Assessing & Securing

Credit
MODULE - 2
 ❑ Provide a background on credit
❑ Describe the role of credit bureaus
❑ Provide a background on identity theft
Chapter ❑ Explain how to protect against identity
Objectives theft
❑ Discuss how to respond to identity theft
❑ Explain how credit assessment and
security fit within your financial plan
 Credit: funds provided by a creditor to
a borrower that will be repaid by the
borrower in the future with interest

Background on
Credit (1 of 6)

Types of credit
Non-installment credit: credit Installment credit: credit provided
provided for a short period, such as for specific purchases, with interest
department store credit charged on the amount borrowed
 ◦ Revolving open-end credit: credit
provided up to a specified maximum
amount based on income and credit
history; interest is charged each month
Background on on the remaining balance
Credit (2 of 6) Advantages of using credit
◦ Helps build a good credit score
◦ Eliminates the need for carrying cash
or writing checks
Disadvantages of using credit
◦ Excessive spending
◦ Easier to avoid considering costs when using credit
◦ A large accumulation of debt
◦ Especially when making only the minimum payment

Background on Credit (3 of 6)
 Credit rights
◦ Equal Credit Opportunity Act helps protect
debtors from unethical creditors
Background ◦ Financial Reform Act of 2010 established
the Consumer Financial Protection Bureau
on Credit (4 ◦ Regulates online checking accounts,
credit cards, and student loan
of 6) ◦ To ensure accurate consumer
information and prevent deceptive
practices
◦ May also regulate credit rating bureaus
Background
on Credit (5
of 6)
EXHIBIT 7. 1 I MPAC T OF
CR E DI T PAYM ENTS ON
SAV ING
 Credit history
• Often begins with timely
payment of utility bills
Background on • Built by paying bills in a timely
Credit (6 of 6) manner
Credit insurance
• Can cover payments under
adverse conditions
Financial Planning Online
(1 of 3)
Go to the consumer credit
section of www.thebalance.com
and search for “How to Establish
New Credit History” This site
provides information on how to
establish credit.
 ❑ Credit bureaus provide credit
reports documenting your credit
payment history
❑ Credit reports: reports provided by
Credit Bureaus credit bureaus to document a
(1 of 11) person’s credit payment history
❑ Primary credit bureaus are Equifax,
Experian and Trans Union
❑ Free credit reports available
annually
Credit Reports Provided by Credit Bureaus
1. Report number, date, and name to distinguish this
report from others
2. Identifying information such as name, spouse’s name,
birthdate, Social Security number, addresses,
occupation, etc.
3. Potentially negative information from public records
such as bankruptcy and tax liens

Credit Bureaus (2 of 11)

Credit Bureaus (3 of 11)

Accounts turned over All account

List of companies that
to collection agencies, information, both
have requested your
as well as resolution of open and closed
credit report
these accounts accounts are included
Credit Bureaus
(4 of 11)
EXHIBIT 7.2 A SAMPLE CREDIT
REPORT
Credit Bureaus (5 of 11)
EXHIBIT 7.2 [CONTINUED]
 Credit score
◦ Numerical rating indicating
creditworthiness
Credit Bureaus ◦ Creditors rely on this score to help
(6 of 11) determine whether or not to
extend a loan
◦ Can affect the interest rate
received on loans
 ◦ Score affected by many factors
◦ Credit payment history
◦ 35% of score
◦ Credit utilization
◦ 30% of score
Credit Bureaus
◦ Credit history
(7 of 11) ◦ 15% of score
◦ New credit
◦ 10% of score
◦ Different types of credit
◦ 10% of score
 Different scores among bureaus
• Bureaus don’t always have access to the
same information

Interpreting F I C O credit scores

Credit Bureaus
• Range from 350–850, with 600 being
(8 of 11) considered a good score
• Correcting credit score mistakes
• Contact credit bureau that issued the
inaccurate report
• Credit bureau required to investigate
within 30 days
Improving your credit score
◦ Catch up on late payments and reduce debt
◦ Review household budget and cut back on necessary
expenses
◦ Destroy credit cards, but keep accounts open
◦ Call creditors if unable to make payments on time

Credit Bureaus (9 of 11)

 Reviewing your credit report
◦ At least twice a year for accuracy,
to correct errors, to identify
deficiencies
Credit Bureaus ◦ Make sure report is accurate
(10 of 11) ◦ Review the types of
information used by lenders
◦ See what kind of information
lowers credit rating and try to
eliminate deficiencies
Credit
Bureaus
(11 of 11)
EXHIBIT 7. 3 N AT IONAL
DI ST RIBU TI ON OF F I C O
S COR ES
Financial Planning Online
(2 of 3)
Go to the consumer information section
of http://www.ftc.gov
This Web site provides information on
obtaining a free credit report.
The Credit Karma app can also help you
access your credit score, monitor it, and
devise a plan to improve it
Search for “Credit Karma” on your mobile
device
 Identity theft: theft that occurs when an
individual, without permission, uses your
identifying information for his or her
Identity Theft: A personal gain
Threat to Your Goal may be to acquire money or goods or
Credit (1 of 5) to establish a new identity for criminal
purposes
Impacts about 15 million people each
year, costing about $16 billion
 The cost of identity theft
◦ Personal costs
◦ Feeling of violation and insecurity
◦ Problems getting a job
Identity Theft: A ◦ Being hounded for debt that isn’t yours
◦ Turned down for credit
Threat to Your ◦ Financial costs
Credit (2 of 5) ◦ Average individual loss is over $1,000
◦ Time and money to repair the damage
◦ Individuals will spend an average of
200 hours dealing with damage control
necessitated by identity theft
 Identity theft tactics
◦ Shoulder surfing: Tactic used when an
identity thief stands close to you in a
public place and reads the number of
Identity Theft: A your credit card as you conduct
Threat to Your business
Credit (3 of 5) ◦ Dumpster diving: Tactic used when an
identity thief goes through your trash
for discarded items that reveal
personal information that can be used
for fraudulent purposes
 ◦ Skimming: Tactic used when a store
employee steals your credit card
number by copying the information
contained in the magnetic strip on the
card
Identity Theft: A ◦ Shimming: Tactic where thieves insert
a device called a shimmer into an A T
Threat to Your M slot. The shimmer reads the
Credit (4 of 5) information contained on the card.
◦ Pretexting: Tactic used when an
identity thief poses as an employee of
a company with which you conduct
business, to solicit your personal
information
 ◦ Phishing: Tactic used when pretexting happens online
◦ Pharming: Like phishing, but targeted to larger audiences; tactic
that directs users to bogus Web sites to collect their personal
information
◦ Abusing legitimate access to records
◦ Crime rings
◦ Violating your mailbox
◦ Both incoming and outgoing mail can provide personal
information

