1. Lesson 9
Fixing Your Credit

2. Key Terms Bankruptcy Certified Mail Credit History Credit Report
Fair Credit Reporting Act
FICO Expansion Score
FICO Score
Foreclosure
Installment Loan
Lien

3. How To Build Up a Credit History
Social Security Number
Savings Account
Open one, and be sure to use your social security number
Paycheck
Get regular paycheck

4. Credit Report
A summary of your financial history, from savings accounts to loans to credit card payments
Three main credit reporting agencies
Experian
Equifax
Trans Union
Each maintains a credit report on you based on info provided by its clients
Businesses sign up with one or several of these agencies (for a fee) to run credit checks on their credit customers
They also provide payment info on their credit customers to these agencies

5. Negative reports on a credit report
30+ days late on a payment
60+ days late on a payment
90+ days late on a payment
Items sent to a collections agency
Business that specializes in collecting debts from “deadbeats”
Put pressure on debtor to make payment
Normally get paid a percentage of whatever they collect (as opposed to a flat fee)
Items “written off” as a bad debt
Business has given up on ever getting paid
Bankruptcies

6. Get Your Credit Report for Free!
Can have each credit reporting agency send you a copy of your credit report (usually electronically)
Can get it once a year for free
Notice it is NOT freecreditreport.com

7. Your Credit Score A.k.a. FICO score Complex formula
Fair, Isaac Corporation (FICO) helped the 3 major credit bureaus (Experian, Equifax, Trans Union) develop the scoring model
Complex formula
Factors in all info on your credit report

8. Factors in Your Credit Score
Your payment history
Payments on credit cards, retail accounts at stores, installment loans, and mortgages (home loans)
35% of total score
Amounts of credit available & amounts owed
Current balances
How much of total available credit is being used
30% of total score

9. Factors in Your Credit Score (cont.)
Length of credit history
Longer the better (shows more of a track record)
15% of total score
New credit
Number of recent inquiries on credit report
Number of new credit issued & maximum amounts
10% of total score

10. Factors in Your Credit Score (cont.)
Types of credit
Mix of
Installment loans
Mortgages
Retail accounts
Credit cards
Finance company accounts
10% of total score

11. Additional Factors Education level
Higher education level gets more points
Number of years lived in single location
Home hopping costs you points
Number of years worked for single employer
Job hopping costs points
Are you a homeowner?
Homeowner better than renter
Stability = reliability

12. Credit Score Ranges High = 850 Low = 300 General cutoffs
660 or higher = very good credit risk
620 – 659 (average range) = basically good, but may want to check further
Below 620 = high risk, probably won’t get better rates (will get higher end of the rate range offered by lender)

13. FICO Expansion Score Like regular FICO score
Based on non-traditional accounts and financial information sources
Designed for
Young persons
New immigrants
Others without credit history

14. Why Is Having a Good Credit Score Important?
Will show companies whether or not they should lend to you
Will determine what interest rate you will get on any loan
Most states allow insurance companies to factor in your credit score when determining insurance rates for auto, life, and property insurance
Landlords will check credit scores to determine whether or not to rent to you
Utilities (phone, electric, water/sewer, cell phones, etc.) will check it to determine if you need to pay any deposit to get service with them

15. How To Build Up a Better Credit Score
Get a savings account & keep a steady or increasing amount of money
Get a debit card at the same bank & use it
Keep a safe cushion of money in account so you don’t overdraw the account
Get a credit card (if you’re over 18), use it, and
Pay it off every month (ideal)
Pay as much of the balance off every month
Make the monthly minimum payment every month (least desirable)
Get a loan (car loan, student loan, etc.) and keep the account in good standing by making all the payments on time and paying it off as soon as possible