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Your Credit Report Understanding the puzzle.

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Presentation on theme: "Your Credit Report Understanding the puzzle."— Presentation transcript:

1 Your Credit Report Understanding the puzzle

2 The basics: What is a credit report?
Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by "consumer reporting agencies" (CRAs). A credit bureau agency is a CRA.

3 How do you know if you have a credit report?
You have a credit record on file at a credit bureau if you have ever: applied for a credit or charge account applied for a personal loan applied for insurance applied for a job

4 What is in a credit report?
Your credit record contains information about your debts, and credit payment history. It also indicates whether you have any financial judgments, or have filed for bankruptcy.

5 The Big 3 There are three major credit bureaus: Equifax, Experian (formerly TRW), and TransUnion. Credit Bureau of Baton Rouge is affiliated with Equifax.

6 The Big 3 They compete with each other They do not share information
contents of each may be different. when reviewing, get copies of all three. Since credit reporting agencies compete with one another and do not share information, the contents of your credit report from each of the three credit reporting agency will be somewhat different. While companies offer “merged” reports, be mindful of the costs. A consumer shouldn’t pay more than $9 for a copy of their report from one of the credit reporting agencies. In some cases, you may be entitled to a copy for free. Be weary of companies that charge over $100 for a “merged” copy of all three!

7 Inside a credit report…
While the formats are different, all of the credit bureaus list the same types of items: Identifying information Accounts or “trade lines” Public records Inquiries Additional Information

8 Identifying Information
This information generally comes from credit applications that you have previously submitted to creditors This information is not used in your credit score: name, address, social security number, age, race, color, religion, national origin, sex or marital status, employment info, rental agreements, items reported as child support.

9 Accounts or “Trade lines”
Lenders report which accounts & what type of account you have with them: Bank card, auto loan, mortgage, etc. When it was opened Date of last activity Balance & account limit Payment history Charge offs and past dues will be located here

10 Public Records Credit reporting agencies also collect public record information from state and parish courts, and information on overdue debts from collection agencies: Bankruptcies Judgments Tax liens

11 Inquiries Or for Employment Purposes
The inquiries section contains a list of everyone who accessed your credit report within the last two years: For applications for credit by you For periodic monitoring/review by companies where you already have accounts For “pre-approval” offers from companies For employment purposes Or for Employment Purposes

12 Inquiries Two types External Internal
Internal inquiries do not appear on a lender’s copy of a credit report and do not affect the credit score. Examples of External Inquiries: Applied for credit; applied for a mortgage; applied for an apt ; applied for insurance Internal Inquiries: Current Lenders: to monitor your account Potential lenders: to offer preapproved credit Employers: for hiring/promoting the best candidate Credit bureau assistance: to provide you a report

13 Additional Information
Credit bureaus may also report information such as: Previous address Warning notifications Consumer statements Depending on the agency (as they all have different formats), they may report additional information. Warning notifications: If the credit bureau considers any of the information in your file to be suspicious, there may be a notation such as, "Multiple Social Security Numbers Reported," or, "This address has been previously associated with fraud," or whatever it is that they are concerned about. Consumer statements: If you, the consumer, requests information to be added to your file, such as “victim of identity theft, or credit card stolen, etc.” it would be listed here.

14 Who can view my report? Anyone with what is considered a permissible purpose can look at your report. These companies, groups, and individuals can include: Potential lenders Landlords Insurance companies Employers and potential employers Others include: Companies you allow to monitor your account for signs of identity theft Some groups considering your application for a government license or benefit A state or local child support enforcement agency Any government agency (although they may be allowed to view only certain portions) Someone who uses your credit report to provide a product or service you have requested Someone that has your written authorization to obtain your credit report

15 What is a credit score? A score is a snapshot of your credit risk at a particular point in time. A credit score is a number lenders use to help them decide: “If I give this person a loan or credit card, how likely is it that I will get paid back on time?”

16 What is a credit score? Credit bureau scores are often called “FICO scores” FICO scores determine a person’s risk The higher the score the lower the risk Each lender has its own strategy for determining an acceptable risk Credit scores are called “FICO scores” because most credit bureau scores used in the US and Canada are produced from software developed by Fair Isaac Corporation (FICO). The FICO score is called a different name by each of the 3 major CRA’s. Equifax – Beacon Experian – Experian/Fair Issac Risk Model TransUnion - EMPIRICA Credit scores, or FICO scores, range from 300 to A score above 700 indicates you are a relatively low credit risk and will likely qualify for the best interest rates. Consumers with scores below 600 are typically charged higher loan rates, but might also be denied insurance, telephone service, an apartment or even a job.

