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Whats a Credit Report? From age 18 on, agencies collect data about your spending habits. Monitor your ability to handle risks (i.e. loans I installment.

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Presentation on theme: "Whats a Credit Report? From age 18 on, agencies collect data about your spending habits. Monitor your ability to handle risks (i.e. loans I installment."— Presentation transcript:

1 Whats a Credit Report? From age 18 on, agencies collect data about your spending habits. Monitor your ability to handle risks (i.e. loans I installment and revolving) Impacts: amount you can borrow and the interest rates on that loan. Who Can Access Your Report? Creditors Collection agencies Insurance companies Employers Landlords. Many others!!!

2 What is in a Credit Report? Personal Data Employment History Public Records (liens, judgments, secured loans, foreclosures, bankruptcies, etc.) Collection Accounts (defaults and lateness) Credit Information (open accounts, date account was opened, payment status) Inquiries (approved requests and others seeking credit information)

3 How Long Does the Information Remain On A Credit Report? TYPELIMITATION Suits & Judgments7 years Tax Liens – Paid7 years from payment Tax Liens – UnpaidNo limitation Charged to Profit & Loss7 years Criminal Record Limitations No limitations Other adverse information7 Years Late Payments7 Years Debt Collections7 Years Bankruptcy10 Years

4 Annual Credit Report The Fair Credit Reporting Act guarantees you access to a free credit report from each of the 3 nationwide reporting agencies Experian, Equifax, and TransUnion every twelve months. To get your free Credit Report By Internet:www.annualcreditreport.comwww.annualcreditreport.com By phone: By mail:Annual Credit Report Request Service P.O. Box , Atlanta, GA

5 Improving Your FICO Credit Score

6 6 What is a Credit Score? Why you need a credit score? How are these scores created? Why are there different types of scores? What hurts your score? Tips to improve your score. 6 Credit Score

7 What is a Credit Score? A tool created from your credit report which can assess your financial status, history, and debt repayment record. Credit rating is determined by three bureaus that all banks, employers, companies you deal with check to see if you are a good risk Two most commonly used credit scores is the: FICO (Fair Isaac Corp.) which ranges from 300 – 850. Vantage (Experian) scores go from There are hundreds of credit scores which are used by mortgage lenders, and companies that sell auto, homeowners and health insurance policies.

8 What doesnt Count in a Score. age race sex income education marital status job or length of employment at your job whether you've been turned down for credit length of time at your current address whether you own a home or rent information not contained in your credit report The scoring model doesn't look at:

9 Why is a Credit Score Important? A poor credit score can affect a persons ability to: Obtain credit cards, car loans and mortgages Receive favorable interest rates and preferred credit limits on cars and credit cards Qualify for utility and cell phone services with no down payment or substantial security deposit Rent or lease a house or apartment Obtain government sponsored student loans Obtain private student loans with low rates It might also affect: Your car insurance rate Life insurance rates Health insurance premium Possible job offers

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11 Distribution of FICO Credit scorePercentage 499 and below2 percent percent percent percent percent percent percent 800 and above13 percent Fair Isaac reports that the American public's credit scores break out along these lines:

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13 The key credit score elements Payment history Repayment behavior (satisfactory, delinquency, derogatory) UtilizationPercentage of credit amount used/owed on accounts BalancesAmount of recently reported balances (current and delinquent) Depth of credit Length of credit history and types of credit Recent credit Number of recently opened credit accounts and credit inquiries Available credit Amount of credit available To compare your Vantage Score to a FICO Score: Multiply your Vantage Score by 0.86 Vantage Score of 800 times 0.86 = FICO Score of 688

14 How Much Will My FICO Score Drop? AlexBlanca Current FICO Score Score after one of these is added to the credit report One inquiry for a new credit card 675 (5)775 (5) A new charge card (additional hit)665 (15)760 (20) Maxing out credit card660 (20)745 (35) A 30-day delinquency610 (70)680 (100) Settling a debt625 (55)665 (115) Foreclosure585 (95)630 (150) Bankruptcy540 (140)550 (230)

15 CREDIT BUREAU RISK SCORE REASON CODES EQUIFAXTRANS UNION EXPERIAN Amount owed on accounts is too high Level of delinquency on accounts Too few bank revolving accounts Too many bank or national revolving accounts Too many accounts with balances Too many consumer finance company accounts Account payment history is too new to rate Too many recent inquiries last 12 months Too many accounts recently opened Proportion of balances to credit limits is too high on bank revolving or other revolving accounts 10 Amount owed on revolving accounts is too high 11 Length of time revolving accounts have been established 12 Time since delinquency is too recent or unknown 13 Length of time accounts have been established 14 Lack of recent bank revolving information 15 Lack of recent revolving account information 16 No recent non-mortgage balance information 17 Number of accounts with delinquency 18 Too few accounts currently paid as agreed 19 Length of time since derogatory public record or collection is too short 20

16 What Rate Will Your Score Get You? FICO Score 30-year fixed-rate mortgage 36-month new auto loan 15-year home equity loan Credit Card APR %6.4%8.1%7.3% %6.4%8.4%10.0% %7.9%8.9%15.0% %9.9%9.7%15.0% %9.9%11.2%18.0% What is APR? APR is the Annual Percentage Rate on a loan or a credit card. It is interest rate that will determine how much you pay in interest each year.

17 How much will you pay? A home theater system for $1,000, when purchased on credit card and each month you pay minimum payment will actually cost FICO Score Credit Card APR You will pay off the balance in about You will end up paying an interest of You will end up paying an estimated total of % 5 years $196$1, % 7 years $580$1, % 8 years$863$1,863

18 Credit Scores and Interest Rates 2010 Ford Focus 5 yrs.4 yrs.3 yrs. 5% $ $22,645 $ $22,108 $ $21,579 4% $ $22,100 $ $21, $21,257 3% $ $21,562 $ $21,249 $ $20,938 0% $ $20,000 $ $20,000 $ $20,000

19 Credit Score Mistakes 1. Paying bills late 2. Closing old credit cards 3. Maxing out. Watch the Utilization Rate (35%) 4. Using cash over credit 5. Applying for extra cards 6. Not shopping around for lower rates 7. Not checking your credit reports.


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