Applying for CreditUnit 3

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?

Why does a lender need to know about your credit history to extend credit?

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

How can I improve my credit score?

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

What if your application is denied?

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

Why is your credit report important?

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

Who can obtain a credit report?

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!

Cosigning a loanWhy would someone ask a friend

or relative to cosign a 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

What information is needed to apply for credit/loan?

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

Credit Card Offers

“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% =

$______________________

20/10 Rule