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©2004 Iowa Student Loan Credit Scoring Whats Your Score? Presented By: Natalee Girardi College Consulting Services
©2004 Iowa Student Loan What is a Credit Score? Measurement of overall credit risk FICO Score – Fair, Isaac & Company –Based solely on credit report data –Higher the score, the lower the risk –Lenders will individualize the score –Score may vary by credit bureau –Score will change over time
©2004 Iowa Student Loan What is a Good Credit Score? FICO Score Credit Rating Above 730Excellent Credit 700 - 729Good Credit 670 - 699Lender will take a closer look 585 – 669Higher Risk Below 585Limited Credit Available Where do you fall?
©2004 Iowa Student Loan National Distribution of FICO Scores
©2004 Iowa Student Loan Fact or Fallacies
©2004 Iowa Student Loan Fallacy: My score determines whether or not I get credit. Lenders use a number of factors to make credit decisions Lenders may extend credit to low scores Lenders my decline credit for high scores Fact:
©2004 Iowa Student Loan Fallacy: A poor score will haunt me forever. A score is a snapshot Changes as information is added Past credit problems impact score less, as time passes Fact:
©2004 Iowa Student Loan Fallacy: Credit scoring is unfair to minorities. Scoring only uses credit-related information Not included: –Gender –Race –Nationality –Marital Status Equal Credit Opportunity Act (ECOA) prohibits these factors from being used Fact:
©2004 Iowa Student Loan Fallacy: Credit scoring infringes on my privacy. Credit scoring evaluates the same information lenders look at – –Credit bureau report –Credit application –Bank file Fact:
©2004 Iowa Student Loan Fallacy: My score will drop if I apply for new credit If it does, it probably wont drop much. Its the looking that can be equated with higher risk Fact:
©2004 Iowa Student Loan Whats in Your Score?
©2004 Iowa Student Loan Payment History – 35% Account payment information on specific types of accounts Presence of adverse records Severity of delinquency Amount past due Time since adverse records Number of past due items Number of accounts paid as agreed Tips: Pay on time Get current and stay current When in trouble, contact creditor
©2004 Iowa Student Loan Amount Owed – 30% Remaining balance Remaining balance on specific types of accounts Lack of specific type of balance Number of accounts with balances Proportion of installment loan amount balances Proportion of credit lines used Tip: Keep balances low on Credit Cards Pay off, rather than move
©2004 Iowa Student Loan Length of Credit History – 15% Time since accounts opened Time since accounts opened, by specific types of accounts Time since account activity Tip: If you have been managing credit for a short time, dont open a lot of new accounts too rapidly.
©2004 Iowa Student Loan New Credit – 10% Number of recently opened accounts – and time since Number of recent credit inquiries – and time since Re-establishment of positive history Tips: Shop within a focused time Re-establish your credit history
©2004 Iowa Student Loan Types of Credit Used – 10% Number and kinds of credit accounts established –Credit Cards –Retail Cards –Installment Loans Tips: Open new credit accounts as needed Have credit cards – Manage credit cards Closing an account doesnt make it go away
©2004 Iowa Student Loan Reasons for Low Scores Serious delinquency Time since delinquency is too recent Level of delinquency on accounts Number of delinquent accounts Amount owed Debt to credit limit ratio is to high Length of time accounts have been established Too many accounts with balances
©2004 Iowa Student Loan Your Credit Report… Your credit report can affect all aspects of your life Monitor your credit report New legislation: FACTA, the Fair and Accurate Credit Transactions Act Americans can receive a free credit report from the three national credit bureaus once per year. To request your free report go to www.annualcreditreport.com or call 877-322-8228. www.annualcreditreport.com
©2004 Iowa Student Loan Questions
Your Name – Your Business Helping People Improve & Protect Their Credit Credit Concepts I.
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