Understanding Money and Credit - navajochapters.org · 2013. 11. 22. · Avoid Credit Dilemmas Shop...

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Understanding Money and Credit

Presented By:

New Mexico Center for Financial Education

A division of Money Management International and its family of CCCS agencies

Learn how to Build and Manage a Stellar Credit History

Roberto Valdez-Beltran, Regional Senior Lender ACCION


Why are Credit Scores Important?

o Auto loans o Mortgages o Business loans o Employment


Why are Credit Scores Important?

“A consumer with a 760 credit score would have a monthly payment of $750 on a $25,000 auto loan over a three-year period with a 4.9% interest rate. Someone with a poor credit score of 600 would have a monthly payment of about $900 based on an interest rate of 17.7%.”

That’s a difference of over $6,000 over the life of the loan!


What We’ll Cover…

1. Understanding your credit score • Components of credit score • Reading your credit report

2. Building and managing a good credit history

• Using credit wisely • Creating a budget • Commitment to savings


What is a credit score?

• A credit score is a measure of the creditworthiness of a person

• It measures the likelihood that someone will pay off their debts

• In the United States, the most common credit score is the FICO

• The FICO score is a number between 300 and 850


Do you know your FICO score?

• 760 or higher = Excellent • 725 to 759 = Very good • 660 to 724 = Good / Average • 560 to 659 = Not Good / Below Average • Below 560 = Bad


What goes into a FICO score?


What goes into a FICO score?

• There are other special factors which can weigh on the FICO score: Any money owed because of a court judgment,

tax lien, etc. carry an additional negative penalty, especially when recent.

Credit pulls / Inquiries (soft vs. hard) Having one or more consumer finance credit

accounts may also be a negative.


Debt Load Worksheet

o Who do you owe? o How much you owe? o What are your monthly payments? o What is the interest rate? o When will the debt be paid in full?

**It takes planning and discipline to maintain

credit cards as financial tools!**


Total Monthly Debt Payments Total Monthly Net Income Where do you stand? Under 15% = Relax 15% - 20% = Be Cautious Over 20% = Danger !!

Determine your Level of Debt

= DTI Ratio


Avoid Credit Dilemmas

Shop around for best interest rates; beware of hidden costs Make your payments on time Keep balances low on credit cards Pay more each month than minimum payments Contact creditors immediately if you cannot make a payment Refrain from using credit for long-term debt and purchases you don’t really need Don’t take on monthly payments you cannot afford Don’t borrow to make payments on existing debt


Building your Credit Score

• Pay down revolving debt (but don’t close!) • Pay off negative trades:

Collections, charge-offs, tax liens, etc.

• Take out manageable debt: Small credit card:

• Be sure to make your monthly payments • Don’t run up high balances

ACCION Credit Step Loans • $200 loans for 6 months

• Monitor your credit report: www.annualcreditreport.com

http://www.annualcreditreport.com/�


Fernand Loumouamou, a refugee and civil war survivor increased his credit score from 0 to 650 in just two years with two ACCION loans Tucson, AZ


Managing a Good Credit Score

• Set Financial Goals • Create a budget • Commit to Saving


Set Financial Goals

• Needs vs. wants • Short-term, mid-term, long-term • Write goals down • Review regularly and adjust • Measurable, realistic, target date


Create a Budget

What is a Budget?

o How much do I make? o How much do I spend? oWhat’s the difference between the

two?


Excess Saving enough? Included all

expenses? Paying off debts

more aggressively? Shortage Increase income Decrease expenses Combination of

both

Expenses vs. Income


Types of Expenses

• Fixed – normally the same amount

month to month • Variable – an expense that varies in

amount month to month • Periodic – an expense that occurs

only every once in a while


Budgeting Works!

Increases savings Prevents impulse spending Helps you decide what you can

afford Identifies expenses that can be

reduced Accelerate debt repayment


Budget Allocation

Category Percent Range Personal Debt 14% 10 – 20%

Housing 27% 20 – 35%

Food 21% 15 – 30%

Transportation 8% 6 – 20%

Utilities 6% 4 – 7%

Clothing 4% 3 – 10%

Savings 7% 5 – 9%

Insurance 6% 2 – 4%

Personal Care 3% 2 – 4%

Health 3% 2 – 8%

Misc. Items 3% 2 – 8%


Commit to a Savings Plan

• Essential to financial success • Only way to reach your

financial goals • Increase your net worth and

borrowing power


Build your savings

o Make savings automatic (pay

yourself first) o Money IS for saving as well as

spending o Be careful with cash o Reap the benefits of compound

interest (see next slide)


$2,000.00 Initial Investment $2,000.00 Initial Investment $2,000.00 Investment$4,000.00 24 years $4,000.00 12 years $4,000.00 6 years$8,000.00 48 years $8,000.00 24 years $8,000.00 12 years

$16,000.00 36 years $16,000.00 18 years$32,000.00 48 years $32,000.00 24 years

$64,000.00 30 years$128,000.00 36 years$256,000.00 42 years$512,000.00 48 years

72 divided by 12=6 years

Example ofInvestment

3% 6% 12%72 divided by 6%=12 years72 divided by 3%=24 years

RULE of 72



Note: 72 divided by any interest rate will give you the number of years necessary to double your money

Rule of 72


Thank you!

Roberto Valdez-Beltran (520) 305-2185

[email protected]

Understanding Money and Credit - navajochapters.org · 2013. 11. 22. · Avoid Credit Dilemmas Shop...

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