Give Yourself Some Credit!
A Greylock Federal Credit Union Financial Literacy Guide
Contents
How Does Borrowing Money Work? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
What Is a Checking Account? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
What Is a Savings Account? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
How to Use an ATM (Automated Teller Machine) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
What Are Credit Cards and How Do They Work? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Using Check Cards (Debit Cards) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
How to Plan for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
“Making a Budget” Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
What Kinds of Money-Lending Are Unfair? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
What to do if You Have Been a Victim of Predatory Lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
What Is a Credit Score and What Does it Mean? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Quiz . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Fusion Membership Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Developed in collaboration with
the Gladys Allen Brigham Community Center.
Information in this document is from:
http://www.pueblo.gsa.gov/cic_text/money/creditscores/your.htm
http://www.myfico.com/
© Greylock Federal Credit Union. All rights reserved.
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How Does Borrowing Money Work?
When there is something that you need, but you do not have enough money to pay for it (like
a car or house), you can borrow money from a bank, a credit union, or another lender. This is
called a loan.
When you have a loan, you agree to pay it back over a set period of time. You also have to pay
interest on the money you borrow. Interest is how much it will cost you to borrow the money you need.
Borrowing money can be complicated. It is important that you do some research to make sure that
you find a loan that works best for you.
Here are some important guidelines for borrowing money…
1. Find The Best Interest Rate.
The interest rate is how much it will cost you to borrow the money that you need. You should call
several credit unions or banks to see what their interest rates are. This will give you an idea who
to borrow money from. Make sure to find out if there are any other fees or charges for borrowing
money from a particular bank or lender.
2. Read The Fine Print.
The fine print is all of the details of a loan. You can also ask someone who has borrowed money
before to help you understand the details of the loan. You need to know what the details of
a loan are before you sign the agreement to borrow money (a loan).
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3. Understand What Happens If You Do Not Pay Your Loan.
If you do not pay your loan on time or do not follow the details in the fine print of your loan, you
are in what is called “default.” It is important to know what the bank or lender who gave you the
loan will do if you are in default.
4. Understand What Happens If You Pay Your Loan Off Early.
It can be a good thing to pay off your loan early. It can also mean that you will have to pay a fee.
When you pay your loan off early, you do not pay as much interest to the bank as you said you
would when you signed the loan.
5. Know And Improve Your Credit Score.
The amount of interest you pay for your loan often depends on your credit score (see What Is A
Credit Score And What Does It Mean). If you want to borrow money, check your credit score and
learn what you can do to improve it. If you’ve missed or not made a payment on any of your bills,
you will need to make payments on time for six months (at least) to show that you are responsible
with your money.
6. Lenders Want To Know That You Can Pay Them.
A lender will ask for credit references and make you fill out a credit application form. Based on
your references and answers, you will be given a “credit/risk score.” If the lender thinks you score
highly, you will be given the loan. If the lender thinks you do not score highly, you may not be
given the loan. The lender may also consider the following:
• How much money you make
• How long you’ve been working at your current job (if you have a job)
• How long you’ve been living where you live now
The more stable you are and
the more responsible you are with your money,
the better chance you have of getting a loan.
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What is a Checking Account?
A checking account is a safe place to store your money. When you open a checking account
at a bank or credit union, they store your money for you and give you checks. When you want to
use the money, you write out a check to pay for items instead of using cash.
Here are some facts about checking accounts…
1. When you have a checking account at a bank or credit union, you have to keep some money in the
account all the time. You may have to pay a small amount of money to the bank or credit union for
them to store your money for you and give you checks. A person who works at a bank or credit union
can tell you if there are other fees for having a checking account at their bank or credit union.
2. When you write a check, the bank or credit union takes the money from your checking account and
pays the person or business you are writing a check to. Before you write a check, you should make
sure you have more money in your checking account than the amount you write the check out for.
3. You need to keep track of the checks you write in a booklet called a check register. You also
need to keep track of how much money you have left after you write a check. You will not know
how much money you have if you do not do these things.
4. If you write a check and do not have enough money in your checking account, you have what is
called an “overdraft.” This is because you have attempted to “draw” more money from your account
than you have available to you. When this happens, the credit union will charge you a fee that you
will have to pay. These charges are different at different banks and credit unions.
5. Some checking accounts have overdraft protection. This is money the bank or credit union lends
you when you do not have enough money in your checking account to cover a check that you write.
