The Importance of Credit, Budgeting/Planning, and Building for a Bright Financial Future

University of New Mexico School of Medicine October 31, 2012 November 2, 2012 November 7, 2012

QUOTES REGARDING MONEY & PLANNING

“Planning and controlling consumption are key factors underlying wealth accumulation ..

Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.”

Thomas Stanley & William Danko

“Financial freedom does not come from having a large income but from wisely managing the money you have/earn.”

Anonymous

If you can’t afford it, don’t buy it!!

Warren Buffett

YOUR FINANCIAL PLAN

YOU RETIREMENT ESTATE PLAN INCOME PROTECTION

FINANCIAL PLANNING/ INVESTING HOME BUYING (POSSIBLE) IDENTITY THEFT

CREDIT/DEBT SERVICE/STUDENT LOANS BUDGET, BUDGET, BUDGET

OBJECTIVES IDENTIFY elements of a credit REPORT to verify that the information is yours and that it is accurate ESTABLISH the difference between a credit REPORT & a credit SCORE RECOGNIZE what your credit SCORE may tell “them” about “YOU” so that you will be able to anticipate responses & consider modifying your behavior, with money, if necessary IDENTIFY the factors that influence a credit SCORE so you can make sure yours is in a good range

↨ REVIEW basics of building a budget so you can keep yourself on track to financial health/wealth LEARN what most millionaires have in common LEARN the “what,” “why,” and “how” of becoming a millionaire due to budgeting

WHAT IS CREDIT? • the favorable estimate of a person’s character; reputation; good name

• trust in one’s integrity in money matters and in one’s ability to meet payments when due

IT IS NOT defined as a 2 x 3.5 piece of plastic!!!

source: Webster’s New World Dictionary

ELEMENTS OF A CREDIT REPORT •historical summary of financial payment activity: →mortgages →student loans →rent payments →credit cards →car payments →library fines →utilities →parking tickets →revolving loans →apartment rental agreements ►ANY CONTRACTUAL FINANCIAL ARRANGEMENT!! INCLUDING: →current balances on all outstanding debts, i.e., credit cards, lines of credit, mortgages, student loans, etc. →bankruptcies, liens, judgments, repossessions, collection items, etc. →HARD inquiries about credit from various companies

►person with a good credit report is likely to get a LOAN with a BETTER INTEREST rate than someone with a poor credit report

WHAT IS A CREDIT (FICO) SCORE?

• FICO = Fair Isaac Corporation (uses predictive analytics)

• calculates a number based on your personal credit BEHAVIOR = “GRADE”

►GRADES you on how well you BEHAVE WITH MONEY!!

• potential creditors use it to indicate the likelihood you will repay a loan

source: myFICO.com

MONITORING YOUR CREDIT REPORT • FREE, annual credit report & FAQ’s ►Experian, Equifax, & TransUnion ►www.annualcreditreport.com ►stagger your requests, quarterly, to keep an eye on your credit •

check for erroneous information … ►similar names ►similar SS #’s ►identify theft, etc.

• each offers a “credit score” (for a fee)

• finances get “out of whack” ……………. everything else “ON HOLD”

If you have children = monitor their credit reports, too!! 400,000 children a year are victims of ID theft! (source: Kiplinger.com August 12, 2010)

WHAT DOES NOT COUNT (AGAINST YOU) IN A CREDIT SCORE? ►”SOFT

INQUIRIES” = you checking your own report & queries for best rates, such as:

►shopping for “best” mortgage rates &/or home equity loans ►shopping for “best” car loan rates ►shopping for “best” private student loan rate

►promotional inquiries = pre-approved offers Within a 30 day window!!

►inquiries from (potential) employers (for employment) ►administrative request by a lender to review with you

►more “HARD INQUIRES” makes you “appear more risky to potential lenders” and has proven to be an indicator of greater likelihood to declare bankruptcy

WHAT REMAINS ON A CREDIT REPORT & FOR HOW LONG • BANKRUPTCY: • Chapter 7 = 10 years • Chapter 11 = 10 years • Chapter 13 = 7 years

• FORECLOSURE(s): • remains on your report = 7 years

• LOAN(s) in collection: • remains on your report = 7 years

• REPOSSESSION(s): • remains on your report = 7 years

• CAN RE-ACTIVATE AT ANY TIME!!

FACTORS INFLUENCING YOUR CREDIT SCORE Types of credit used Payment history New credit

10%

10%

35%

15% Length of credit history

30%

Amounts owed (debt-to-credit limit – keep it