Identity Theft: A Threat to Your Credit (5 of 5)

Ways to safeguard personal information
◦ Shielding personal information at home
◦ Remove items containing S S N from purse/wallet
◦ Document your accounts
◦ Buy a shredder and use it
◦ Do not have S S N printed on your checks
◦ Remove your name and address from phone directories
◦ Install a locked mailbox or rent a P.O. box

Protecting against Identity Theft (1 of 5)

 ◦ Shop online only on secured sites
◦ Be suspicious of phone callers seeking personal information
◦ Mail all bills with account information in a U.S. Postal Service
depository box
◦ Scrutinize bank and credit card statements
◦ Be careful using smartphones when ordering merchandise
◦ Consider using a separate computer for online shopping
◦ Be cautious about using public WiFi

Protecting against Identity Theft (2 of 5)

 ❑ Set up your smartphone to
remotely remove data in case of
loss
Protecting ❑ Be aware of delivery schedules
against Identity
❑ Never have personal checks
Theft (3 of 5)
delivered to your home
❑ Be careful about what you post
on social media
 ◦ Protect home computer from hackers
◦ Have mail held at the post office when on vacation
◦ Protecting your personal information at work
◦ Be sure photo IDs do not display S S N
◦ Examine paycheck and stub for S S N
◦ Have your paycheck direct deposited to your bank account
◦ Examine health insurance card for S S N
◦ Have a discussion with your human resource department

Protecting against Identity Theft (4 of 5)

◦ Identity-theft insurance
◦ Available as part of homeowner or renter policies or
as a stand-alone policy

Protecting against Identity Theft (5 of 5)

Response to identity theft
◦ Take immediate action
◦ Maintain a record of all phone calls and correspondence
◦ Contact the police
◦ Contact Federal Trade Commission
◦ Contact credit reporting companies
◦ Contact creditors and others who may be impacted

Response to Identity Theft (1 of 4)

 Go to http://www.identitytheft.gov
Financial
Planning Online This Web site provides information
(3 of 3) on identity theft and the tools to
report identity theft.
 Response to
Identity Theft (2 ChexSystems (800) 428-9623
of 4)
Exhibit 7.4 Useful Sources of
Information to Protect Against Identity
Certigy (800) 237-3826
Theft
Check Verification Companies
National
Processing (800) 720-3323

Telecheck (800) 710-9898

Response to Identity Theft (3 of 4)
Exhibit 7.4 [continued]
Federal Trade Commission
Web Site Address: http://www.ftc.gov and http://www.identitytheft.gov
Equifax
Web Site Address: http://www.equifax.com/
Telephone: (888) 548-7878
Experian
Web Site Address: http://www.experian.com/
Telephone: (888) 397-3742
TransUnion
Web Site Address: http://www.transunion.com/
Telephone: (800) 916-8800
Response to Identity Theft (4 of 4)
Exhibit 7.4 [continued]
Internal Revenue Service

Web site Address: http://www.irs.gov

Social Security Administration
Web site Address: http://www.ssa.gov

U.S. State Department

Passport Fraud: Go to http://www.state.gov and insert the search term
“passport fraud”
How Credit Assessment and Security
Fit within Your Financial Plan (1 of 3)
The following are the key credit
assessment and security decisions that
should be included within your financial
plan:
◦ Is your credit standing adequate so
that you can use credit?
◦ Is your credit and personal identity
information secure?
How Credit Assessment and Security
Fit within Your Financial Plan (2 of 3)
Exhibit 7.5 How Credit Standing and Security Fit
Within Stephanie Spratt’s Financial Plan
Goals
1. Ensure that I always have easy access to credit,
so that I can obtain personal loans or use credit
cards whenever I desire.
2. Ensure that my credit and identity information
is secure.
 Exhibit 7.5 [continued]
Decisions
Decision Regarding My Credit Report
How Credit Contact the credit bureaus to request a copy of my
Assessment and credit report and ensure that my credit report is
accurate. If there are any deficiencies listed on my
Security Fit report, correct them so that I can ensure easy
within Your access to credit in the future.
Financial Plan (3 Decision Regarding the Security of My Credit and
of 3) Identity
Leave most of my personal information at home.
Carry only my Visa and MasterCard, and driver’s
license with me. Shred any documents I plan to
discard that contain personal information.
Fin