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Lesson 9

Lesson 9. Fixing Your Credit. Key Terms. Bankruptcy Certified Mail Credit History Credit Report Fair Credit Reporting Act. FICO Expansion Score FICO Score Foreclosure Installment Loan Lien. How To Build Up a Credit History. Social Security Number Savings Account

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Lesson 9

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  1. Lesson 9 Fixing Your Credit

  2. Key Terms • Bankruptcy • Certified Mail • Credit History • Credit Report • Fair Credit Reporting Act • FICO Expansion Score • FICO Score • Foreclosure • Installment Loan • Lien

  3. How To Build Up a Credit History • Social Security Number • Savings Account • Open one, and be sure to use your social security number • Paycheck • Get regular paycheck

  4. Credit Report • A summary of your financial history, from savings accounts to loans to credit card payments • Three main credit reporting agencies • Experian • Equifax • Trans Union • Each maintains a credit report on you based on info provided by its clients • Businesses sign up with one or several of these agencies (for a fee) to run credit checks on their credit customers • They also provide payment info on their credit customers to these agencies

  5. Negative reports on a credit report • 30+ days late on a payment • 60+ days late on a payment • 90+ days late on a payment • Items sent to a collections agency • Business that specializes in collecting debts from “deadbeats” • Put pressure on debtor to make payment • Normally get paid a percentage of whatever they collect (as opposed to a flat fee) • Items “written off” as a bad debt • Business has given up on ever getting paid • Bankruptcies

  6. Get Your Credit Report for Free! www.annualcreditreport.com • Can have each credit reporting agency send you a copy of your credit report (usually electronically) • Can get it once a year for free • Notice it is NOT freecreditreport.com

  7. Your Credit Score • A.k.a. FICO score • Fair, Isaac Corporation (FICO) helped the 3 major credit bureaus (Experian, Equifax, Trans Union) develop the scoring model • Complex formula • Factors in all info on your credit report

  8. Factors in Your Credit Score • Your payment history • Payments on credit cards, retail accounts at stores, installment loans, and mortgages (home loans) • 35% of total score • Amounts of credit available & amounts owed • Current balances • How much of total available credit is being used • 30% of total score

  9. Factors in Your Credit Score (cont.) • Length of credit history • Longer the better (shows more of a track record) • 15% of total score • New credit • Number of recent inquiries on credit report • Number of new credit issued & maximum amounts • 10% of total score

  10. Factors in Your Credit Score (cont.) • Types of credit • Mix of • Installment loans • Mortgages • Retail accounts • Credit cards • Finance company accounts • 10% of total score

  11. Additional Factors • Education level • Higher education level gets more points • Number of years lived in single location • Home hopping costs you points • Number of years worked for single employer • Job hopping costs points • Are you a homeowner? • Homeowner better than renter • Stability = reliability

  12. Credit Score Ranges • High = 850 • Low = 300 • General cutoffs • 660 or higher = verygood credit risk • 620 – 659 (average range) = basically good, but may want to check further • Below 620 = high risk, probably won’t get better rates (will get higher end of the rate range offered by lender)

  13. FICO Expansion Score • Like regular FICO score • Based on non-traditional accounts and financial information sources • Designed for • Young persons • New immigrants • Others without credit history

  14. Why Is Having a Good Credit Score Important? • Will show companies whether or not they should lend to you • Will determine what interest rate you will get on any loan • Most states allow insurance companies to factor in your credit score when determining insurance rates for auto, life, and property insurance • Landlords will check credit scores to determine whether or not to rent to you • Utilities (phone, electric, water/sewer, cell phones, etc.) will check it to determine if you need to pay any deposit to get service with them

  15. How To Build Up a Better Credit Score • Get a savings account & keep a steady or increasing amount of money • Get a debit card at the same bank & use it • Keep a safe cushion of money in account so you don’t overdraw the account • Get a credit card (if you’re over 18), use it, and • Pay it off every month (ideal) • Pay as much of the balance off every month • Make the monthly minimum payment every month (least desirable) • Get a loan (car loan, student loan, etc.) and keep the account in good standing by making all the payments on time and paying it off as soon as possible

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