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Credit Scores Credit Reports: How The System Really Works

Basics Of The Credit Score. If winning isn't everything, why do they keep score? Vince LombardiAll right, everyone, line up alphabetically, according to your height. Casey Stengel. What Is A Credit Score?. A number that reflects your cre

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Credit Scores Credit Reports: How The System Really Works

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    1. Credit Scores & Credit Reports: How The System Really Works Murphy Canyon Chapel Military Saves Campaign 2009 Financial Readiness Symposium Evan Hendricks, Editor/Publisher Privacy Times February 24, 2009

    2. Basics Of The Credit Score  If winning isn't everything, why do they keep score?   – Vince Lombardi   All right, everyone, line up alphabetically, according to your height.  – Casey Stengel

    3. What Is A Credit Score? A number that reflects your credit worthiness at a given point in time. The higher the score, the better the risk (Generally)      

    4. $150,000 30-Year, Fixed-Rate Mortgage 720-850 5.63% $864 700-719 5.75% $875 675-699 6.29% $927 620-674 7.44% $1,043 560-619 8.53% $1,157 500-559 9.29% $1,238      

    5. Mortgage vs. Auto Loans Excellent Marginal Poor 720-850 640-719 500-559 Mortgage 30-yr Fixed 5.5% 7.4% 8.1% Home Equity 7.8% 9.3% 12.1 48-Month 5.2% 11.4% 17.2% New Car Loan 48-Month 5.9% 12.0% 14.4% Used Car Loan      

    6. Translation $24,000 New Car (Financing) ‘‘Marginal’’ 127% In Higher Interest = $3,300* ‘‘Bad Credit’’ 255% In Higher Interest = $6,700* * More than one w/ Excellent Credit      

    7. Who Makes Them? 75% of Lenders Use FICO Model Equifax’s “Beacon” (Multiple Versions) Trans Union’s “Fico Classic” “Experian/FICO Risk Model.”

    8. Who Else? (Knockoffs) TrueCredit (Trans Union) PLUS (Experian) Vantage Score

    9. FICO Scoring Range   780-850 – Low Risk       740–780 – Medium-Low Risk       690–740 – Medium Risk       620–690 – Medium High Risk       620 & Below – High Risk or “sub-prime.” 500 & Below – Fawgettaboutit

    10. FICO Scoring Factors Payment History (35%) Severity, Quantity & Recency of Delinquencies Amount Owed—Extent of Indebtedness (30%) Ratio of Credit Balance To Credit Limit, How Much Owed? Length Of Credit History (15%) Type Of Credit (10%) Inquiries (10%)

    11. Payment History (35%) Track record with lenders. (Pay on Time?) Length Of Positive Credit History. (The longer the better.) How Long Since Most Recent Negative Item? Severe Unpaid Debts (Bankruptcy, Collections, Liens, Foreclosure) Severity & Quantity of Delinquencies (Pages 15-16)

    12. How Much Do You Owe (30%) Ratio: Credit Balance vs. Credit Limit Quantity of Credit Accounts (Too many, Too Few? No Magic Number) How Old Are Accounts? How Long Since You’ve Used Them (Pages 16-17)

    13. Length Of Credit History (15%) The Longer The Better Specific Accounts Total of All Accounts

    14. Type of Credit (10%) Bank Credit Cards vs. Store Charge Cards Mortgages vs. Finance Company Loans

    15. New Credit – “Inquiries” (10%) Designed To Catch “Credit Sprees” Not Supposed To Penalize Mortgage, or Auto Loan Shopping (Page 20) How Old Are Accounts? How Long Since You’ve Used Them

    16. The Importance Of Being Recent

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