Credit Reports 101. Bill Bufkins, November 3, 2011

Transcription

1 Credit Reports 101 Bill Bufkins, November 3, 2011

2 What is a credit report? A credit report is a record of your past borrowing and repayment activity. The information in your credit report helps determine your financial reliability. Your credit report is continuously updated based on your borrowing and repayment activity (such as student loans, credit cards, etc.). 2

3 What is on a credit report? Your credit report consists of four main sections: 1. Personal/Consumer information 2. Account history information 3. Public information 4. Inquiry information 3

4 Personal/Consumer Information Personal information in your credit report includes: Name Social Security Number Date of birth Current and past addresses Current and past employers Consumer statements (can include explanations of why a negative item appears in your report) 4

5 Account History Information Account name and number Type of account Real estate (home mortgage) Revolving accounts (credit cards) Installment accounts (student loans) Medical billing companies Utilities and cell phone providers Person(s) responsible for account (individual or joint) Date account was opened Individual account limits Balance Recent payments Past due amount and number of days past due 5

6 Public Information Public record information may include information such as: Bankruptcy Liens Foreclosures Accounts turned over to collections Reports of items past due as little as days can also appear in your public information and create adverse credit history. A public record can remain on your credit report for seven to ten years. 6

7 Inquiry Information The inquiry section includes details about who accessed your credit report. Soft inquiries Occur when you request a copy of your report Occur when existing lenders review your report Only show up on reports you request (lenders do not see them) Do not affect credit score Hard inquiries Occur when you apply for credit or open an account Remain on your report for two years Too many can affect your credit score 7

8 Sample Credit Report Sample Credit Report Section 1 The actual credit report you receive will be customized to meet your specific request. 8

9 Sample Credit Report (continued) Sample Credit Report Section 2 The actual credit report you receive will be customized to meet your specific request. 9

10 Sample Credit Report (continued) Sample Credit Report Section 3 The actual credit report you receive will be customized to meet your specific request. 10

11 Credit Score Your credit score is a number that helps lenders determine if you qualify for a particular credit card, service or loan. Currently, the three credit reporting agencies Equifax, Experian and TransUnion use the Fair Isaac Corporation (FICO) score model, which calculates a credit score between 300 and 850. Your actions are calculated into a number to create your credit score. This is your grade in handling finances. Your credit report does not include an actual score each credit reporting agency evaluates your history according to their own criteria. 11

12 Credit Score You re more likely to get approved for a loan or credit card and receive a lower interest rate if you have a higher score. High credit score = lower risk to lender As the information in your credit report changes, so does your score. Be sure your credit report reflects a continuous payment history. HINT: Make payments on time. 12

13 How is a credit score calculated? The exact formula of the FICO and other scoring models is a trade secret. However, the Fair Isaac Corporation has identified five criteria and their relative weight: 13

14 What s in your FICO score? Payment History Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.) Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collections items, and/or delinquency (past due items) Severity of delinquency (how long past due) Amount past due on delinquent accounts or collection items Time since (how recent) past due items (delinquency), adverse public records (if any), or collection items (if any) Number of past due items on file Number of accounts paid as agreed 14 *Fair Isaac Corporation. What constitutes: Poor, Fair, Good, Excellent credit? Cards/What-constitutes-Poor-Fair-Good-Excellent-credit/td-p/ (Accessed 04/11.)

15 What s in your FICO score? (continued) Amounts Owed Amount owing on accounts Amount owing on specific types of accounts Lack of a specific type of balance (in some cases) Number of accounts with balances Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts) Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans) 15 *Fair Isaac Corporation. What constitutes: Poor, Fair, Good, Excellent credit? (Accessed 04/11.)

16 What s in your FICO score? (continued) Length of Credit History Time since accounts opened Time since accounts opened (by specific type of account) Time since account activity Types of Credit Used Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts installment loans, mortgage, consumer finance accounts, etc.) 16 *Fair Isaac Corporation. What constitutes: Poor, Fair, Good, Excellent credit? (Accessed 04/11.)