This money must be paid back to the bank or credit union. Some banks and credit unions let you set
up your accounts so that money from your savings account is put into your checking account when
you write a check for more money than you have available in your checking account.
6. Once every month, the bank or credit union will send you a statement that shows all the checks
you wrote during that month.
7. You should compare the statement
that the bank or credit union sends
you with what you have written in
your check register. This is called
balancing your checkbook.
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Sample Blank Check…
Your name
and address
Cindy Smith
5555 Lake Lane
Pittsfield, Ma 01201
Who you are
paying money
to
Amount
Amount
spelled out in
letters
75 Kellogg Street, Pittsfield MA 01201 • (413) 443-5114
Memo
(to remind
you what you
purchased or
paid for with
the check)
Your Signature
Sample Blank Check Filled Out…
Cindy Smith
5555 Lake Lane
Pittsfield, Ma 01201
Best Food Grocery Store
Fifty Three dollars and 00/100
Sept. 25
08
53.00
75 Kellogg Street, Pittsfield MA 01201 • (413) 443-5114
Groceries
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Cindy Smith
What is a Savings Account?
A savings account is a safe place at a bank or credit union to store your
to use at a later time.
money that you want
Here are some facts about savings accounts…
1. It is a smart idea to put some of your money into a savings account.
2. You can store money in a savings account for a short or long period of time.
3. A savings account earns interest. Interest is money the bank or credit union pays you for storing
your money in one of their savings accounts. The amount of interest you are paid depends on how
much money is in your savings account. The more money there is in your savings account, the more
interest you will be paid.
4. You do not usually have to pay extra money to have or open a savings account.
5. You cannot write a check for money you have stored in a savings account.
6. A money order is a check the bank or credit union writes using money from your savings account.
It is a good way to use the money in your savings account and an alternative to using a checking
account or cash to pay for everything.
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How to Use an ATM
(Automated Teller Machine)
An ATM lets you take money out of your savings or checking account any time of the day, any day
of the week without having to go inside the bank or credit union where you have your accounts.
It is very convenient to use an ATM. The bank gives you a special ATM card that gives
you, and only you, access to the money in your savings or checking account 24 hours a day,
7 days a week.
Here are some important facts about using ATM Machines…
1. Most banks and credit unions have ATMs. If you use your card at another bank’s or credit union’s
ATM, you will be charged a fee to use that ATM (usually $3.00). You will also be charged a fee by
your bank for using another bank’s ATM to get your money. To avoid these fees, you should try to
use your own bank’s or credit union’s ATMs.
2. You can use ATMs to see how much money you have in your checking or savings account.
3. Your bank’s or credit union’s ATM may allow you to deposit money into your checking or savings
account using a special envelope available at the ATM.
4. Many banks and credit unions now offer online banking. This is an easy way to keep track of your
bank or credit union accounts from anywhere where there is internet service. You can find out how to
access your savings or checking account online by asking someone who works at your bank
or credit union.
5. Many banks and credit unions have fees for using ATMs that you may not be aware of. Some
banks and credit unions charge more than others. The only way to avoid these fees is to be aware,
ask questions and do research to find the bank
or credit union that is best for you.
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Sample ATM…
Receipt Printer
Display Screen
BALANCE INQUIRY
Screen Buttons
FAST CASH
Card Reader
CASH WITHDRAWAL
DEPOSIT
Cash Dispenser
Deposit Slot
Keypad
Options to choose from at an ATM
Balance Inquiry Select to find out how much money you have in your checking or savings account.
Fast Cash Automatically deducts $40 out of your checking account and gives it to you in cash.
Cash Withdrawal Lets you choose the amount of cash you want to take out of your checking
or savings account.
Deposit Lets you choose the amount of money you want to put in to your checking or savings account.
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What Are Credit Cards and
How Do They Work?
Like a loan, credit cards let you borrow money that you will have to pay back. Credit cards
also charge you interest for borrowing money. Remember, interest is how much it will
cost you to borrow the money you need.
Here are some important facts about credit cards:
1. Do Not Use Credit Cards For Impulse Shopping
Impulse shopping is when you buy something just because you want it, not because you need
it. The money you have left over after paying necessary monthly bills or putting money into your
savings account should be used for this purpose. If you do not have the money, do not spend it.
