Personal Finance SIXTH EDITION Chapter Assessing and Securing Your Credit Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Chapter Objective 7.1 Provide a background on credit 7.2 Describe the role of credit bureaus 7.3 Provide a background on identity theft 7.4 Explain how to protect against identity theft 7.5 Discuss how to respond to identity theft 7.6 Explain how credit assessment and security fit within your financial plan Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Background on Credit (1 of 6) • Credit: funds provided by a creditor to a borrower that will be repaid by the borrower in the future with interest • Types of credit – – Non-installment credit: credit provided for a short period, such as department store credit Installment credit: credit provided for specific purchases, with interest charged on the amount borrowed Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Background on Credit (2 of 6) – Revolving open-end credit: credit provided up to a specified maximum amount based on income and credit history; interest is charged each month on the remaining balance • Advantages of using credit – – Helps build a good credit score Eliminates the need for carrying cash or writing checks Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Background on Credit (3 of 6) • 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 Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Background on Credit (4 of 6) • Credit rights – – Equal Credit Opportunity Act helps protect debtors from unethical creditors Financial Reform Act of 2010 established the Consumer Financial Protection Bureau Regulates online checking accounts, credit cards, and student loan To ensure accurate consumer information and prevent deceptive practices May also regulate credit rating bureaus Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Background on Credit (5 of 6) Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Background on Credit (6 of 6) • Credit history – – • Often begins with timely payment of utility bills Built by paying bills in a timely manner Credit insurance – Can cover payments under adverse conditions Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Financial Planning Online (1 of 3) • Go to the consumer credit section of http://www.phil.frb.org • This site provides information on how to establish, use, and protect credit Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Credit Bureaus (1 of 11) • Credit bureaus provide credit reports documenting your credit payment history • Credit reports: reports provided by credit bureaus to document a person’s credit payment history • Primary credit bureaus are Equifax, Experian and Trans Union • Free credit reports available annually Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (7 of 17) • Protecting against identity theft – Shielding personal information at home Remove items containing SSN from purse/wallet Document your accounts Buy a shredder and use it Do not have SSN printed on your checks Remove your name and address from phone directories Install a locked mailbox or rent a P.O box Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (8 of 17) 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 hand-held or cell phones when ordering merchandise Be aware of delivery schedules Never have personal checks delivered to your home Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (9 of 17) – 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 not display SSN Examine paycheck and stub for SSN Examine health insurance card for SSN Have a discussion with your human resource department Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (10 of 17) – Identity-theft insurance Available as part of homeowner or renter policies or as a stand-alone policy Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (11 of 17) • 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 Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Financial Planning Online (3 of 3) • Go to http://www.identitytheft.gov • This Web site provides information on identity theft and the tools to report identity theft Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (12 of 17) EXHIBIT 7.4 Useful Sources of Information to Protect Against Identity Theft Check Verification Companies CheckRite (800) 766-2748 ChexSystems (800) 428-9623 Certigy/Equifax (800) 437-5120 National Processing Systems (800) 526-5380 Telecheck (800) 710-9898 Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (13 of 17) EXHIBIT 7.4 Useful Sources of Information to Protect Against Identity Theft Federal Trade Commission Web site Address: http://www.ftc.gov Complaint About a Company or Business Practice: 877-382-4357 Identity theft: 877-438-4338 Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (14 of 17) EXHIBIT 7.4 Useful Sources of Information to Protect Against Identity Theft Equifax Web site Address: http://www.equifax.com/ Credit Fraud Info: Insert the search term "credit fraud" at the Equifax Web site Credit Report Information: 800-685-1111 Fraud Alert: 888-766-0088 Credit Reports and Scores: 866-493-9788 Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (15 of 17) EXHIBIT 7.4 Useful Sources of Information to Protect Against Identity Theft Experian Web site Address: http://www.experian.com/ Credit Fraud Info: Insert the search term "credit fraud" at the Experian Web site Credit Report Information: 888-397-3742 Credit Monitoring: 877-284-7942 Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (16 of 17) EXHIBIT 7.4 Useful Sources of Information to Protect Against Identity Theft TransUnion Web site Address: http://www.transunion.com/ Credit Fraud Info: Insert the search term "credit fraud" at the TransUnion Web site Credit Report Information: 800-888-4213 Credit Monitoring: 800-493-2392 Fraud Alert: 800-680-7289 Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved Identity Theft: A Threat to Your Credit (17 of 17) EXHIBIT 7.4 Useful Sources of Information to Protect Against Identity Theft 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" Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved How Credit Assessment and Security Fits 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? Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved How Credit Assessment and Security Fits Within Your Financial Plan (2 of 3) EXHIBIT 7.5 How Credit Standing and Security Fit Within Stephanie Spratt’s Financial Plan GOALS Ensure that I always have easy access to credit, so that I can obtain personal loans or use credit cards whenever I desire Ensure that my credit and identity information is secure Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved How Credit Assessment and Security Fits Within Your Financial Plan (3 of 3) EXHIBIT 7.5 How Credit Standing and Security Fit Within Stephanie Spratt’s Financial Plan DECISIONS Decision Regarding My Credit Report Contact the credit bureaus to request a copy of my credit report and ensure that my credit report is accurate If there are any deficiencies listed on my report, correct them so that I can ensure easy access to credit in the future Decision Regarding the Security of My Credit and 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 Copyright © 2017, 2014, 2011 Pearson Education, Inc All Rights Reserved ... Reserved Credit Bureaus (1 of 11) • Credit bureaus provide credit reports documenting your credit payment history • Credit reports: reports provided by credit bureaus to document a person’s credit. .. 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... Reserved Credit Bureaus (9 of 11) • Improving your credit score – – – – Catch up on late payments and reduce debt Review household budget and cut back on necessary expenses Destroy credit cards,