Your Credit Rating

1. Your Credit Rating Credit Scores Explained

2. What is a credit score and what is it designed to do? • FICO score • Summary of one’s credit worthiness • Fair, Isaac and Co—the California company that developed the system • Represents the info in your credit report by using a formula to calculate a single number • Gives lenders a fast, accurate prediction of the risk involved in giving you a loan • Scores range from the 300s to 900s • The higher the score the better • Majority of people fall between 600s and 700s

3. What factors determine my credit score? • 5 Characteristics listed in order of significance determine how high a score will be • Past delinquency • The way credit has been used • The age of a credit file • The number of times a person asks for any type of credit • A customer’s mix of credit

4. 1. Past Delinquency • People who have failed to make payments in the past tend to do the same in the future • Universal Default Clause • A hike in your APR because you were 30 days late—did not pay until you received your next statement

5. 2. The Way Credit Was Used • Someone who is maxed out or close to the limit on a credit card(s) is considered a greater risk than someone who does not look at a high credit limit as a license to print money

6. 3. The Age of the Credit File • Fair, Isaac’s model assumes people who have had credit for a long time are less risky • More of a history to compare

7. 4. Number of Times a Person Asks for Any Type of Credit • The system frowns upon those who have initiated several requests for credit cards, loans, or other debt instruments over a short period • This includes store credit cards that offer same day discounts or free gifts • Even if the card is never used it affects your credit rating

8. 5. A Customer’s Mix of Credit • Someone with a secured credit card is generally riskier than someone who has a combination of installment and revolving loans • Installment loans • Auto loan—make fixed payments until loan is paid in full • Revolving loans • Charge cards—each payment frees up more money to access

9. How is credit worthiness gauged using the credit score? • It depends on the type of loan the consumer is seeking • More weight is given to different credit factors • For example, the number of open credit cards influences your credit score because a person would be able to borrow up to the credit limit on each card. • 5 Store Credit Cards X $1000 credit limit on each card would enable a person to owe up to $5000. Which also means they would have a monthly payment for each card. • If a person is applying for a car loan, the total amount of monthly payments would influence whether a person could financially afford to make the additional monthly car payment.

10. Mortgages • FICO scores of • Above 660—acceptable • Loan files need only a basic review, the lowest interest rates apply • Between 620 and 660—uncertain • Thorough review of borrower’s entire credit history to determine cause of rating (mix of credit, open credit cards) • Below 620—high risk • Makes traditional financing difficult to obtain, credit could be denied, need for a co-signer or a larger down-payment, higher interest rates would apply

11. Credit Cards • Additional weight is placed on credit card related information • How many times a person missed a revolving credit payment • Who the borrower is • A college student targeted for a starter card • A platinum-toting stockbroker with a summer home in the Hamptons

12. Auto Lenders • Focus on deal characteristics • Amount of down payment • Borrower’s debt-to-income ratio • Length of time at one job • Past performance on similar types of loans • Missed Nissan payment might be more important than a late Visa bill payment

13. Why would knowing your score help? • “A mortgage is probably the single biggest transaction most people make in their lives.” * • Excellent rating gives you the best interest rates available • This won’t happen if the 1st time you look at your credit rating is when you have the contract in your hands and the clock to closing is already ticking • 3-6 months ahead of time gives you ample time to make changes to improve your credit rating *Eric Cunliffe, former president and CEO of HomeSpace Inc. now a division of Lendingtree.com

14. What will it cost to order your credit report and scores? Charged to your credit card EVERY month until you cancel If you have been recently turned down for credit, you may be entitled to a FREEreport

15. What will it cost to order your credit report and scores?

16. Your credit report is a snapshot of your credit at a particular moment in time. However, in reality that information is flowing in and out of your credit report all the time. Credit applications, home and auto loans, payments, an address change or even an inquiry from a prospective creditor all show up on your credit report - and affect your credit score. • Credit history is the main determining factor of credit nowadays, but there are potential problems that can work against consumers. Since some credit reports can contain inaccuracies serious enough to cause consumers to be denied credit, a loan or even a job, keeping abreast of changes to your credit file is vitally important. • Monitoring your credit is one of the easiest and most effective ways of protecting your credit against errors and fraud.