2. Find The Best Interest Rate a Credit Card Can Offer You
Interest rates vary from credit card to credit card. It is important to know this information. The
higher the interest rate, the more money you will have to pay to borrow the money.
3. Know Your APR (annual percentage rate)
The APR is the percent that you will be charged on each item you purchase using your credit card,
if you do not pay off all the money you borrow at the end of each month. Know the amount you
will be paying on the things you buy using your credit card. The APR for your credit card is based
on your credit history. Your credit card company can change your APR without letting you know.
These changes raise or lower the finance charge on your credit card.
4. Know How Much You Can Afford To Repay On Your Credit Card
It is important to understand how much money you will have available to repay the money you
have borrowed and how long it will take you to repay all of the money.
5. Plan For The Unexpected
It is a good idea to have some money in
a safe place, like a savings or checking
account, in case an unexpected expense
comes up. This way, you will be able to
keep making your credit card payments.
6. Know Your Credit Card
Understand all of the details before
signing any credit card agreement.
Know what you are agreeing to
before you use a credit card.
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7. Know Your Finance Charges.
The finance charge is a fee you pay to the credit card company. When you do not pay all of the money
back you have borrowed from the credit card company at the end of each month, you must pay the
APR on the amount of money you still have to pay back. If you pay back the credit card company all
the money you borrow each month on time, you will not be charged any finance charges.
8. Know If Your Credit Card Has An Annual Fee.
Some credit cards have membership or participation fees. These can be $25 to $100 a year or more.
9. Know All The Other Costs Your Credit Card Has
Credit cards may also have other costs. Some credit cards charge a fee if you use the credit card
to take out cash, make a payment late or exceed your credit limit (the credit limit is the amount of
money the credit card company has agreed to let you borrow). Some credit cards charge a monthly
fee whether or not you even use the credit card.
10. Do Not Apply For The First Credit Card Offer You See
Do some research to find the credit card that is right for you.
Remember these tips when you are looking for a credit card…
• Do some research to find the credit card that best fits your needs.
• Make sure you understand all the details of a credit card before you
accept or use the credit card.
Remember these tips when you are using a credit card…
• Save your receipts from your credit card purchases so you can make
sure your credit card bill is correct each month.
• Keep your credit card and account number in a safe place.
• Write down and keep in a safe place (away from your actual credit
card) your credit card number, expiration date and the phone
number of your credit card company. If your credit card is ever
lost or stolen, you will need this information.
• Carry only the credit card you will use.
Some general information from:
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre05.shtm
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Using Debit Cards (Check Cards)
Debit Cards offer a convenient and secure way to access money in your checking
account, either through an ATM or through a retail establishment, without having to write a check.
Debit Cards, also referred to as Check Cards, look a lot like credit cards. The principal difference
between the two is how they access money. A credit card helps you make a purchase by accessing
a credit line that you ultimately have to pay back. A Debit Card accesses available money in your
checking account by performing a debit or withdrawal almost as soon as you make the transaction.
Like credit cards, Debit Cards can be used practically anywhere.
Here are some common questions associated with the use of Debit Cards…
How do I use it?
Debit Cards can be used in a couple of different ways. One, you can use it with a merchant and sign
a receipt. You can use it to make a purchase over the Internet, by mail, over the phone or by using it
at a machine that will accept a PIN (Personal Identification Number.)
Why would I want to use a Debit Card?
Well, for one, it’s quicker than writing a check. You don’t have to worry about carrying cash either.
Merchants also like it better than checks because they don’t have to worry about collecting the funds on
the check… or worry about returned checks. The Debit Card guarantees the money for the merchant.
If you have trouble qualifying for a debit card but want to use plastic as a means of making
purchases, you can use a Debit Card as a buy now, pay now form of transaction. Debit Cards
are almost automatically included with checking accounts these days and can be used just like
a credit card for making purchases practically anywhere.
Is a Debit Card safe?
Absolutely. No matter where you are shopping, most—if not all—check cards provide multiple layers
of security. Some offer Zero Liability protection meaning that you’re protected against unauthorized
use of your card and fraud. You don’t have to pay
for fraudulent purchases you don’t make.
Are there fees associated with
the Debit Card?
There could be. Fees could range from
ATM charges to transaction charges through
the merchant. Always be sure to check with
your financial institution to see what fees
may apply to use.