17 What makes up a credit score?
There are five main categories of information that FICO scores evaluate: Payment history (35 percent): bankruptcies, late payments, past due accounts and wage attachments What is your track record? TRUE OR FALSE – As your income goes up, your credit score will increase. F Approximately 35% of your score is based on this category. The first thing any lender would want to know is whether you have paid past credit accounts on time. This is also one of the most important factors in a credit score. Late payments are not an automatic “score-killer.” An overall good credit picture can outweigh one or two instances of, say, late credit card payments. But having no late payments in your credit report doesn’t mean you will get a “perfect score.” Some 60%–65% of credit reports show no late payments at all. Your payment history is just one piece of information used in calculating your score.

18 What makes up a credit score?
Payment History Tips for Raising your Score Pay your bills on time. If you have missed payments, get current and stay current. Paying off a collection account, or closing an account on which you previously missed a payment will not remove it from your credit report. Delinquent payments and collections can have a major negative impact on your score. The longer you pay your bills on time, the better your score.

19 What makes up a credit score?
Amount of credit owing (30 percent): Your score takes into account: Whether you are showing a balance on certain types of accounts. How many accounts have balances. How much of the total credit line is being used on credit cards and other “revolving credit” accounts. Amount owed on all accounts, and on different types of accounts. How much is too much? Amount of Credit Owing: Approximately 30% of your score is based on this category. Having credit accounts and owing money on them does not mean you are a high-risk borrower with a low score. However, owing a great deal of money on many accounts can indicate that a person is overextended, and is more likely to make some payments late or not at all.

20 What makes up a credit score?
Amount of Credit Owing Tips for Raising your Score Keep balances low on credit cards and other “revolving” credit. Pay off debt rather than moving it around. Don’t close unused credit cards as a short-term strategy to raise your score. Closing your oldest credit card account and possibly highest credit limit could lower your score. Opening more credit card accounts than needed could backfire and actually lower your score.

21 What makes up a credit score?
Length of Credit History (15 percent) Time since accounts were opened Time since last account activity How established is yours? Length of Time: Approximately 15% of your score is based on this category. In general, a longer credit history will increase your score. However, even people who have not been using credit long may get high scores, depending on how the rest of the credit report looks.

22 What makes up a credit score?
Length of Credit History Tips for Raising your Score If you’ve been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

23 What makes up a credit score?
Search for and acquisition of new credit (10 percent): number of recent credit inquiries number of recently opened accounts Are you taking on more debt? New Credit: Approximately 10% of your score is based on this category. People tend to have more credit today and to shop for credit—via the Internet and other channels—more frequently than ever. Fair Isaac scores reflect this fact. However, research shows that opening several credit accounts in a short period of time does represent greater risk—especially for people who do not have a long- established credit history. Multiple credit requests also represent greater credit risk. However, FICO scores do a good job of distinguishing between a search for many new credit accounts and rate shopping for one new account.

24 What makes up a credit score?
New Credit Tips for Raising your Score Do rate shopping for an auto or mortgage loan within a focused period of time. Re-establish your credit history if you have had problems.

25 What makes up a credit score?
Types of credit in use (10 percent) Type and number of various types of accounts (credit cards, retail accounts, mortgage) Is it a “healthy” mix? Types of Credit: Approximately 10% of your score is based on this category. The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open credit accounts you don’t intend to use. The credit mix usually won’t be a key factor in determining your score—but it will be more important if your credit report does not have a lot of other information on which to base a score.

26 What makes up a credit score?
Types of credit in use Tips for Raising your Score Apply for and open new credit accounts only as needed. Have credit cards – but manage them responsibly. Note that closing an account doesn’t make it go away. People with no credit cards tend to be higher risk than people who have managed credit cards responsibly. A closed account will still show up on your credit report, and may be considered by the score.

27 What makes up a credit score?

28 How the FICO score counts inquiries
Inquiries don’t affect scores that much. Many kinds of inquiries aren’t counted at all. The score looks for “rate shopping”. For most people, one additional credit inquiry will take less than five points off their FICO score. However, inquiries can have a grater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk: People with six inquiries or more on their credit reports are eight times more likely to declare bankruptcy than people with no inquiries. Doesn’t count - you ordering your credit report; a lender requesting in order to make a preapproved offer or to review your report with you; or for employment. Auto or mortgage loan - score counts multiple inquiries in any 14-day period as just one inquiry. The score ignores all inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.

