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WHPE
What is Credit?
What is Credit
Credit can be a useful tool that helps you
to make major purchases, like a car or a
house, by letting you pay for them over
time.
It's convenient, it can help in emergencies,
and its safer than carrying cash.
Types of Credit
An open-end credit account is one under
which you can make repeated purchases.
You can either pay the balance in full or in
installments.
Examples of open-end credit include credit
cards like Master Card and Visa, gas
cards, and department store cards
28/36 Rule
A good credit risk when mortgage
payments are below 28% of gross
monthly income, and total debt
payments are below 36%.
Credit Reporting
Agencies
Equifax
Experian
TransUnion
Insurance Companies
Landlords
Employers
Utility Companies
Government Agencies
YOU!
2. Understanding Credit
Scores
Determining
Creditworthiness
Your credit information translates into a
three digit number your credit score
which measures your creditworthiness.
Involves the numerical evaluation or
scoring of applicants.
Reduces the lenders uncertainty, enabling
the lender to make credit available to good
risk customers at lower interest rates.
Credit Scores
FICO Score most widely used
Vantage Score 3 Bureaus
Many other score brands
Reported?
Yes
Yes
Sometimes
Payday Loans
Short-term; high cost loans
Rent to Own
Rental is disguised as loan
No (rarely)
No (rarely)
FICO Score
New Credit
New applications for credit will lower your score.
Those moving towards bankruptcy take all available credit
to stay afloat.
Consolidation loans
Refinancing your home
Transferring balances
Use a credit counselor to negotiate debt
Discharge debt (file bankruptcy)
4. Seeking Help
Caution!
Unscrupulous providers charge upfront fees
May make situation worse
DMPs
Debt Management Plans
Voluntary Agreements between borrower and
lenders
Designed to help organize debts
Counselor Can re-negotiate bills due
Bankruptcy
Bankruptcy
Personal bankruptcy doesnt wipe out all obligations.
Chapter 7
Straight bankruptcy
Chapter 11
For businesses or those exceeding debt
limitations or lack regular income.
Chapter 12
Available to family farmers.
Chapter 13
The wage earner plan
**personal bankruptcy doesnt wipe out all obligations
Chapter 7: Straight
Bankruptcy
Allows individuals who dont have any
chance of repaying debts to eliminate them
and begin again.
While you will not lose everything, courts
confiscate and sell most assets to pay off
debts.
Some debts remain including child support,
alimony, student loans, and taxes.
Chapter 7: Straight
Bankruptcy
To qualify, you must pass a means test
and cannot file Chapter 7 bankruptcy if:
Income is higher than median in your state.
Have more than $100 in monthly disposable
income.
Have sufficient disposable income to repay at
least 25% of your debt over 5 years.