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Tips for Responsible Use of the Card…
• Always know your account balance before using the card. You should not
spend what you don’t have available with a check card and if you happen to,
you may be charged overdraft fees just like you would if you wrote a check
on insufficient funds.
• Always take a receipt if available or write down the transaction in a journal
or other transaction record.
• Review your monthly statements or your online transaction history carefully.
• Remember to record any associated fees in your record along with the
purchase or debit amount.
• If your card is lost or stolen, report it to your financial institution immediately
for your own protection.
• Make sure to choose a unique PIN (Personal Identification Number) that only
you would know.
• Keep your PIN private. Memorize it. Don’t write it down where someone could
find it and NEVER tell anyone what it is.
Remember…
Sign – you save,
PIN – you pay.
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How Does Online Banking Work?
The Internet Banking service allows you complete 24/7 access to your accounts
through the internet. You can check balances, make transfers from one account to another, apply
loan payments, view check images and view transaction history.
• Easy communication with credit union representatives through secure messaging
• View account balances from home or from smartphone
• Make transfers between accounts (including transfers to accounts at other banks)
• Monitor account daily through use of account alerts.
• Sign up for E-Statements and BillPay
Here are some features of online banking…
External Account Transfer (A2A)
Account to Account Transfer (A2A) allows you to transfer to/from an account you own at one
Financial Institution to/from another account you own at another Financial Institution.
• Convenience of transferring funds to and from your accounts from two Financial Institutions
• History of transfers can be seen online
• Single Sign In
• Do not have to fill out paperwork each time you want to complete the transfer
• Only charge a low fee for outgoing transfers
• Faster and more secure than mailing a check to the other party
• Saves time and gas – no need to visit a branch
Person to Person Transfer (P2P)
P2P allows you to initiate a transfer to/from an account you own at one Financial Institution to/from
another individual by using either their email address or cell phone number. The recipient then
acknowledges the intent of the transaction and validates the receiving account.
• Ability to send to or request funds from another individual, not necessarily a member of your
Financial Institution
• Payment notification sent via email or text message
• History of transfers can be seen online
• Minimal transaction fee for outgoing funds*
• Managed within the secure environment of the Internet Banking platform
• No confidential information is needed (such as account numbers)
• Saves time, effort and energy
• Safe and secure payment alternative to Pay Pal and similar services
• Transfer requests expire after 5 days
* Free for Fusion members
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Bill Pay
Billpay is a free service provided through Internet Banking that allows you to easily pay bills from
home 24/7. You simply set up your payees, enter the amount of the payment and send them off!
•
•
•
•
•
•
Convenience of paying bills right through the Internet Banking platform
Allows for recurring payments
Payment history can be seen online
Payments can be effective dated for the future
Pay all bills in one place
Generally quicker than mailing payments
What Are E-Statements?
E-Statements are electronic
statements made available to you through a secure
Internet Banking product, and now through a separate, secure e-Statement access site for
non-Internet Banking users. You are alerted via email when your statement is ready to be viewed.
• Statements are always available the first week of the month, no waiting for postal service
• Statements are kept online for 15 statement cycles, including current month
• Never wait for paper statements to arrive in the mail
(especially on holiday/long weekends)
• Viewable wherever you are: home PC’s,
smartphones and tablets
• A change of address won’t affect your
statement delivery
• Good for the environment… Save a Tree!
• You can save these on your computer
for future reference
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Using The Mobile Banking App
You can view your account balance, history information and conduct
transfers through the mobile app. You can also access various branch and ATM locations
using a built in geo-location service.
If your phone is lost or stolen,
you may call us to deactivate the app from your device.
Sample APP…
Contact Icon
Refresh Icon
New Membership
Icon
Camera Icon
Location Icon
Double
Arrow Icon
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Double Arrow Icon Allows you to move funds 3 different ways:
1. Transfer – move money from one account to another
2. Pay Loan – make a loan payment
3. Pay Bill – make a payment to any Payee through Bill Pay
Camera Icon Only appears on checking accounts and is used to process Remote
Deposit Captures (RDC). The RDC feature allows you to capture a photo of a check
and deposit it into your checking account.
