesday the 27th.