Presentation Transcript

1. Applying for Credit

   Unit 3
2. Why does a lender need to know about your credit history to extend credit? Most lenders build their lending polices around the “five C’s of credit” Character – Will you repay the loan? Capacity – CAN you repay the loan? Capital – What are you assets and net worth? Collateral – What if you don’t pay? Conditions – What if your job is insecure?
3. Credit Score
4. How can I improve my credit score? Credit score is a snapshot of the contents of your credit report at the time it is calculated First step is to review your credit report to ensure accuracy Maintain a savings/checking account Pay bills on time Lower your balances Use credit WISELY
5. What if your application is denied? The “Equal Credit Opportunity Act” (ECOA) gives you the right to the reasons If it’s the result of information from the credit bureau, you are entitled to the information that was provided The bureau cannot charge a fee as long as you request a copy of your credit report within 60 days
6. Why is your credit report important? When applying for a loan or credit card, the lender will review your credit history closely Your credit records are collected and maintained by credit bureau’s Lenders rely heavily on this information to determine whether or not to extend credit to you Errors should be taken care of immediately by contacting 1 of the 3 main bureaus Experian Trans Union Equifax
7. Who can obtain a credit report? Only to properly identified persons Response to a court order Credit transaction Response to a job application Response to a rental application If someone who is not authorized just REQUESTS a credit report and is not entitled to it can result in a fine, imprisonment or both
8. Cosigning a loanWhy would someone ask a friend or relative to cosign a loan? If asked – THINK TWICE! Cosigning means that you agree to be responsible for the loan payments if the other person fails to make them You are taking a risk that the lender would not take If the person does not pay, YOU HAVE TO!
9. What information is needed to apply for credit/loan? Personal information Name, address, previous address, SS#, date of birth Employment information Name of employer, how long, previous employer Financial information Own or rent, bank accounts, loans, credit cards References Relatives not living with you, professional
10. Credit Card Offers When you hit 21 years old, they start coming in the mail Be smart Compare interest rates Annual fees and other fees (late payment, over the limit) Decide which best suits your needs SHRED any others that you discard
11. 20/10 Rule “Your total borrowing should not exceed 20% of your yearly take-home pay, and you should not take on monthly credit payments (excluding mortgage payments) that total more than 10% of your monthly take-home pay” Example: $45,000/year * 20% = $______________________ $3,750/month * 10% = $______________________