• Deposit checks remotely from anywhere or anytime
• No need to mail checks (reduced risk of checks being lost, more timely
receipt of deposit)
• Most domestic checks can be processed using RDC (exceptions are Foreign
items, Savings Bonds, Third Party Checks and Returned Deposit items)
• You can deposit as many checks as you’d like as long as the dollar amount
does not exceed the $2500 per business day deposit limit or the $5000 per
month limit
• Deposits made before 3:00 pm ET will be credited and available on the
2nd business day after the deposit is received. Deposits made after 3:00 pm ET
will be credited on the 3rd business day after the deposit is received.
• You can view previous or pending deposits by tapping the
“Previous Deposit” icon
• Checks should be securely stored after capture and can be destroyed
after 30 days
Envelope & Arrow Icon only appears on checking accouts enrolled in Bill Pay. It
shows recent bills paid, and any scheduled payments and their payment dates
through Bill Pay.
Refresh Icon appears on all accounts and will refresh and update the data being displayed. Also restarts the session time to help prevent timing out during use.
Common Actions There are two features under Common Actions
1. Move Money – provides the same capabilities as the Double Arrow icon without going to the Account detail or history page
2. Manage Payees – allows you to add, edit and delete payees
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How to Plan for the Future
It is never too early to start thinking about your financial future. You should be saving
money today, so you can live with comfort and stability in the future.
Here are some good ways to save money…
1. Pay Back Debt
Debt is the total amount of money you owe and need to pay back. Paying back your debt is important.
Debt from loans and credit cards can start out small but can grow quickly and become unmanageable.
The fees and interest you pay on loans and credit cards can make it even harder to pay back your debt.
To pay off debt, you need a plan, a financial plan. Financial planning is a road map to get out of or
stay out of serious debt. The longer it takes you to pay back or reduce your debts, the more money
you will pay in interest. The sooner you are able to pay back or reduce your debts, the more time
and money you will have.
There are different ways to pay back or reduce your debt. You can borrow money at a lower interest
rate to pay back high interest loans. You can limit your spending. You can also limit the amount of
money you place in other accounts. This will give you more money to pay back or reduce your debt.
2. Invest Your Money
When you have paid back or reduced your debt, you can place your extra money into a savings
account or invest your money in other ways. There are many ways to invest your money. Investing
money is when you take money and place it into an account that is designed to turn your money into
more money over time. Placing your money into savings accounts, the stock market, retirement funds
and Certificates of Deposit (CDs) are just some of the many ways you can invest your money. The
earlier you start investing your money, the more money you will have in the future.
3. Spend Less than You Earn
Spending money you do not have makes it impossible to invest your money or save for the future.
When you spend more than you make, you create more debt that you will have to pay back. A good
way to make sure you do not spend more than you make is to create a budget and stick to it. A budget
is a map that shows you where your money comes from and where your money goes each month.
4. Plan Ahead
It is a good idea to plan for the unexpected and
to be prepared. Having extra money in your
savings account is also a good idea in case
something unexpected comes up, like car
repairs or a doctor’s bill.
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5. Make And Stick To A Budget
Making and sticking to a budget is very important. A good budget helps you spend less money then
you make. It also helps you spend according to a plan, so you know ahead of time what you will be
spending money on. Part of your budget should include placing some money into a savings account.
Making a budget is easy. Start with how much money you make in a month. Then, look at all of the
things you need to spend your money on, like food, shelter and electricity. Be careful not to confuse
what you need to spend your money on with what you want to spend your money on. What you want
to spend money on, like a brand new TV or a vacation are things you should save your money to buy.
You can use the Making a Budget worksheet to start your own budget.
MAKING A BUDGET
In order to decide what you can actually afford to spend your money on,
you need to know what your basic living expenses are.
Monthly Income
Rent
__________________
Utilities (heat, electric, gas)
__________________
Phone (cell, home)
__________________
Cable
__________________
Internet Service
__________________
Car Payment
__________________
Gas
__________________
Insurance (car, renters)
__________________
Health Care
__________________
Clothing
__________________
Food
__________________
Savings
__________________
Taxes
__________________
Entertainment (eating out, movies)
__________________
Miscellaneous (incidentals, gifts, car repairs)
__________________
TOTAL MONTHLY EXPENSES:
__________________
What is left over
Some general information from:
http://www.the-home-improvement-web.com/information/finance-money/financial-planning.htm
http://blog.worldvillage.com/business/planning_your_financial_future.html
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19
What Kinds of Money-Lending
are Unfair?