29 4 Primary Threats to your Credit Score
Late Payments High Credit Card Balances Debt Settlement No Credit Score These are all areas YOU can control! Late Payments -The first threat is the threat of late payments, or missing the payment altogether. This is obviously the most damaging threat to your credit scores, as it would show the potential of you missing out on payments in the future with subsequent loans, thus creditors might have second thought of processing your application. Late payments are bad as well, as they cast a bad image on your payment trend. Avoid late payments or missing payments altogether, and look forward to achieving better credit ratings and obtaining loans easier in the future. High Credit Card Balances -Running close to your credit card limits is another threat that you should be wary of, as well as having high balances on your credit cards. All these are noted in your credit report, and would show negatively as you tend to collect more debt instead of clearing them. Having high balances in your credit cards damages your credit scores severely, subsequently making it more difficult for you to obtain loans in the near future. Take heed, and use credit cards only when absolutely necessary. Instead of paying minimum amounts, try to clear your credit card balances as soon as possible, and obtain better credit ratings in the process. Debt SettlementDebt settlement is another threat for your credit ratings, although it is a good thing to settle your debt, the less that you pay to your creditors, the less happy they would become. And when you settle your debts without paying the full amount owed to your creditors, they have the liberty to report this to the credit bureau in a negative manner, something that is called the deficiency balance. This deficiency balance would affect your credit scores in a damaging way, thus work things out with your former creditors so that any debt settlement agreements that are worked out between both parties are private and confidential. This would help you extensively to avoid collecting bad credit ratings. No Credit Score -Last but not least, not possessing a credit score is also detrimental for you. This is a threat as creditors would not have a benchmark to gauge your finances upon, thus some of them may refuse to process your applications if you apply for a loan. Use credit smartly, and you would be rewarded in the United States. Not using credit may be good financially, but may pose a problem if you do apply for a loan in the future.

30 What if I am turned down for credit?
The Equal Credit Opportunity Act (ECOA) gives you the right to obtain the reasons why from the lender within 30 days. You are also entitled to a free copy of your credit report within 60 days.

31 Review Your Credit File
Review your credit report from each credit reporting agency at least once a year especially before making a large purchase: house car

32 FREE Copy of your Credit Report
From all three major credit reporting agencies Request by phone at Or, go online (www.annualcreditreport.com) Available once every 12 months Congress passed a law in 2003 requiring the CRA’s to provide every consumer with a FREE copy of their credit report once every 12 months from each of the three nationwide CRA’s. The toll free# to call for this free report is: or you can go online to annualcreditreport.com. Ø Watch for imposters. Make sure you're on the right site if you want to retrieve your reports from the Internet. Use annualcreditreport.com. If you're on a site that asks you to pay for your credit report, you may be on an imposter. How can you tell? Look for the "s" in https://, which means it's a secure site. Ø Use a trusted computer. Don't use a library or public computer to request your free credit reports. Shared computers may inadvertently share your personal information with others. Ø Mask your SSN. If you order your free reports using the toll-free number ( ), ask that only the last four digits of your Social Security number be displayed. Also, make sure the mailed report is sent to a secure mailbox.

33 Info on the Three Credit Reporting Agencies
To request a copy, contact the credit reporting agencies directly: Equifax: (800) , Experian (formerly TRW): (888) TransUnion: (800) , Congress passed a law in 2003 requiring the CRA’s to provide every consumer with a FREE copy of their credit report once every 12 months from each of the three nationwide CRA’s. The 800# to call for this free report is: or you can go online to annualcreditreport.com.

34 Top 5 Credit FAQs: #5 “Should I subscribe to one of those $99 credit report monitoring services?” You shouldn’t pay more than $10 for a copy of your personal credit report. Depending on where you live and your credit history, you may be able to get one free. Since credit reporting companies are notorious for their errors, it is good to review your report on an annual basis. Don’t review just one company, get your report from all three to compare. Some credit reporting agencies offer various services for those concerned with other issues such as identity theft or monthly reports on their score. Each individual company establishes their own price for these types of packages. Visit each of their websites to find the costs involved.

35 Top 5 Credit FAQs: #4 “If my account is with a collection agency, should I try to negotiate with them or with the lender?” Since the account has been passed on to the collection agency BY the lender, it would be better to work with the collection agency. This has its advantages, because you may be in a better position to negotiate a win-win with the collection agency as opposed to the lender. They may offer a “settlement” to clear up the defaulted account - which is usually 40 to 80 cents on the dollar if you agree to pay the item in full.

36 Top 5 Credit FAQs: #3 “What is the Statute of Limitations on certain types of negative information that may be in my file?” Judgment – Remains on file 7 years from the date filed. Lien – Remains on file indefinitely if unpaid. Mortgage lenders can’t stop you from running up those inactive accounts as soon as you walk out of the door. And, if you overextend yourself, they also know that being able to make the mortgage payment may be more difficult to do.

