Your Credit and Your Life

Why good credit is important and how you can develop and leverage it
Presented by Aurelien Windenberger

All rights reserved: Aurelien Windenberger

About Me
Graduated with an MBA

Work as Finance Manager for FoodChain Advisors

Excellent credit since I turned 18 Passionate about maximizing use of my credit

Outline of Discussion
Your credit score
What is a credit score and credit report How your credit score is calculated Where to learn about your score

Impact of a low credit score The benefits of good credit

Bonus: How debt works

Some ways a low score impacts you negatively Ways to improve your credit score

You pay less to borrow money Maximizing your benefits

How is interest charged on your loans Why most people never stop spending large portions of their income on interest payments

Your Credit Score and Credit Report

o Credit Report
o 3 credit bureaus collect credit data and make report available to creditors You can receive a free copy of each report yearly at annualcreditreport.com

o Credit Score
o MANY different scores available o Most commonly used by far is the FICO score

o Free Services provide approximate scores

o Creditkarma.com uses TransUnion data o CreditSesame.com uses Experian data

Free Credit Services

Provide excellent information about your current credit profile, FREE Utilize soft pulls so your score is not damaged Make money selling you full credit reports, no need to use
Chart Source: www.creditkarma.com

Calculation of your FICO Score

FICO calculates score based on 5 criteria Payment history and amounts owed are most important Applying for new credit not nearly as damaging as most people assume, usually

MyFico.com has much more information on how your score is calculated

Credit score can improve if you have more available credit

Chart Source: www.myfico.com/CreditEducation/WhatsInYourScore.aspx

Some ways a low score impacts you negatively

Being accepted for new credit is more challenging Lenders less likely to issue new credit to poor credit risks A denied request can lead to additional denials Most types of loans charge higher interest Mortgages Car Loans Bank Loans Personal and Business Job Hunting Certain employers review credit of potential employees Assess responsibility and accountability Check for past fraud or other negative behaviors

How to improve your credit score

Exercise Patience Improving Credit Takes Time No Credit Become an authorized user on another account Apply for a secured credit card Apply for regular card after a few months Bad Credit Check your credit report to make sure it is accurate Sign up for Autopay to avoid late payments Reduce your outstanding balance MyFico.com has additional information

How does a secured credit card work

Send deposit to card company ($200+)

Many secured card options Many have annual fees All will have high APR
Company issues credit card with limit equal to deposit

Credit improves over time

You spend money on the card and repay each month

OpenSky is one good option, will report to all three bureaus each month

The Pitfalls of Credit Cards

Credit Cards are great until you dont pay them in full every month
If you allow it to, interest will accrue very quickly

One acquaintance has $17k in credit card debt at 14%

At $300/m, it would take nearly 8 years and $11k in interest to pay off

The best investment you can make is to pay off any outstanding balances ASAP

At $600/m, only takes about 3 years and $3.7k in interest to pay off

Three Types of Credit Card Users

Debt Maximizer
Uses credit cards to finance overconsumption

Non-User
Pays cash or debit card for everything

Benefit Maximizer
Uses cards for almost all expenses, never carries a balance

Makes minimum payments each month, barely covering interest due

Giving away $100s or even $1000s per year in interest

Wonders why anyone uses a credit card

Receives perpetual free loan for using credit intelligently Potential to make $100s or even $1000s per year in credit card signup bonuses

Has lower credit than expected due to thin credit file

Benefiting from Credit Cards

Bonuses range from $50 to $500 to over $1000

Sign up for rewards credit card

Receive bonus for reaching required spending amount

Bonus can be: Cash Back Airline Miles Hotel Points Free Nights

Repeat if desired

Use card for regular monthly spending

Pay card off in full each month

Most Important

Extreme Example
Wife and I traveling around the world for 8 months
Using mainly Airline Miles for flights Business Class Flight From Seattle-Dubai-Seoul Over 20 Free nights in hotels All gained with credit card bonuses

Anyone with good credit can do this

Awardtravelwisdom.com Blogging about our trip How we collected miles How you can start too and which cards are the best to start with

Direct Benefit of Good Credit

$3,500.00 $3,000.00 $2,500.00 $2,000.00 $1,500.00 $1,000.00 $500.00 $-

Yearly Interest Paid

Good Credit
Bad Credit

Mortgage
$50k Starter Home

Car Loan
$20k New Car

Credit Cards Student Loan

$5k Credit Card Balance $40k Federal Student Loan Total ~ First Year Interest Cost

Excellent Credit Lower Credit

4.25% 5.85%

2% 8%

10% 5% 20%

$5,125 $7,425

How is interest charged on your loans

Suppose you buy a $75,000 house and get a 30 yr fixed mortgage
At 4% interest, monthly payment is $358 At 6% interest, monthly payment is $450

Total Payments $128,900

Total Payments $161,900

Home Loan Comparison

Source: http://www.myfico.com/myfico/CreditCentral/LoanRates.aspx

Interest(ing) Chart
Monthly Interest vs Principle $75k loan
$500.00 $450.00 $400.00 $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 $1 61 121 181 241 301

People move frequently But

50% will sell home within 15 years If its a condo, half sell within 5.5 years

Paying down mortgage is long term process

Takes over 19yrs to pay off half of mortgage Interest: $15k Equity: $8k Try paying more then min payment

4% Interest
6 % Interest

4% Principle
6% Principle

Owning vs Renting
Monthly Cost
$800 $700

Own
Potentially Cheaper in the long run Develop equity, potential for price appreciation

Rent
Expenses are more certain

$600
$500 $400 $300 $200 $100 $0 Mortgage at 4% Mortgage at 6% Rent

More flexibility

Maintenance Property Taxes

Insurance (Home and PMI) Monthly Payment

You probably wont get rich owning your home in Fairfield, but it is likely cheaper than renting, especially if you stay in your home long term

Conclusion
Lots of resources to help you understand credit MyFico.com CreditKarma.com and CreditSesame.com Awardtravelwisdom.com will have more content soon Including this presentation I love talking about this stuff, so contact me with questions Through Facebook awindenberger@gmail.com Credit is FUN! Especially once you have good credit If you dont currently, make it a priority! Interest is Interesting Excellent Own vs Rent Calculator: http://michaelbluejay.com/house/rentvsbuy.html

Disclaimer
As the creator of this presentation, I can assure you, the reader, that all of the opinions expressed here are my own and are a result of my research and personal experiences. I can make no guarantee that you will experience the same results as I have, since I have no control over your specific circumstances. If you find anything in this presentation to be factually incorrect, I will happily fix it when it is brought to my attention. Please note that the information should be valid as of late Sept 2013, but may of course become outdated over time. If you enjoy this presentation and choose to share it in some way, please credit me as the creator of the presentation and provide a link to this blog.