Predatory lending is when a lender tries to trick someone into accepting an unfair loan with
hidden fees. This makes it difficult or impossible for the borrower to pay back the loan. When
this happens, the borrower may lose the item they took out the loan for (for example, their house).
Here are some examples of the most common kinds of predatory lending…
Excessive Fees
Sometimes there are additional costs for borrowing money called “points” or fees. These extra costs
are in addition to the interest (the amount you pay to borrow money) and can be “added to” or hidden
in the loan without the borrower knowing.
For most home loans, it is normal to be charged about 2% of the total loan amount. For example,
if you apply for a home loan in the amount of $100,000, you can expect to pay around $2,000 in fees.
Many predatory home loans will charge fees that total more than 5% of the total loan amount (for
a loan of $100,000, that means more than $5000 in fees!). It is important to make sure your lender
tells you about ALL of the points or fees you will pay as part of the loan. You should not sign
anything until you are sure of all the details.
Unfair Penalties for Paying Back Your Loan Early
A subprime loan is a loan with a higher interest rate that lenders can give to borrowers with poor
credit scores or poor credit history. Up to 80% of all subprime home loans have a penalty for paying
back the loan ahead of time.
Borrowers with higher-interest loans want to refinance their loans when their credit improves. When
borrowers refinance their loans, they borrow money at a lower interest rate to pay off their higher
interest rate loan. This decreases the total amount of money they have to pay back on the loan.
An unfair penalty for paying back your loan early can cost you more than the interest you pay on the
loan for six months (which can be thousands of dollars). This penalty can stay in effect for three years
or more once you sign the loan papers. Only 2% of home loans that are not subprime carry a penalty
for paying off the loan early.
Payments (Kickbacks) to Brokers
A loan broker is another kind of lender. A loan broker finds loans that lenders can then make available
to borrowers. A loan broker may find a loan with one interest rate, but tell the lender to charge the
borrower a higher interest rate. When this happens, the lender will pay the loan broker (a kickback)
for making the loan more expensive for the borrower and more profitable for the lender.
For example, if a loan broker found a loan with an interest rate of 8%, but told the lender to offer the
loan to a borrower with an interest rate of 10%, the lender could pay the broker for making the interest
rate higher. Remember, the higher the interest rate and the more interest a borrower pays, the more
money the lender gets.
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Loan Flipping
“Flipping” a loan is when a lender refinances (redoes) a borrower’s loan for no good reason. Every
time a loan is refinanced, the borrower has to pay additional fees for the work it takes to refinance
the loan.
Loan “flipping” can decrease the equity a borrower has and increase the amount of money the
borrower pays each month. Equity is the difference between what your property is worth and how
much money you owe.
Unnecessary Insurance and Products
When lenders include unnecessary insurance or other products in a loan without telling the borrower,
the borrower ends up paying more money than is necessary.
If you notice any difference in the amount of money you asked to borrow and the amount of the loan
you are being offered, make sure to ask for an explanation. DO NOT sign anything you are not sure
of… ever!
Binding Mandatory Arbitration (BMA)
Some loans require “binding mandatory arbitration.” This means that if the borrowers are in danger
of losing their home because their loan has illegal or predatory terms, they are not allowed to go to
court. Instead, they must use a private, independent party to handle the situation. What is worse,
because the BMA is “binding,” the borrower must do whatever the arbitrator (the private, independent
party) decides. The borrower cannot appeal the decision and may even have to pay money to go
through the arbitration process.
Steering and Targeting
Predatory lenders often give subprime loans to borrowers, even if the borrowers qualify for a
regular loan. Predatory lenders do this so that the borrowers pay them more money in interest.
Predatory lenders may unfairly target certain
individuals who they think will be easier
to fool, like the elderly, young adults
or people who are new to the United
States. Predatory lenders are pushy
and will lie to borrowers to get them
to pay more money than they should.
One estimate says that up to half
of all borrowers who have subprime
home loans could have qualified for
better loans.
Although predatory lenders
usually target certain individuals,
there are victims of predatory
lending everywhere.
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21
What to Do if You Have Been a Victim
of Predatory Lending
If you think you have been a victim of predatory lending, there are Federal agencies that
can help you. Please read the list of agencies below and contact the one or ones that you think
can help you the best.
