Presentation on theme: "Understanding Your Credit Score"— Presentation transcript:
1 Understanding Your Credit Score Consumer Credit Nationwide
2 First -- some background… In the old days…banks relied on their own records and sometimes even the loan officer’s instincts, (or their gut), when making lending decisions.Obviously, while this worked some of the time, it wasn’t necessarily the most effective, or fair method of determining whether or not someone was qualified for a loan.Bill Fair (an Engineer) & Earl Isaac (a Mathematician) came up w/ an idea!They said that math could better predict future behavior than the “gut” of a loan officer…SoThey developed the Fair Isaac Credit Scoring model.
3 Credit Score definedA number that attempts to “measure” the odds that someone will pay the bank back if the bank gives that person money
4 Some other details Your score is a number between 300 - 850 A high score means a good credit rating which means your interest rates will likely be lowerA low score means a bad rating, which means interest rates will likely be higherYour score measures activity over the past 7 yearsGiving greatest weight to most recent information (6 months to 2 years)
5 Comparing your Credit Score to a Grading Scale in School School Grading Scale100% - 93% A92% - 85% B84% - 70% C69% - 60% D60% - 0 F* The above scale ranges may vary.Credit Grading Scale850 – 720 A719 – 680 B679 – 620 C619 – 600 D599 – 300 FMedian Score 723
6 What factors are used to make up your Score? 35% Payment History30% Amounts Owed (current balances vs. amount available on credit line)
7 Remaining Factors 35% Other Including: Length of time you’ve had credit (15%)Types of Credit (10%)New credit (10%)InquiriesNote: The statistical formula that is used create your score is a secret. The above are guidelines that have been given to consumers to help “explain” the score.
8 Payment History (35%)Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)Severity of delinquency (how long past due)Collection itemsTime since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)Number of past due items on fileNumber of accounts paid as agreedGreatest weight given to the largest payment creditor
9 Amounts Owed (30%) Amount owing on accounts Number of accounts with balancesDebt Utilization Ratios – Amounts owed/Credit GivenProportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)
10 Other Factors Length of Credit History (15%) The longer you’ve had credit the better your score.What is measured?Time since accounts openedTime since account activity
11 Other Factors (cont’d) Types of Credit (10%)Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgages, consumer finance accounts, etc.)
12 Other Factors (cont’d) New Credit (10%)Number of recently opened accounts, and proportion of accounts that are recently opened, by type of accountNumber of recent credit inquiriesTime since recent account opening(s), by type of accountTime since credit inquiry(s)Re-establishment of positive credit history following past payment problems
13 Inquiries This is a list of who has been checking your credit. 2 types of inquiries –Inquiries you initiateEx. You apply for a loan, or apply for insuranceThis type of inquiry will have an impact on your score but generally not a significant one. If you are shopping for a loan, the multiple inquiries will have the impact of a single inquiry within a 15 day period.Inquiries others initiate or self-check of creditEx. Bank wants to offer you a pre-approved offer or you check your credit yourself.The score does not count “consumer-initiated” inquiries – requests you have made for your credit report, in order to check it. It also does not count “promotional inquiries” – requests made by lenders in order to make you a “pre-approved” credit offer – or “administrative inquiries” – requests made by lenders to review your account with them. Requests that are marked as coming from employers are not counted either.
14 What is not in your Score? AgeZip CodeCredit CounselingIncomeGenderRace
15 Facts and FallaciesFallacy: My score will drop if I apply for new credit. Fact: If it does, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple requests for your credit report information (called “inquiries”) will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score. (Myfico.com)
16 Facts and FallaciesFallacy: A poor score will haunt me forever. Fact: Just the opposite is true. A score is a “snapshot” of your risk at a particular point in time. It changes as new information is added to your bank and credit bureau files. Scores change gradually as you change the way you handle credit. For example, past credit problems impact your score less as time passes. Lenders request a current score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for more favorable interest rates.
17 How do I improve my score? Pay all bills on timePay off old collection accountsGet current & Stay currentKeep balances low in relation to credit limitsOnly use credit when needed
18 How do I get a copy of my Credit Report? By Phone:By Web:By Mail:Annual Credit Report Request Service P.O. Box Atlanta, GA
19 What information is on my Credit Report? Account HistoryCompany NameAcct NumberType of accountDate OpenedDate ReportedCredit LimitHighest BalanceCurrent BalanceMonthly PaymentPast Due AmountPayment History for last 24 mos.IdentificationNameAddressSoc. Sec. NumberYear of BirthGenderEmployerPublic InformationBankruptciesJudgmentsTax Liens
20 Additional Questions? Please contact us: Consumer Credit Nationwide3509 Spring Street * Suite 4Davenport, Iowa* 800-Debt Help ( )