Credit Reporting 101

1. Credit Reporting 101 Jim Riley Credit Reporting Overview Credit Reports & Scores Credit Dispute Resolution Credit Management Tips and Misconceptions Analysis of a Credit Report April 5, 2006

2. Credit Reporting Overview • Three main U.S. credit reporting companies, including TransUnion • Companies update and distribute consumers’ information • How the system works: • Consumer applies for credit • Creditor requests information about consumer’s financial history • Credit profile used to determine whether to authorize credit – and if so, at what interest rates. • Consumer gains access to credit (or is denied) • Credit grantor reports activities back to credit reporting companies every 30 days • Credit reporting companies update consumer’s information

3. What is a Credit Report? • Summary of a consumer’s financial reliability • Prepared by credit reporting companies for use by credit grantors and other parties with permissible purpose • Details a consumer’s credit history as it has been reported • Lists the type of credit a consumer uses, the length of time the accounts have been open and whether the consumer has paid their bills on time • Tells lenders how much credit a consumer has used and whether they are seeking new sources Did You Know? With the Dec. 2003 signing of the Fair and Accurate Credit Transactions (FACT) Act, all consumers are entitled to one free credit report per year from each of the three major credit reporting companies.

4. Types of Credit Reports • Consumer Disclosure(Consumer Version) • Lists all inquiries including limited inquiries and account reviews • Only consumer can request this version • Subscriber Report(Credit Grantor Version) • Abbreviated version of consumer credit report that only creditors see • Does not contain limited inquiries or account reviews • Does contain credit inquires

5. Race • Gender • Religion • Sexual Orientation • National Origin • Medical History • Checking or Savings Account Balances • Brokerage Accounts • Driving Record Elements of a Credit Report • What is in a Credit Report? • Identifying Information • Public Record • Credit History / Trades • Inquiries • What is NOT in a Credit Report?

6. What is a Credit Score? • Sum calculated by vendor and used by lenders as an indicator of how likely consumer is to repay loans • Snapshot in time of the consumer’s current financial situation • Generated by a mathematical formula • Each credit grantor has its own strategy for interpreting the credit score • If credit is denied after reviewing the score, credit grantors must disclose reasons for the decision

7. Payment History • Outstanding Debt • Credit Account History • Recent Inquiries • Types of Credit Used Components of a Credit Score • What is Calculated in the Credit Score? • What is NOT Calculated? • Demographic Information (age, race, color, religion, national origin, sex, marital status, residence, child/family support obligations) • Employment Information (salary, occupation, title, employer, date employed, employment history) • Other Credit Information (interest rates charged by other credit grantors, rental information, usage by the consumer of a credit counseling company)

8. Uses 1.7million records from the TransUnion database Up to 4 Adverse Action codes returned and rank ordered Scores range 150 – 934 How was the Model Developed? Large sampling of consumers’ credit reports accessed Data analyzed to determine factors that relate closest to creditworthiness Degree of importance assigned to each factor based on predictor’s accuracy TransUnion’s Scoring Model

9. Hard to say, but typically the higher the score the better Individual credit grantors decide range of acceptability For example, a consumer’s TransUnion credit score might be 680 Based on the TransUnion model, following is a graphical assessment of the consumer’s creditworthiness: Based on this score, here is how the consumer may be viewed by a certain lender: What’s a Good Credit Score?

10. Consumers have the right to dispute inaccurate information on their credit report First, correctly identify inaccurate information Next, contact the credit grantor responsible for the inaccuracy and try to resolve the issue If this does not work, contact the credit reporting company(s) that is/are reporting the inaccurate information Credit reporting company(s) will investigate the issue If changes are made, consumer will be contacted within 30 days. Credit Dispute Resolution

11. Set Goals: Check your credit report every three months Improve your credit score 50 points or to above 650 Reduce your debt balances to below 35% of available credit limit Create a monthly budget and stick to it Clean Up Your Records: Dispute negative inaccuracies on your credit report Remove expired debts and collection accounts Consider refinancing Guard against identity theft Credit Management Tips

