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Put together for my international students who do not understand our economy and what is needed to qualify for a loan. It also goes through the difference between credit and debit cards, and how not to get into financial difficulty.
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Personal Finance
Understanding and Managing Credit
© Craig Pickering 2013
Personal Budget
•2
Personal Budget
Income Weekly Monthly Expenses Weekly MonthlyWage 1 -$ -$ Rent -$ -$ Wage 2 -$ -$ Food -$ -$ Other -$ -$ Transport -$ -$
Petrol -$ -$ TOTAL -$ -$ Insurance -$ -$
Clothes -$ -$ Entertainment -$ -$ Savings -$ -$
Net available -$ -$ TOTAL -$ -$
Credit bureaus, credit reports, & your credit score
Correct use of credit cards How to manage your credit cards How credit cards work Costs involved
Credit CardsO Credit Cards
O What type of credit card user are you (credit, convenience, or both)?
O What types of cards do you have?O What is the interest rate, calculation method,
cash advance costs, credit limit, etc. for each of your cards?
O Action Plan:O Which card(s) should you have and why?O What will you do to improve your credit card use?
O Credit Reports and Credit ScoreO Have a copy of your credit score and credit
report?O Have you checked the credit report for
mistakes?
O Action Plan:O What is your plan to improve your credit
score?
Credit Cards
Understanding Credit Bureaus, Credit Reports, and Credit Scores
O Credit BureausO Private organisations which maintain credit
information on individuals.O Credit Reports
O Information collected by credit bureaus from subscribers, creditors, public court records.
O Credit Scoring O A numerical evaluation of your credit based on
specific criteria determined by the credit scoring company.
O Information on your Credit ReportO Personal demographics
O AgeO Tax File NumberO Addresses
O Employment historyO Credit historyO Criminal convictions and judgmentsO Credit inquiries
Credit Bureaus, Credit Reports, and Credit Scores cont.
Factors that determine Credit Worthiness Annual income Time at current residence Time at current job Age Employment Number of bank accounts Number of credit cards Credit history
Credit Bureaus, Credit Reports, and Credit Scores cont.
O Getting your Credit ReportO You can get a free copy of your creditO They send you a copy in the mail
Credit Bureaus, Credit Reports, and Credit Scores cont.
Understanding Credit Cards and the Correct Uses of those Cards
O What are credit cards?O Credit cards are essentially open lines of
creditO Credit cards can be the single most destructive
financial instrument in your life!
O Why are they so destructive?O Users do not understand them
Credit Cards (continued)
O Average debt per card holder is $4,700 ($3.6 billion total)
O They pay over $800 per year in interestO Interest rates can be as high as 20%
•11
Credit Cards (continued)
O What are the correct uses of credit cards?O Guarantee / Emergency Use
O Hotel rooms, rental cars, emergencies, etc.
O ConvenienceO Buying things over the internet
O Float/TimingO Buy things before you pay for themO Can take advantage of things on sale
O Free servicesO Extended warranties, travel insurance
Credit Cards (continued)
O Problems with Credit Cards?O It is too easy to spend moneyO It’s easy to lose track of what you spendO Interest costs are very high
O They are double to triple other funding sources
O You are obligating future incomeO Debt limits future flexibility
Credit Cards (continued)
O Keys to Effective Credit Card Use:O Know your goalsO Spend only on things planned in your budgetO Don’t go into debtO Use your head!
Credit Cards (continued)
O Debit CardsO What are debit cards?
O Debit cards are like a credit card but you are using your money from your account.
Know How to ManageCredit Cards and Open Credit
O Four key areas:O 1. Reduce your balanceO 2. Protect against fraudO 3. Be aware of trouble signs in credit card
spendingO 4. Control your spending
Control Your Spending!O Commit to always live on less than you earn
Earn $1 spend 99c = ComfortableEarn $1 spend $1.01 = Poor
