Credit Reports and Scores

1. Credit Reports and Scores

2. Are you a good credit risk? If you borrowed money from a friend, what would she say about your responsibility in paying her back? If you apply for a credit card, who does the credit card company consult to find out if you are a good credit risk?

3. Consumer Reporting Agencies CRAs keep track of your financial interactions in a credit report TransUnion accessed by lenders in the Midwest The three consumer reporting agencies are:

4. Sample Credit Report (click picture to get to sample credit report)

5. Credit Report Information contained in the credit report: • Personal information—name, address, social security number, date of birth • Credit history—payments made and balances due to creditors • Public record information—late child support, bankruptcy filings, if pursued by collection agencies because of not paying bills • Inquiries—Names of companies requesting a copy of the report

6. Credit Report Information NOT on the credit report: Checking and savings account balances Income Medical history Purchases made with cash or check Race, gender, religion, or national origin Driving record

7. manner of payment codes status type of account code O Open (entire balance due each month) R Revolving (payment amount variable) I Installment (fixed number of payments) status timeliness of payment 0 Approved not used; too new to rate 1 Paid as agreed 2 30+ days past due 3 60+ days past due 4 90+ days past due 5 Pays or paid 120+ days past the due date; or collection account 6 Making regular payments under wage earner plan or similar arrangement 7 Repossession 8 Charged off to bad debt

8. Consumer Reporting Agencies A person can request one free credit report each year from each reporting agency (FACT Act) How can you get a free credit report? Did you see the pirate hat?

9. Consumer Reporting Agencies Access one of these websites to get a FREE credit report myfico.com annualcreditreport.com

10. Credit Score Credit Score—Fair Isaac What’s My Credit Score and How Do I Raise it? FICO (Fair Isaac Corporation) score is a summary of the information on a consumer’s credit file FICO score (credit score) is a single 3-digit number ranging from 300-850 which rank orders consumers according to risk

11. Credit Score Source: http://www.money-zine.com/Financial-Planning/Debt-Consolidation/FICO-Credit-Scores/ Who has an 850 FICO score?

12. Credit Score Who has an 850 FICO score? Statistics: The median score in the U.S: 720 Average score: 692 27 percent have a score of 649 or below 58 percent of consumers have a credit score of 700 or higher 13 percent have a score 800 or above

13. Five Areas of a FICO Score

14. Five Areas of a FICO Score

15. Payment History (35%) How recent is the most recent delinquency, collection, or public record item? How severe was the worst delinquency—30 days, 90 days? How many credit obligations have been delinquent?

16. Five Areas of a FICO Score

17. Outstanding Debt (30%) What percentage of available credit card limits is the consumer using? Installment debt—number of open loans with balances

18. Five Areas of a FICO Score

19. Credit History Length (15%) How long accounts have been established—average number of months accounts have been open New accounts—number of months since most recent account was opened

20. Five Areas of a FICO Score

21. Pursuit of New Credit (10%) Number of recent inquiries (last 12 months) New accounts—number of tradelines opened during the last year

22. Five Areas of a FICO Score

23. Credit Mix (10%) Ability to manage different types of credit well (bank credit cards, store credit cards, installment loans, school loans, mortgage loan)

24. Who Wants to Know Your Credit Score? Employers Insurance companies Credit unions and banks Credit card companies Loan and mortgage companies Internet service providers and cellular providers Telecommunication and cable companies Private schools and colleges

25. How Can You Build a Good Credit Score? Establish a steady work record. Pay all bills promptly. Open a checking account and don’t bounce checks. Open a savings account and make regular deposits. Apply for a local store credit card and make regular monthly payments.

26. How Can You Build a Good Credit Score? Apply for a small loan using your savings account as collateral. Get a co-signer on a loan and pay back the loan as agreed. Make sure that your internet and cell phone bills are in your name even if they are being paid for by your parents. Obtain a secured credit card. For using this card, you must first deposit an equivalent amount of money as collateral with the company.

27. how much can you afford? (the 20-10 rule) never borrow more than 20% of your yearly net income If you earn $400 a month after taxes, then your net income in one year is: 12 x $400 = $4,800 Calculate 20% of your annual net income to find your safe debt load. $4,800 x 20% = $960 So, you should never have more than $960 of debt outstanding. Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 20%, but other debt should be included, such as car loans, student loans and credit cards.

28. how much can you afford? (the 20-10 rule) monthly payments shouldn’t exceed 10% of your monthly net income If your take-home pay is $400 a month: $400 x 10% = $40 Your total monthly debt payments shouldn’t total more than $40 per month. Note: Housing payments (i.e., mortgage payments) should not be counted as part of the 10%, but other debt should be included, such as car loans, student loans and credit cards.

29. SAVE $47,000 On Two Purchases http://www.myfico.com/HelpCenter/FICOScores/ My FICO Standard Score Simulator