GIVE ME A LITTLE CREDIT

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Erika Booker
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1 Credit Reports and Credit Scores GIVE ME A LITTLE CREDIT Presenter William Bill Cheeks ABBA Associates Inc.

3 What Is Credit Obtaining goods or services and paying for them at a later date under agreed upon terms Credit cards, mortgages and car loans Service contracts: cable television, telephone, uelity service Your financial references

4 Credit reports and financial services make the world go round

Credit Report Impact For Sale Purchasing a Home or Renting an Apartment Getting Utilities Gas Company Electric Company Credit Card YOUR CREDIT FILE

5 Credit Report Impact For Sale Purchasing a Home or Renting an Apartment Getting Utilities Gas Company Electric Company Credit Card YOUR CREDIT FILE (Credit Reporting History) Purchasing A Car Acquiring a: Cell Phone Home Phone Seeking Employment Auto, Life, Fire Homeowners Insurance $ Getting A Loan

6 Credit Card Accountability, Responsibility and Disclosure Act An issuer cannot raise a customer s rate on an existing balance unless the consumer is more than 60 days behind on a payment Prohibits applying interest rate charges to two full cycles of card balance Requires mailing bills 21 days before the due date Prohibits charging over-the-limit-fees unless the cardholder first opts-in to the charges. Fees must be reasonable Requires promotional rates to last at least six months and Prohibits increasing rates on new transactions in the first year the card account is opened

7 Tips for Using Credit Cards Responsibly 1.Understand the credit card terms 2. Don t be a revolver 3. Pay more than the minimum 4. Say NO to cash advances 5. Pay on time 6. Stay well within your credit limits 7. Monitor your interest rate 8. Review your monthly statements

making possible: Instant credit Lower- cost credit

8 The three nagonal credit reporgng companies Credit reporgng companies serve consumers and businesses by making possible: Instant credit Lower- cost credit NaEonwide credit Widespread availability Account management

9 Defining credit reports and their importance What is a credit report? Your personal credit report includes a record of your financial accounts and obligaeons and the ideneficaeon informaeon associated with them This report is someemes called a credit file or a credit history Credit reporeng companies collect and organize data about your credit history from your creditor's and public records

10 What s in a credit report? IdenEfying informaeon Account informaeon Public record informaeon CollecEon Accounts Inquiries Dispute instruceons

11 InformaGon comes from you Information you provide in an application for credit, housing, or insurance is reported to credit reporting companies

The Fair Credit ReporGng Act Permissible purposes Open or manage credit accounts Offers of credit Employment purposes Underwrite insurance A business

12 The Fair Credit ReporGng Act Permissible purposes Open or manage credit accounts Offers of credit Employment purposes Underwrite insurance A business transaceon inieated by the consumer Court order or federal jury subpoena ValuaEon of risk of an investor Eligibility for government license Disclosure to consumer

13 What s NOT in a credit report? Credit reporeng companies do not store: Criminal background Medical informaeon Buying habits / transaceon data Bank account informaeon Credit scores

Common myths about credit reporgng When paid, the bad debt will go away The credit reporting company denied me credit I m not responsible for those charges on our account A divorce decree separates

14 Common myths about credit reporgng When paid, the bad debt will go away The credit reporting company denied me credit I m not responsible for those charges on our account A divorce decree separates joint accounts Consumers must give their permission for a report to be issued (employment is the exception) Requesting your own report and preapproved offers harms your credit history There is only one credit score and it is on every report

15 How long is informagon kept on a report? Open accounts in good standing Closed accounts in good standing Late or missed payments Collection accounts Civil judgments Chapter 7 bankruptcy Chapter 13 bankruptcy Unpaid tax liens Paid tax liens Credit inquiries Indefinitely 10 years 7 years 7 years 7 years 10 years 7 years 10 years 10 years 2 years

Centralized source for free reports www.annualcreditreport.

16 Centralized source for free reports One every twelve months Single contact point Telephone Mail Internet Fee for credit score disclosure

17 Beware of credit repair companies Can t legally do anything you can do for free Can t legally collect fee before delivering the promised service Can t legally advise you to lie about your accounts or about your idenefying informaeon

Processing a dispute Credit reporeng company verifies with the source of the informaeon (creditor or court) Must allow up to 45 days for processing Source verifies, corrects or

18 Processing a dispute Credit reporeng company verifies with the source of the informaeon (creditor or court) Must allow up to 45 days for processing Source verifies, corrects or updates Secure, encrypted electronic system is used Creditors required to report correceons to all databases Consumer can add statement of dispute if issue is not resolved with source

19 What is a credit score? Used instead of a manual score sheet FICO score range is 300 to 850 Valuable risk management tool Many different models, with many different scales available from many different sources Credit reporeng companies oden apply the model selected by the creditor when delivering the credit report; however, the credit scoring model, or formula, is proprietary to the developer and is not known by the credit reporeng company

