HDFS 357 1st Edition Lecture 9 Outline of Last Lecture I II III IV V What is consumer credit Advantages of Credit Disadvantages of Credit Closed Open Credit Credit Cards Outline of Current Lecture I II Applying for Credit Credit Report Score Current Lecture LECTURE 9 Applying for Credit What Creditors look for 5 Cs o 1 Character do you pay bills on time o 2 Capacity can you repay the loan o 3 Capital what are your assets and net worth o 4 Collateral what property do you have that the lender can repossess if you default on the loan Ex loan for vehicle collateral vehicle o 5 Conditions what economic conditions could affect your ability to repay the loan Credit Report Score Credit Report o 3 Credit Bureaus collect and compile information Experian Trans Union and Equifax o Get copies of your credit report to review for accuracy 1 copy per year for free from each of the 3 bureaus Does not include credit scores Credit Score o Numerical summary of your credit risk o How much money you owe how long you have owed it how many accounts you have how often you miss or are late with payments what types of credit accounts you have o Each of the 3 Credit Bureaus have a score FICO Scores and Vantage Scores FICO is the most widely used score in credit decisions o Score ranges from 300 850 o FICO does not actually gather data about individuals rather the FICO mathematical formulas are applied against the data from the 3 credit reporting agencies to calculate a score Protection Under Consumer Credit Laws o Truth in Lending Requires that cost fee interest rate disclosure o Equal Credit Opportunity Act Prohibits discrimination in accessing credit o Fair Credit Billing Act Procedures for when billing errors occur Lays out that you have protections o Fair Credit Reporting Act Credit companies and credit bureaus must correct inaccurate or incomplete information Only authorized persons have access to your report o Consumer Credit Reporting Reform Act Right to stop pre screened offers