10.5 Notes Consumer Ed

Section 10.5: Maintain Good Credit

• In most cases, credit is still ruined for years while you attempt to clean up the mess

• To stay safe:

o Protect personal info.

o Keep track of bills.

True Name Fraud a.k.a. Identity Theft

• Involves using someone else’s identity to get cash or buy products using credit

• Criminal needs one of the following:

o SSN

o Driver’s license

o Credit card number

• If identity is stolen, the business that extends the credit is responsible for the debt.

Balloon Payment

Avoid Common Credit Mistakes

• This is one large, final payment.

• The goal of this is to keep payments low, until the final payment.

• Example:

o Car breaks down so you need a new car.

o You are expecting a big promotion, so you know you will be able to afford the final payment.

Start Small

Acceleration Clause

• Apply for department store credit card.

o Easier to obtain.

o Lower credit limits.

• Pay off balance at the end of the month.

• Because of lack of credit history, missing a payment early may cause you to lose account.

o This small blemish may have a big impact on your score.

• It is easier to destroy credit than it is to build it.

• Never miss payment.

• Never ignore bills.

• Pay on time.

• If you become unemployed, notify the lender.

o They may freeze your account and help you with a payment plan.

• Entire debt is owed if one payment is missed.

• If you don’t have the funds to pay the loan back in full, the item you purchased will be repossessed.

o Could also be taken to court.

• If you come across this in a contract, have it removed.

• If they refuse, do not sign!

Read What You Sign

Credit for Married Couples

Bankruptcy

• Legal process in which people cannot pay their debts, and therefore must surrender most of their property.

o Once all property is liquidated, they pay off what they can.

o They are NOT responsible for the remaining debt.

• The consumer is left with no assets.

• Credit is ruined for 10 years.

• Nearly impossible to get credit.

• Positive:

o Gives a chance for a fresh start.

• Contract (including credit cards) are legally binding.

• If you don’t understand something, ask the lender.

o If you don’t like something in the contract, don’t sign.

• Two dangerous clauses:

o Acceleration Clause.

o Balloon Payment.

• Establish your own credit from spouse.

o If you need to borrow money or if there is a split, your credit remains YOUR credit.

• Credit where both names appear impact both scores equally.

o If either miss a payment, both ratings go down.

Debt Consolidation

• Designed to pay off smaller loans and give you one payment to make each month.

• The payment will be smaller than the collective payments of the individual bills, but you will be paying for a longer period of time.

o Which means you pay more in the long run.

• Smaller payments do not mean you can spend more.