The Importance of Credit

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The Importance of Credit

• Good credit is important in today’s world.

• Credit puts power in the right hands…yours.– Making time sensitive purchases– Buying big ticket items– Pay for major expenses– Make certain purchases possible– Meet emergency expenses– Some employers view credit reports on potential employees

before hiring.

How to Build Credit

• Start with what you can handle• Develop what you’ve attained• Once you’re in good shape, you can take on more

You are responsible for the quality of your credit!

• Pay on time, avoid late fees• Pay more than the minimum due, if possible• Use cash advances only for emergencies• Borrow only what you can afford

Good credit pays off

• Helps you get credit in the future• May qualify you for lower rates• Frees up money for other things• Gives you peace of mind

What is credit?

• Credit is an extension of money to a person for personal, family or household purchases

• Credit is the amount you’re approved to use• The debt – or amount you owe – must be repaid to

the lender by the terms set forth in the legal agreement between the borrower and the lender

• Types of credit:– Mortgages, credit cards, personal loans, home equity loans,

auto loans, lines of credit, etc.

Credit can work to your advantage

• The benefits of credit– Offers convenience– Lets you do more with what you have

• The importance of a credit plan– Reduces worries– Keeps debt manageable– Makes credit work for you, not against you

Secured vs. unsecured credit

• Secured credit– Leverages collateral for the purpose of:

• Obtaining higher loan/line amounts

• Establishing credit history

• Unsecured credit– No collateral

Loans and lines of credit

• Loans (Closed end)– Entire amount provided up

front

– Fixed monthly payments

– Set time to repay

– Fixed and variable interest

Examples:

Car loans, mortgages

• Lines (Revolving)– Use credit as needed

– Payments based on use

– Time to repay flexible

– Usually variable interest

Example:

Credit cards

The cost of a loan

Annual interest

+

Fees and charges

= Annual Percentage Rate (APR)

The cost of a line of credit

• Total cost depends on– Type of line– Amount used– When you pay

• Cost includes– APR: interest on what you owe– Annual fees– Finance charges– Late charges– Cash advance fees

Credit reports paint your financial picture

• Credit reporting agencies track credit use and payment history– Compile reports and scores– Sell to lenders, landlords, and others

• Lenders use credit reports and credit scores to help determine:– Whether to extend credit– Amount or credit limit– Rates

Have a good credit strategy

• Decide when to borrow• Review your budget• Determine the right type of credit• Continually monitor your overall credit position

Strengthen your credit situation

• Apply only for what you can manage• Build credit with appropriate products• Always pay on time• Limit the use of credit if your debt increases• Seek help if you’re struggling with debt

When does borrowing make sense?

• When you:– Know you can pay it back– Need to buy before money is available– Can get a better price buying now– Want to stretch payments over time

Monitor your credit

• Review credit at least once per year– www.annualcreditreport.com– 1-877-322-8228

• Keep track of all outstanding credit balances• Look for opportunities to reduce the amount of

interest you’re paying

Ways to manage your debt

• Lower the cost of credit by making accelerated payments

• Simplify debt repayment by consolidating debt and paying one bill

• Reduce monthly payments with a consolidated loan that fits your budget

Now is the time to act

• Get on track to obtain credit• Meet with someone to discuss how credit can work

for you• Schedule an appointment today

Thank you!