20 VantageScoreSM Focus on these factors! 7% 10% 13% 15% 32% 23% Payment history Utilization Balances Depth of credit Recent credit Available credit Repayment behavior (satisfactory, delinquency, derogatory) Percentage of credit amount used/owed on accounts Amount of recently reported balances (current and delinquent) Length of credit history and types of credit Number of recently opened credit accounts and credit inquiries Amount of credit available 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 20

21 What Makes Up My Score? The 5 areas a FICO score considers 10/31/16 21

Payment History (35%) Key Factors Recency Severity

Amount of Debt (30%) Key Factors Credit card debt

24 Amount of Debt (30%) Credit Utilization Ratio Total credit limit of 5 cards $25,000 Close one zero balance card with $10,000 credit limit Total credit limit of 4 cards $15,000 Total of balances $7,500 Total of balances $7,500 30% Credit Utilization 50% Credit Utilization 24

25 Length of Credit History (15%) Key Factors How long have accounts been established? New accounts 25

26 New Credit (10%) Key Factors Inquiries New accounts 26

27 Types of Credit Key Factors Used (10%) Revolving credit Installment credit Mortgage credit 27

28 Nationwide Range of Credit Scores 30% National Distribution of FICO Scores 25% % of Population 20% 15% 10% 5% 0% Up to FICO Score Range 28

29 The FICO Score Indicates Risk Chance of 90 days past due or worse over 2 years. Source: FICO 29

30 Your Score Really Matters In Compare these two loans A $10,000 used car loan for 36 months can result in an extra $2,304 in payments over 3 years. $357/Mo $293/Mo FICO Score <590 Fico Score 720+ Interest rate: % Interest rate: 3.577% Source: FICO 30

How Mistakes Affect FICO Scores 2014 Experian

RULE #1: Establish a Credit Report You need a credit history to get new credit Creditors need financial references, and that is what a credit report provides PotenEal opeons for first accounts: Ask

32 RULE #1: Establish a Credit Report You need a credit history to get new credit Creditors need financial references, and that is what a credit report provides PotenEal opeons for first accounts: Ask your parents to list you as a joint user Ask your parents to co- sign on a card or loan in your name Apply with your bank or credit union for a secured card 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 32

33 RULE #2: Always Pay as Agreed Delinquency will negaevely impact your ability to get credit It mafers: How many payments did you miss? How long ago did you miss a payment? Did you totally fail to pay? 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 33

RULE #3: Get a Credit Card Car loans and mortgages are important, but revolving credit tells more about you YOU must manage yourself: Is your balance growing each month?

34 RULE #3: Get a Credit Card Car loans and mortgages are important, but revolving credit tells more about you YOU must manage yourself: Is your balance growing each month? Have you charged to the max against your limits? Do you make all payments on Eme? Are all of the payments at least the minimum due, even though the payment amount might vary? 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 34

35 RULE # 4: Use CauGon in Closing Accounts Closing unused accounts isn t always a good thing When deciding whether to close an account, consider: The effect on your total balance to limit raeo That negaeve payment history remains for seven years, even if an account is closed That a long, stable history is a good thing posieve, open accounts stay in your history forever Your ability to resist the temptaeon of overcharging if you don t close the account 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 35

RULE #5: Apply for Credit Judiciously Do not apply for muleple accounts within a short period of Eme Recent inquiries* represent increased risk because they: Indicate that you opened new debt which

36 RULE #5: Apply for Credit Judiciously Do not apply for muleple accounts within a short period of Eme Recent inquiries* represent increased risk because they: Indicate that you opened new debt which hasn t yet been reported Suggest you might have cash flow problems and are seeking new credit to support your spending * While inquiries are often listed as a risk factor, they are rarely significant unless other risk factors are present 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 36

RULE #6: Demonstrate Stability Other factors can indicate financial soundness For large financial transaceons, lenders may look beyond your credit history: Have

37 RULE #6: Demonstrate Stability Other factors can indicate financial soundness For large financial transaceons, lenders may look beyond your credit history: Have you had stable employment? Have you moved frequently? Do you have other assets? 2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 37

RULE #7: Have a Plan Enjoy the privilege and convenience of credit, but be accountable for your own decisions Stores don t force you to buy and cards don t appear on the sales counter by themselves:

38 RULE #7: Have a Plan Enjoy the privilege and convenience of credit, but be accountable for your own decisions Stores don t force you to buy and cards don t appear on the sales counter by themselves: Using credit shouldn t mean spending more than you make Always have a plan for how debts will be paid Always have an emergency fund Paying down balances and paying bad debts should be done two to three months before applying for new credit ConEnue using your credit card so your most recent history will be very posieve Experian Information Solutions, Inc. All rights reserved. Experian Public. 38

RULE #8: Share your Knowledge Teach your children EARLY about the value of money and

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