Government Agencies That Can Help
The FDIC, the NCUA and the other federal banking regulators listed on “For More Information” have
publications, Web sites, staff and other resources that can help answer questions and direct you to
the appropriate state or federal agency that regulates a particular lender.
The Federal Trade Commission works to prevent unfair business practices. For more information,
including brochures and procedures for filing a complaint against a nonbank lender, call toll-free
877-FTC-HELP (877-382-4357) or go to www.ftc.gov.
The U.S. Department of Housing and Urban Development (HUD) enforces fair lending practices
involving home loans backed by the federal government, including Federal Housing Administration
(FHA) loans. HUD also maintains a list of approved housing counseling agencies that can give advice. Call
toll-free 800-569-4287, go to www.hud.gov, or write to HUD, 451 7th Street, SW, Washington, DC 20410.
The Federal Consumer Information Center is a clearinghouse for free and low-cost booklets
published by various federal agencies on topics such as getting a mortgage or home equity loan.
One such brochure is “Looking for the Best Mortgage: Shop, Compare, Negotiate,” published by
11 federal agencies, including the FDIC. For a free catalog, call toll-free 888-878-3256. Or, read or
order the publications online at www.pueblo.gsa.gov.
Your state government’s consumer protection or Attorney General’s office can respond to your
questions or concerns about a lender. Check your local phone book or other directories.
Some general information from:
http://www.fdic.gov and http://www.ncua.gov
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What Is a Credit Score
and What Does It Mean?
A credit score is a number used to rate your credit. Lenders and others use this number to
predict how likely you are to make your credit payments on time. Each score is based on the information
found in your credit report.
Why Does A Credit Score Matter?
Credit scores can determine if you can get any credit at all. Credit scores also determine what you
pay for credit cards, auto loans, mortgages and other kinds of credit. In most cases, higher credit
scores mean you are more likely to be approved and pay a lower interest rate on new credit.
For example: If you wanted to rent an apartment, you may need good credit scores. Without good
credit scores, your application may be turned down by the landlord. Your credit scores also may
determine how much money you will have to pay up front to get telephone, electric or natural gas
services.
Lenders look at your credit scores all the time. They look at your credit scores when figuring out
what interest rate to charge you and when deciding to lower or raise your credit limit (the amount
of money you can borrow) on a credit card. They also look at your credit scores when deciding if they
should send you a preapproved credit offer through the mail. Having good credit scores helps to
make your life a lot easier when it comes to money. That’s why good credit scores are so important.
What is a Good Credit Score?
When lenders talk about “your score,” they usually mean the FICO® score developed by Fair Isaac
Corporation. FICO is today’s most commonly used scoring system. FICO scores range from 300-850.
Most people score in the 600s and 700s (higher FICO scores are better). Lenders buy your FICO
score from the three national credit reporting agencies (also called credit bureaus): Equifax, Experian
and TransUnion.
Lenders see FICO credit scores above 700 as very good and a sign of good financial health. They
see FICO scores below 600 as not so good, which can make them charge higher interest rates or
turn down a credit application.
There is More Than One Credit Score
There are many types of credit scores. These scores are developed by independent companies, credit
reporting agencies, and lenders. No matter what kind of credit score, a higher credit score is always better.
Each credit reporting agency calculates your score.
Each score may be different because the credit history each agency has about you may be different. With
smaller loans like credit cards or car loans, lenders may make a decision based on one agency’s score.
With larger loans, like mortgages and home equity loans, lenders usually look at all three credit scores.
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23
Your credit score changes.
When your information changes at a credit reporting agency, your credit score changes. This is good
news! You can improve a poor credit score over time by improving how you handle your credit.
Insurance companies use something like a credit score.
They use what is called a “credit-based insurance score.” This helps them decide how much to charge
you for insurance. You may be able to improve your “credit-based insurance score” by improving how
you handle your credit. This can lower your payments on auto or homeowners insurance.
Some credit scores given to people are estimates.
These are different from the credit scores lenders use, but can be similar. Consumer reporting agencies
and other companies can use an estimated credit score to show how risky it may be to lend money to a
person. If you think your credit score has been estimated, you can ask if the credit score is used by most
lenders. If it is not, it is probably an estimated score.
Five Parts to Your FICO Credit Score
Credit scores look at the credit-related information on your credit report. How they do this can be
different depending on what scoring system is being
used. Since FICO scores are used a lot, this is
how these scores rate what is on your
credit report.
