What is a FICO Score?

1. What is a FICO Score? • A FICO score is a credit rating developed by Fair Isaac & Company. • Method was developed in the late 1950’s and is now widely accepted by lenders, insurance companies, employers, landlords, and others as a reliable means of credit evaluation. • FICO scores are 3 digit numbers ranging from 300-850. • A person has 3 different FICO scores from three different credit bureaus.

2. The Three Credit Bureaus • Equifax • Experian • TransUnion • Each bureau produces a number based on scoring models and mathematical tables. • These numbers are not necessarily the same due to the different methods used by each bureau. • Most lenders use the middle score of the three as the recognized credit score.

3. For a $216,000 30-year • 760-850 5.96% $1,289 • 700-759 6.18% $1,320 • 680-699 6.36% $1,345 • 660-679 6.57% $1,376 • 640-659 7% $1,437 • 620-639 7.55% $1,517

4. Employment Decisions • According to the federal Fair Credit Reporting Act (FCRA), a company has the right to obtain credit reports and use that information when considering a candidate for a position in which the information may be applicable, • such as jobs that require an employee to handle a significant amount of money or • deal with sensitive information.

5. EEOC v. American National Bank • In the 1979 case, a group of African-American women applying for teller positions at American National Bank in Virginia claimed the bank discriminated against them when it denied them employment based on their credit history.In cases like these, the first step in litigation is for the plaintiffs to prove there is an adverse impact as a result of the credit reporting. Once they’ve done that, the burden of proof shifts to the employer, who then has to prove there was a legitimate business reason to use the credit reports. • Because the bank proved the tellers would handle a great deal of money as part of their daily job responsibilities, the court found for the bank, stating “the use of credit checks by the bank served legitimate, important and job-related purposes.”

6. Playing By The Rules • The credit report must be job-related • The company may want to know a person’s debt situation and compare that to the salary it is offering. “If you’re applying for a job that pays $3,500 a month, but you owe $4,500 a month in credit-card debt” • Companies must keep in mind the possibility that credit reports may contain errors.

7. What is in your score?

8. What is in your score? 1. Payment History (35%) • Number of past due items on file. • Severity of delinquency (how long past due) • Presence of adverse public records (bankruptcy, suits, liens, delinquency) • 7 years for bad credit, late payments, collections, charge off's. Lawsuits and judgments 10 years or until the statute of limitations runs out in the state. 3 years for inquiries.

9. What is in your score? • Amounts Owed (30%) • Amount owed on accounts. • Number of accounts with outstanding balances. • Proportion of credit lines used (How much credit is tied up in credit cards) • Proportion of installment loans (How much do you have left to pay on specific loans) • Length Of Credit History (15%) • Time since accounts opened • Time since account activity

10. Resources • annualcreditreport.com • www.myfico.com