St. Mary's University Financial Wisdom for Women Session

1. Wells Fargo
Financial Education
Understanding your Personal Credit
Rachel Goolsby
Wells Fargo At Work Program Manager
All credit products subject to qualification.
© 2015 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

2. What is credit?
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 Refers to a bank or
business allowing
its customers to
purchase goods
or services on the
promise of future
payment
 Refers to the
amount of money
you borrow
 Refers to the additional
amount you will need to
pay back to the lender
 Depending on the type
of credit you have,
additional fees may be
incurred in addition to
the interest.
Credit Principal Interest
The Get Smart About Credit October initiative hosted annually by the American Bankers
Association promotes financial education and helps bring credit awareness to your community.
This presentation today is provided by Wells Fargo as part of its participation in the Get Smart
About Credit initiative.

3.  The option of buying something today
and paying back over time
 The opportunity to act on major
purchases, emergencies and life
opportunities that may require more
money than you have on-hand right now,
like buying a computer or borrowing for
college
 Easier to rent an apartment, get a cell
phone, get services from local utility
companies if you have good credit
 Opportunity to build a solid credit history
Mismanagement of credit can lead to:
 Overdoing it; borrowing more
than you can comfortably afford
to repay
 Impulsive spending
 Potential damage to your credit history
 Losing money on late fees
 Having to pay additional interest
 Difficulty getting loans or credit
in the future, if you fail to make your
payment on time.
Benefits Risks
Benefits and risks of credit
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4. Four C’s of credit
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 Lenders want to
see a history of
stability—how
long have you
lived at your
current address,
how long have
you been at your
current job, do
you have a good
history of paying
your debts on
time.
 Assets of
a borrower
(for example, a
home) that the
lender has the
right to take
ownership of
and use to pay
the debt if the
borrower is not
able to make the
loan payments
as agreed.
 Your other debts
and expenses
could impact your
ability to repay
the loan.
 Creditors
evaluate your
debt-to-income
ratio, that is, how
much you owe
compared to how
much you earn.
Credit history Collateral Capacity
 Lenders might
consider outside
circumstances
that may affect
the borrower’s
financial situation
and ability to
repay (for
example, what’s
happening in the
local economy).
Conditions

5. Debt-to-income ratio
What is the percentage of your monthly gross income that you spend
on paying debts and monthly obligations?
To find out, divide your total monthly debts/payments (e.g. rent, car
loan, mortgage) by your monthly gross income.
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Housing costs < 28% of monthly gross income
All recurring debt < 36% of monthly gross income
Example:
Monthly debts/
obligations
÷
Monthly gross
income
=
Debt-to-income
ratio
$1,100 ÷ $2,600 = 42%
Experts
recommend:

6. Where can I get credit?
• Banks and credit unions
• Department stores
• Gasoline companies
• Automobile dealerships
• Student loans—government, banks
• Furniture stores/electronics stores
Tip: If you’re just starting out, consider opening a secured
credit card or loan, gas card, or retail store charge
card to begin establishing your credit history.
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7. Types of credit
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Lines of credit
(secured and unsecured;
including home equity and
personal lines)
Loans
(secured and unsecured;
including student,
mortgage, home equity,
personal loans,
auto loans, etc.)
Credit cards
(secured and unsecured)
Sales contracts
“90 days same as cash”

8.  Borrower receives the entire loan amount
at one time.
 Borrower must pay interest on the full loan
amount.
 Once the principal is paid back, it is not
available to borrow again as part of the
same loan (not “revolving”).
 Interest rates can be fixed or adjustable
 The term of the loan (amount of time the
borrower has to pay it off) is fixed at that
time the loan is issued.
 Lender agrees to lend up to a certain credit
amount, but the borrower does not have to
take all of it at once.
 Borrower makes payments only on the
amount borrowed, rather than the entire line
amount.*
 Once the principal is paid back, it is
available to borrow again in the future
(revolving credit).
 Interest rates are usually adjustable, and
tied to an index plus/minus a margin.
 The time allowed to pay back the principal is
more flexible than with a loan, but the
interest on any outstanding balance must
still be paid monthly.
Loans Lines of credit
Loans versus line of credit
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* With an interest-only plan, your principal balance is reduced only when you make voluntary principal
payments during the interest-only period.

9.  You need to finance a large purchase
or major expense.
 You know the total cost up front.
Examples of loans:
Mortgage, car loan, home equity loan,
personal loan, student loan
 You will be incurring portions of the
total expense over time.
 You do not know the total cost up front.
 You want more flexibility.
Examples of lines of credit:
Personal line of credit or home equity line
of credit
Consider a loan when: Consider a line of credit when:
Loans versus line of credit
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10. Using collateral to secure credit
• Large loan amounts are often secured by collateral.
(called a “secured loan/line.”)
• Types of collateral typically include: house/property,
equity in a home, savings, CDs, autos, investments.
• The potential value of the collateral will help influence
the lending decision.
• If the borrower defaults on the loan, the lender may
take ownership of the collateral property.
• Because there is collateral to back up the credit,
secured credit typically has a lower interest rate than
unsecured credit, and it is typically easier to qualify for
secured credit.
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11. 11
 Who has at least one credit
card?
 When did you first get a
credit card and why?
 Think about how many
credit cards you have now.
Is that just the right number,
too many, or would you like
to have more? Why?
Credit card survey

12. Selecting a credit card
All credit cards are not the same! When selecting a
card, it pays to shop around.
Compare:
• Annual percentage rate (APR)
• Annual fees, other fees and penalties
• Credit limit
• Card features (e.g. rewards)
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13. Card
balance
Interest rate
(APR)
Minimum
payment
Interest
Expense
$1,000 14% $25 $563.01
92 months of minimum payments, total paid: $1,563.01
$1,000 8% $25 $245.67
74 months of minimum payments, total paid: $1,245.67
The cost of credit: An illustration
You’ve just charged $1,000…
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Examples are for illustrative purposes only.