12. Your credit score will drop if you check your credit report Closing old accounts will improve your credit score Once you pay off a negative record, it is removed from your credit report Being a co-signer doesn’t make you responsible for the account Paying off a debt will add 50 points to your credit score Top 5 Credit Misconceptions

13. Young consumers often have “thin” credit profiles, which could lower their credit score Important for credit grantors to consider this when making credit granting decisions Helping young consumers to understand how their credit is viewed and how it is assessed helps them optimize their creditworthiness It also helps credit grantors feel confident in their credit granting decisions Credit & Young Consumers

14. Credit Report • A full history of information within a consumer’s credit file, including: • identification (indicative) information • current and historical account performance • collection activity • public record activity • records of other companies who have viewed that credit file. Last Slide

15. Credit Report Sections Standard information in a Credit Report includes: • Indicative Information • Special Messages • Model Profile • Credit Summary • Public Records • Collections • Trades • Inquiries • Consumer Statements Last Slide

16. Credit Report Codes • Equal Credit Opportunity Act (ECOA ) • Inquiry and account designation on an account • Manner of Payment (MOP) • A series of codes used to show the payment habits (prompt, delinquent, etc.) of a subject. • Kind of Business (KOB) • Business classification • Date Indicators • Type of Account • A code that indicates one of five general types of credit accounts. Codes

17. Add-On Services Addresses specific customer needs, including: • Identity verification • Application verification • Fraud prevention • Regulatory compliance • Collections Last Slide

18. Indicative Information Phone Append An add-on service that appends a ten-digit phone number Includes the consumer’s name and aliases, current and up to two previous addresses, date of birth, social security number, telephone number, and up to two employment records. Rpt Section

19. Special Messages • Highlights specific credit file conditions that may include: • Presence of consumer statement • No subject found • Optional add-on products Rpt Section

20. Model Profile Displays empirically-derived scores to predict a consumer’s future credit performance. Risk scores factors are displayed numerically or in text. Up to four factors are disclosed and are displayed in order based on their relative impact on the final score. *** ALERT *** appears when MOP is 7 or greater, a negative public record or a collection is present on the file. Rpt Section Codes

21. FICO Reason Codes Rpt Section

22. Credit Summary Condenses all elements of a consumer’s credit file into key areas of information. This snapshot helps you focus on areas that are of concern. Information is divided into two areas: • Counters of different categories of information • Information on each type of trade (revolving, mortgage, installment and open) as well as closed trades with current balances. • * Available as either total file history or 12 month file history Rpt Section Codes

23. Public Records Information obtained from county, state and federal courts, including civil judgments, tax liens, and bankruptcies. Rpt Section Codes

24. Public Records How Long? • Typical Retention Periods • Civil Judgment • Unpaid tax lien • Paid Tax Lien • Chap 7, 11 or 12 • Chap 13 • Chap 13 dismissal/discharge • BK voluntarily dismissed …………….……..……….7 years …………….……………Indefinite ...………….……7 years from date ..…………….…………10 years .……………………….…………10 years ….………..7 years ….……………..7 years Rpt Section (May vary by state)

25. Collections Accounts that are being processed by a third party collection agency, defined with a Kind-of-Business (KOB) code of “Y”. Rpt Section Codes

26. Trades Creditor Contact Information An add-on service that returns contact information – including name, address, and potentially phone number – for all subscribers appearing on the credit file. • This is a list of accounts held by the consumer, along with their current and historical payment history on the account. • Trades are sorted by most derogatory followed by date verified (or vice-versa) • Payment pattern is available displaying either 12 or 24 months Rpt Section Codes

27. Inquiries This section displays information about other companies who have viewed this consumer’s report within the past two years. Information returned includes the date of inquiry and the subscriber’s name and number. An add-on service that provides valuable information available from inquiries made to a consumer’s file within the last 90 days. Includes the subscriber’s name, member code and inquiry date, along with the input used to perform past inquiries. Inquiry Analysis Rpt Section Codes

28. Consumer Statement Section where consumers can state in their own words descriptions of specific situations that may affect their credit report. Rpt Section Codes

29. Resources For more information, visit the following Web sites: • www.TransUnion.com • www.TrueCredit.com • www.annualcreditreport.com Questions