Managing CreditMansfield University TRiO

Melissa Wise

-First Citizens National Bank

Credit TOPICS

Credit Credit Scores Using Credit Wisely Credit Cards Credit Programs

According to Citibank, “There are presently 5 to 7 million Americans who are financially overextended.”

WHAT IS CREDIT?

Credit is when goods, services, or money is received in exchange for a promise to pay a definite sum of money at a future date.

CREDIT

ADVANTAGES Convenient Useful for

emergencies Often required to hold

a reservation Ability to purchase

expensive items sooner

Eliminates the need to carry large amounts of cash

DISADVANTAGES Paying interest Additional fees are

common Temptation to

overspend Can cause large

amounts of debt Identity theft

CREDIT SCORES

What is a credit score or FICO® score? A prediction of how likely you are to pay your

bills A number between 300 and 850 derived from

many different factors A number that drives the approval of credit

extensions and the interest rate you pay on those extensions

CREDIT SCORE KEY FACTORS

The FICO® scoring model looks at more than 20 factors in five categories.How you pay your bills (35%)Amount of money you owe and the amount of

available credit (30%)Length of credit history (15%)Mix of credit (10%)New credit applications (10%)

RANGE OF CREDIT SCORES

The following are some basic guidelines for interpreting a credit score:620 and below – Poor credit621-690 – Fair credit691-720 – Good credit721-750 – Good to excellent credit751-800 – Excellent credit801 and above – Nearly perfect credit

CREDIT SCORE PERCENTAGE

499 and below 2 percent

500-549 5 percent

550-599 8 percent

600-649 12 percent

650-699 15 percent

700-749 18 percent

750-799 27 percent

800 and above 13 percent

Fair Isaac reports that the American public’s credit scores break out along these lines:

THINK OF YOUR CREDIT REPORT AS A SECOND RESUME!

A credit report contains information about where you work, live, how you pay your bills, whether or not you have filed bankruptcy and even if you have ever been arrested or sued.

You can check your credit score for free up to three times annually at http://www.annualcreditreport.com!!

USING CREDIT WISELY

For decades, society has promoted the idea of “BUY NOW, PAY LATER.”

This is a good concept for some types of

purchases and a bad concept for many

other types of purchases.

USING CREDIT WISELY

Good Credit Purchases Buying a house on credit is a smart move as

home values rise quickly and you can gain equity through appreciation.

Financing an education is a good investment in the future. Your earning potential will eventually outweigh the cost of tuition, and educational loans are usually at a very low interest rate.

Buying a car can also be a good credit purchase. It is important to not get caught up in buying a car for more than you can afford.

USING CREDIT WISELY

Bad Credit Purchases Credit card debt and other consumer debt is

the worst type of debt. Interest rates and fees on borrowing money this way will be the highest of all, mostly because there is rarely a tangible item as collateral.

Financing a car for longer than the life of the vehicle can also be an unwise credit decision.

CREDIT CARDS

Credit cards are a great concept, but they end up bringing financial ruin to many people who do not use them properly.

TIPS WHEN USING CREDIT CARDS

Never use credit cards as extra money. Always allocate money from your current funds or monthly income in order to immediately payoff whatever you finance.

Read the fine print on the agreement to make sure you are getting the best terms available.

American consumers ages 20-29 carry an average of $5,781 in revolving debt.

This would take 11 years and 4 months to pay off assuming an average interest rate of 13% and that minimum payments are made.

Review…

Please review these few websites before proceeding…

Open and browse them for subject matter in order to use them as resources for completing some credit questions.

Web Pages: http://www.federalreserve.gov/creditreports/

Read this story and draw from the examples given: http://www.themintgrad.org/learn/lifestyle-planning/real-flc-life-with-zero-debt/

Short synopsis of why debt is costly: http://www.americasaves.org/for-savers/set-a-goal-what-to-save-for/debt-and-credit/get-out-of-debt/what-is-debt-and-why-is-too-much-debt-costly

Apply…

 What is credit and what are the advantages/disadvantages of credit?

 What are credit scores and how are they determined?

 How can you use credit and credit cards wisely?

What is the average amount of revolving debt of someone in their 20’s and why do you think this is the case? Explain.

What are the key factors of a good credit management program?

***Please answer these questions in 3-4 complete sentences citing the PowerPoint slide or website where the information pertaining to the question was found***

Last but not Least…

Take the lifeValues Quiz in the link provided: http://www.smartaboutmoney.org/Tools-Resources/LifeValues-Quiz.aspx

Your results will educate you on your thought process when you spend your own money. Please provide some feedback and explain if you though the quiz was correct in describing your thought process during spending. (3 sentences minimum)