37 Top 5 Credit FAQs: #3 Bankruptcy –
Ch. 7 – Remains on file for 10 years from the date filed. Ch. 11 – Remains on file for 10 years from the date filed. Ch. 13 – Remains on file for 7 years if dismissed or discharged. Chapter 7 - Also known as liquidation (converting assets into money) or a straight bankruptcy, Chapter 7 Bankruptcy is the most common form of bankruptcy filing. This type of bankruptcy filing accounts for as much as 65% of all Consumer Banking filings. Chapter 11 (of the Bankruptcy Code) is a "reorganization" whereby an individual or the owners of a business propose a repayment plan to the creditors who are owed money before the case is filed. Although it is designed primarily for businesses, it can also be used by individuals who do not qualify to file either Chapter 7 or Chapter 13. Chapter 13 is called the wage-earners plan.

38 Top 5 Credit FAQs: #3 Bankruptcy
Ch. 13 – Remains on file for 10 years if no disposition.

39 Top 5 Credit FAQs: #2 “How can I get lenders to remove charge offs from my report?” Charge off accounts remain on your report for 7 years. However, negotiating with the lender on paying the item in full is better than showing the item completely unpaid. A charge off is what an account is labeled when the lender gives up on collecting the debt from the consumer. Normally, creditors will not remove charge offs from your credit report. Attempting to settle or offer a payment that the creditor agrees on may result in a less harsh remark on your credit report. Charge offs will lower your credit score.

40 Top 5 Credit FAQs: #1 “Will consumer credit counseling services help me get out of debt?” They will negotiate with your creditors to arrange a repayment schedule and may be able to lower the interest rate on your credit cards. Using a credit counseling service can affect your credit rating because your creditors will note that your bills are not being paid according to the original credit terms. Remember, it’s your money, not their money, that lowers or pays off your debt. They may arrange for a lower rate or a new payment plan, but it won’t make you have squeaky clean credit. On the other hand, it does have less stigma than showing a bankruptcy filing on your credit report. Remember that even though most credit counseling services are nonprofit organizations, that doesn't mean that they won't charge a fee for their services. Most agencies get at least part of their compensation in payments from your creditors.

41 Tips to Know Put an entry “in dispute” through the CRA – lender has 30 days to respond. “Opt out” of pre-screened offers – go to or call Put a “Fraud Alert” on your file for 90 days by calling any one of the 3 CRAs. 1. In Dispute - forms available on each of the CRA’s websites. 2. Opt-out – Can ask to be kept on list for five years or forever. Signing up is free, certain identification information required to tag your correct credit file. If you move, you should opt out again, to register your new address. 3. An initial alert stays on your credit report for at least 90 days. You may ask that an initial fraud alert be placed on your credit report if you suspect you have been, or are about to be, a victim of identity theft. An initial alert is appropriate if your wallet has been stolen or if you've been taken in by a "phishing" scam. When you place an initial fraud alert on your credit report, you're entitled to one free credit report from each of the three nationwide consumer reporting companies. 4. An extended alert stays on your credit report for seven years. You can have an extended alert placed on your credit report if you've been a victim of identity theft and you provide the consumer reporting company with an "identity theft report." When you place an extended alert on your credit report, you're entitled to two free credit reports within twelve months from each of the three nationwide consumer reporting companies. In addition, the consumer reporting companies will remove your name from marketing lists for pre-screened credit offers for five years unless you ask them to put your name back on the list before then. 5. When a business sees the alert on your credit report, they must verify your identity before issuing you credit. As part of this verification process, the business may try to contact you directly. This may cause some delays if you're trying to obtain credit. To compensate for possible delays, you may wish to include a cell phone number, where you can be reached easily, in your alert. Remember to keep all contact information in your alert current. 6. In Louisiana, consumers may place a “security freeze” on their credit reports. There is an initial fee with some exceptions. The freeze will stay on your credit file until you request that it be lifted. A unique PIN will be provided to you by each of the CRA’s and you would use that PIN when providing authorization to a possible lender for the access of your credit file. (See the insert in your folder for complete details)

42 Tips to Know Put a “Security Freeze” by calling each of the 3 CRAs. A freeze prohibits a CRA from releasing credit report without your authorization. $10 fee per CRA (a La. Law)

43 Questions? Thank you. ADDITIONAL NOTES - Opt out - Call pt ( ) for any of the 3 credit reporting agencies or write to them.


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