Financial Literacy Session Series for Solid Finances Management

2. Welcome • 3rdof 16 Sessions • No cost to participate. • Financial Support: • FINRA Foundation & United Way Worldwide • Solid Finances Webpage: • www.msuextension.org/solidfinances 2

3. Text Your Questions • Do you have a Question? • Do you want to comment? • Type in the Q & A pod:

4. Send Your Questions Click this after typing question in Q & A Pod

5. Schedule • Money Management • October 20th Saving Money by Paying Down Debt 5

6. Schedule Investments November 30Investment Risks December 7Personal Risk Tolerance & Asset Allocation December 14Mutual Funds December 21Mortgages (Refinancing & Reverse) 6

7. What’s Your Credit Score? &What Does it Mean? Joel Schumacher 7

8. Question A: I learned about Solid Finances from • Mailed Flyer • Campus Email • Poster • Newspaper • Other 8

9. Question B: A Credit Report and a Credit Score are the same • True • False 9

10. Question C: A Credit Score is issued by a lender • True • False 10

11. Question D: The Maximum Credit Score is 900 • True • False 11

12. The Lending Decision • Who Lends Money? • Banks & Credit Unions • Finance Companies • Credit Card Issuers • Utility Companies • Electricity, Gas, Phone, Cable, Internet • Landlords? 12

13. The Lending Decision • What does a Lender do? • Connect Savers with Borrowers • Who are the Savers? • Bank Customers, Stock Holders, Bond Holders • Savers want to be paid for using their money • Saver’s don’t want to lose their money • Borrowers have to pay to use Saver’s money 13

14. Lender’s Role • Transactional Role • Accounting, Statements, Legal, Physical Location • Information Role • Lenders want to know: • How risky is a potential borrower? • Borrowers want to know: • Can I borrow money and what are the terms (rate)? 14

15. Five “C’s” of Credit • Capacity • Income & Assets • Capital • Investment in this project • Collateral • Loan is secured by a car or home • Credit • How has a borrower managed credit in the past • Character • Borrower’s “dedication” to debt repayment 15

16. Question E: If couldn’t pay all of your bills which bill would you not pay first? • Cable TV • Phone Service • Mortgage/Rent • Car Loan • Credit Card 16

17. Credit Reports A Credit Report is your history with credit. The report contains: • Your Name, Address, SSN, DoB, Employment information • Your loans (current & past) including credit cards • Balance & Terms • Payment history • Court Judgments, Tax Liens, Past Bankruptcies • Companies who have requested a copy of your Credit Report 17

18. Credit Reports • What is not in your report: • Your Income • Your net worth • Many on-time bill payments • Age 18

19. Who views my Credit Report? • Lenders • Utility companies, phone, TV, internet, etc. • Your employer or potential employer • Only with your approval • Insurance companies • Government agencies reviewing your status for benefits • Anyone with “legitimate business” need • For Example: potential landlord or court order 19

20. Question F: Which of these provides a free credit report every 12 months (no strings attached)? • FreeCreditReport.com • AnnualCreditReport.com • FreeScore.com • FreeScoreOnline.com 20

21. Accessing Your Credit Report • www.annualcreditreport.com • Or call 1-877-322-8228 • You need to provide: • Name • Address • Social Security Number • Date of Birth 21

22. Credit Reports • What if I find an error on my report? • Contact the reporting agency • How long does negative information stay on my report? • 7 years, for most information • 10 years for a personal bankruptcy • No limit for criminal convictions 22

23. Questions on Credit Reports 23

24. What is a credit score? • A Credit Score is an attempt to quantify the credit report. • Credit scores are issued by the same companies that issue credit reports. • Higher scores indicate a lower risk (a good borrower) • FICO Score range from: 300 to 850 • Median Fico Score is about 725 24

25. Different Scores • Experian Plus Score: 330-830 • Equifax Credit Score: 280-850 • Vantage Score 2.0: 501-990 • FICO Scores: • FICO 300-850 • NextGen: Max 950 25

26. Average Credit Scores • FICO Scale (300-850) • 20% 780-850 • 20% 745-780 • 20% 690-745 • 20% 620-690 • 20% 300-620 • Median Score: 725 26

27. What is a credit score? • Exactly how there are calculated is a secret • 35% Payment History • Late payments can lower this area • 30% Credit Utilization • Using the full credit limit on a credit card can lower this area • 15% Length of Credit History • No credit history or a short credit history can limit your score • 10% Types of Credit Used • Some types of credit look better than other • 10% Recent Searches for Credit • Applied for several loans at once can be red flag for a lender 27

28. Question G: Which lowers your score more? • A missed payment 3 months ago • A missed payment 5 years ago • Any missed payment in the last 7 years is equal 28

29. Why does your score matter? • Borrowers with low scores may… • Be required to have higher down payments • Be required to make a security deposit • Be charged higher interest rates • Be denied credit 29

30. $200,000 Mortgage Example Monthly Total Premium Premium 360 Payments • 5.780% 760-850 $0 $0 • 6.002% 700-759 $28 $10,223 • 6.286% 660-699 $65 $23,457 • 7.096% 620-659 $173 $62,123 • 8.583% 580-619 $379 $136,312 • 9.494% 500-579 $510 $183,554 • Denied below 500 Rates from BankRate.com (3/07) 30

31. Where can I get my credit score? • You may purchase one from: • Equifax, Experian or TransUnion • If you apply for a loan, your lender may provide it for free. 31

32. Key Points • Credit Reports can be obtained for free. • Credit Scores are generally not free. • Low credit scores can cost you money. • How you manage your current credit affects your score. 32

33. Questions? 33

34. Final Thought Take Ownership of Your Finances! No one else will! 34