17 What s in your FICO score? (continued) New Credit Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account Number of recent credit inquiries Time since recent account opening(s), by type of account Time since credit inquiry/inquiries Re-establishment of positive credit history following past payment problems 17 *Fair Isaac Corporation. What constitutes: Poor, Fair, Good, Excellent credit? (Accessed 04/11.)

18 What is a good credit score? The general guideline is that a score over 680 is considered good or excellent.* However, lenders use various standards to approve or deny credit. According to the Fair Isaac Corporation, the median score in the U.S. is 723. It s a good idea to obtain your current FICO score on a regular basis so you ll know where you stand with potential lenders. 18 *Fair Isaac Corporation. What constitutes: Poor, Fair, Good, Excellent credit? (Accessed 04/11.)

19 Why does a good credit score matter? Your credit score can affect your interest rates on credit cards and loans. Most lenders will look at all three FICO scores one from each major credit bureau when evaluating your loan application. In addition to giving you financial flexibility, a good score can be important because: Landlords and mortgage lenders look for good credit scores Prospective employers often run credit checks to gauge responsibility A good credit score can help lower your insurance rates 19

20 How can I improve my credit score? Raising your score after a poor mark on your report or when building credit for the first time takes patience and discipline. Have credit cards, but manage them responsibly. Pay your bills on time. Late payments and collections can have a negative impact on your score. If you do miss payments, get current and stay current. Older credit problems count less, so poor performance won t haunt you forever. Check your credit report. Make sure there are no errors. Fair Isaac Corporation. How to Repair Your Credit and Improve Your FICO Credit Score. (Accessed 04/11)

21 How can I improve my credit score? (continued) Reduce the amount of debt you owe. Don t close unused credit cards just to raise your score. Closing an account doesn t make it go away; it will still show up on your credit report and may contribute to your score. Don t open new credit cards just to increase your available credit. This approach could lower your score because it can lower your average account age. Paying off a collection account will not remove it from your report it will stay on your report for seven years. Contact your creditors or seek credit counseling if you are having trouble making payments. 21 Fair Isaac Corporation. Improve Credit Score: Tips to Fix Poor Credit & Raise Your FICO Score. (Accessed 04/11)

22 Request a Credit Report It s a good idea to check your credit report on a regular basis to ensure the information is accurate. Credit reports are issued by the three nationwide credit bureaus: Equifax Experian TransUnion 22

23 Request a Credit Report You can request a free credit report annually from each credit bureau. You re also entitled to a free credit report if: You are denied credit, insurance or employment based on information in your report (you must ask for your report within 60 days of receiving notice of the action). You are unemployed and plan to look for a job within 60 days. You receive public assistance. Your report is inaccurate because of fraud, including identity theft. 23

24 Request a Credit Report Get a free copy of your credit report! Use a centralized service to get your free annual copy from each credit bureau at once, or spread them out throughout the year. AnnualCreditReport.com Watch out for other Web sites that offer credit reports they may charge a fee. AnnualCreditReport.com is the ONLY source for free annual credit reports that is authorized by the Federal Trade Commission (FTC). 24

25 Check Your Credit Score and Report Request your credit report and score from each bureau Look for incorrect information Names, addresses accounts, inquiry lists, etc. Contact the credit bureau directly to correct the problem Equifax Experian TransUnion Equifax.com Experian.com TransUnion.com

26 Why is this information important? A basic understanding of credit reports and the information they contain is valuable for many reasons. Your credit report helps determine if you will be approved or denied credit in the future. Credit reports contain information that may affect the interest rates you ll be offered in future borrowing. Reviewing your report regularly and knowing your score helps prevent identity theft. Periodically checking your credit report and knowing your credit score help you stay in control of your finances. 26

27 Sources: AnnualCreditReport.com; FTC.gov; MyFICO.com Important Information: The articles contained in this publication are for informational purposes only and are intended as resources for students to identify financial and other related information. Resources or Web sites cited are provided solely as references to information on topics that may be useful, and Chase has no control over the content in third-party resources. Chase does not guarantee the authenticity of these documents and/or Web sites and is not implying any endorsement of or responsibility for the opinions, ideas, products, information or services offered or representations made therein JPMorgan Chase & Co. All rights reserved. The information contained within this document was current at the time of publication. Contact Chase for current product information. (11-234) 06/11 27