14. Think about it….
• Do you pay your credit
card in full each month?
• If not, do you pay the
minimum amount or more
toward the balance?
• What is the long-term
consequence of paying
only the minimum?
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15. Planning your credit card payments
Scenario One Scenario Two
If you make no additional charges using
this card and each month you pay…
Only the minimum
payment ($25)
$160
You will pay off the balance shown on
this statement in about…
11 Years 4 Years
And you will end up paying an estimated
total of…
$3,270*
$2,402*
(difference of $867)
Purchase information:
200 lattes @ $3 $ 600
50 pizzas @ $15 $ 750
20 movies & treats @ $20 $ 400
100 smoothies @ $3.50 $ 350
Total credit card balance = $ 2,100
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Minimum monthly payment = $25
* Calculated based on an Annual Percentage Rate (APR) of 12.00%
Example is for illustrative purposes only.

16. When was the last time you examined your
credit card statement?
Why should you review it carefully
each month?
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17. How to keep your credit cards safe
• Deal with loss or theft of a card immediately.
• Treat your cards like cash.
• Whenever possible, keep your card in sight when using it.
• Keep accurate records and monitor your accounts
regularly.
• Save your bills and receipts.
• Don’t lend your credit card to anyone.
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18.  Paying the outstanding balance in full
or at least the minimum amount
required every month
 Keeping credit card balances below
70% of the total credit limit
 Paying on time
 Never missing a payment
 Staying within your credit limit
 Easier to borrow money
 No penalty fees
 More money to keep in your pocket
 Potentially lower interest rates
 Low ratio of revolving debt vs. income
 Increased approval rates for home
rentals and leases
 Ability to shop around to have lenders
compete for your business
Signs of responsible credit
management
Results of responsible credit
management
Responsible credit management
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19. Why credit history is important
• Lenders always want to know the credit history of people who ask
them for credit cards and loans. To find out, they turn to Credit
Reporting Agencies such as:
• Equifax
• Experian
• TransUnion
• Credit Reporting Agencies keep track of everybody’s credit history.
• The different types and number of credit accounts you have
• How much you owe
• Whether you pay your bills on time
• Where you live/work and how long you’ve lived/worked there
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20. What goes into your credit score
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Payment
track record
Length of
credit history
New credit
Types
of credit
What you owe
 Credit scores are the most
commonly used by credit
reporting agencies.
 Other scores besides
credit reporting agency
scores may be used when
making lending decisions.
 Your credit score may
vary between credit
reporting agencies based
on the information on file
at each one.
 Over time, your credit
score changes.

21. 21
Do you know what your credit score is?
Do you know how high a score needs
to be in order to be considered a good
credit risk?

22. Why is your credit score important?
• In addition to your credit history, almost all lenders look at your credit score,
which is a number that indicates how reliable you are at paying your debts.
• A computer program analyzes your entire credit history and generates a
single number score, usually ranging from 300 to 850.
• This score helps lenders decide if you are a good credit risk or not.
• The higher the credit score, the better.
• Lenders may charge lower interest rates to borrowers with higher credit
scores.
• That means you may keep more money in your pocket when you have a
high credit score!
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Credit Score
300 850
Low High

23. High credit score = more $ for you!
Buyer 1 Buyer 2
Credit score 590 740
Annual Percentage Rate (APR) 12.49% 4.74%
Monthly loan payment $427 $356
Interest paid $6,642 $2,816
Total cost $25,642 $21,378
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Cost of Car: $20,000
Down Payment: $1,000
Loan Amount: $19,000
Months Financed: 60 months
Example contains sample figures only.

24. Your credit report
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You can get a free
copy of your credit
report* each year at
annualcreditreport.com
Errors can and do
occur.
Take action to get
errors corrected as
soon as possible.
Request it. Read it. Fix it.
* Your credit score may not be available on the credit report. It may be available for an additional fee.

25. Wrap-up
Be smart about managing your credit
• Shop for credit.
• Keep track of charges.
• Plan your shopping.
• Pay on time.
• Set limits…and stick to them!
• Get help early if you are unable to meet your credit
obligations.
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26. Wrap-up
Be aware of credit trouble signs
• Paying late
• Ignoring savings
• Bouncing checks
• Maxing out credit
• Experiencing personal
stress over finances
• Feeling like you’re
paying forever
• Ignoring the phone to
avoid creditors
What do I do if I get in
trouble with debt?
 Don’t ignore it! The problem
won’t go away on its own.
 Talk to your lender right away.
 Get help—Your lender may be
able to recommend a reputable
credit counselor.
 Know that credit management
is a process—there is no
quick fix.
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Thank you!