1. Your payment history =
about 35% of a FICO score
Late payments and other negative
items can hurt your credit score.
On-time payments help your score.
2. How much money you
owe = about 30% of a
FICO score
FICO scores look at how much you
owe on all your accounts and how
much of your available credit you
are using. The more money you owe
and the less available credit you have,
the lower your credit score will be.
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3. Length of your credit history = about 15% of a FICO score
A longer credit history increases your credit score. You can also get a high credit score with a shorter
credit history if your credit report shows that you use your credit responsibly.
4. New credit = about 10% of a FICO score
If you have applied for or opened new credit accounts recently, this can affect your credit score. The
number of time you apply for credit and the time period for those requests can also affect your credit
score. Many requests over a short period of time can lower your FICO score. If you need a loan or
credit card account, it is a good idea to do your research over a shorter period of time (like 30 days)
to avoid lowering your FICO score.
5. Other factors = about 10% of a FICO score
A few small things can also improve or damage your score. For example, having different kinds of
credit on your credit report can help your credit score. Credit cards, mortgages, car loans and personal
loans are all different kinds of credit.
Your FICO score is determined by different things on your credit report. These things can be grouped
into five categories (shown below left). The percentages in the chart show how important each of the
categories is in determining your FICO score.
Learn Your Credit Scores
It is easy to get your credit scores to check how you are doing financially. You can get your credit
scores securely over the Internet, by telephone or by U.S. Mail. You can get a free credit report once
a year from all three credit bureaus. To check more often, you have to pay a small amount of money.
You also have to prove you are who you say you are to make sure your information is not given to
the wrong person.
Helpful Tips Once You Learn Your Credit Scores
1. When you get your credit scores, find out the highest and lowest scores possible. You should
also learn what things influenced your scores. These things can help you learn how to improve
your credit scores.
2. Getting your credit scores or credit reports will not affect your credit scores if you order them
from Equifax, Experian or TransUnion.
3. Review your credit reports to make sure the information is correct. Mistakes and missing information
on your credit reports can affect your credit scores. If you see an error, contact the credit reporting
agency and the creditor whose information is incorrect.
4. If you have questions or problems with your credit scores, contact the company that provided
them to you.
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25
Increase Your Credit Scores
Your credit scores change when things about your credit change. Your scores will improve over time
when you manage your credit responsibly.
Here are some things you can do to improve your credit scores…
• Pay your bills on time, all the time.
• Keep the amount of money you owe on your credit cards low.
• Pay off debt instead of putting it on another credit card.
• Apply for and open new credit accounts only when you
need them.
• Check your credit report regularly to make sure the
information on it is correct.
• If you have missed any payments, pay them right away
and make sure to make future payments on time.
Improving your credit scores can help you…
• Lower your interest rates
• Speed up credit approvals
• Reduce deposits required by utilities
• Get approved for apartment rentals
• Get better credit card, auto loan or mortgage offers
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Quiz
Name _____________________________________________________________________________________________________
Address __________________________________________________________________________________________________
__________________________________________________________________________________________________________
Member Number __________________________________________________________________________________________
1
What is a loan? ____________________________________________________________________________
___________________________________________________________________________________________
2
What is a checking account? _______________________________________________________________
___________________________________________________________________________________________
3
What is overdraft protection? ______________________________________________________________
___________________________________________________________________________________________
4
What is a savings account? ________________________________________________________________
___________________________________________________________________________________________
5
An ATM lets you take money out of your savings or checking account any time of the
day, any day of the week:
ᔛ True
ᔛ False
6
Please list two important facts about credit cards:
1. _________________________________________________________________________________________
2. _________________________________________________________________________________________
7
Debit Cards may also be referred to as Check Cards:
ᔛ True
ᔛ False
8
What is Debt? _____________________________________________________________________________
___________________________________________________________________________________________
9
What is predatory lending? ________________________________________________________________
___________________________________________________________________________________________
10
What is a credit score? _____________________________________________________________________
___________________________________________________________________________________________
11
There are five parts to your FICO Credit Score, Please list two:
1. _________________________________________________________________________________________
2. _________________________________________________________________________________________
12
Improving your credit score can help you get approved for apartment rentals:
ᔛ True
ᔛ False
Give Yourself Some Credit!
A Greylock Federal Credit Union Financial Literacy Guide
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