You and Your Credit Score

YOU AND YOUR CREDIT SCORE

What is a Credit Score? A credit score is a number that helps lenders and others predict how likely you are to make your credit payments on time. Each score is determined by the information found in your credit report.

Why Do Your Scores Matter? Credit scores affect whether you can get credit and what you pay for credit cards, auto loans, mortgages and other kinds of credit. For most kinds of credit scores, higher scores mean you are more likely to be approved and pay a lower interest rate on new credit. Want to rent an apartment? Without good scores, your apartment application may be turned down by the landlord. Your scores also may determine how big of a deposit you will have to pay for telephone, electricity or natural gas service. www.myfico.com

What Makes Up My Credit Score? Scoring Factors What Makes Up My Credit Score? Your Payment History - 35% How Much You Owe - 30% Length of Credit History - 15% New Credit -10% Other Factors - 10% (Types of Credit)

The Score Lowest Highest 350 450 550 650 750 850 VERY POOR POOR FAIR GOOD EXCELLENT 350 450 550 650 750 850 Lowest Highest Source: www.truecredit.com

ARE FICO SCORES UNFAIR TO MINORITIES? How Do I Compare? % of Population FICO Score Range ARE FICO SCORES UNFAIR TO MINORITIES? FICO scores do not consider your gender, race, nationality or marital status. In fact, the Equal Credit Opportunity Act Prohibits lenders from considering this type of information when issuing credit… Independent research has shown that credit scoring is not unfair to minorities or people with little credit history. Scoring has proven to be an accurate and consistent measure of repayment for all people who have some credit history. www.myfico.com

What Is In Your Report? 1) Identifying Information 2) Trade Lines Name, Addresses and Employment 2) Trade Lines Accounts 3) Inquiries People checking your credit 4) Public Records And Collection Items Collection, Judgments, Bankruptcy and Foreclosures

How Accurate Is Your Credit Report? Based on a report by the U.S. Public Interest Group: 1 in 4 credit reports have errors 25% contain errors serious enough to result in the denial of credit. 79% contain mistakes of some kind 54% contained personal demographic information that was misspelled, long outdated, belonging to a stranger 30% contained credit accounts that had been closed by the consumer but are still listed as open Source: U.S> Public Interest Group Research; One In Four Credit Reports Contains Errors Serious Enough To Wreak Havoc For Consumers, US PIRG Press Release, 06/17/04 http://uspirg.org/uspirgnewsroom.asp?id2=13650&id3=USPIRGnewsroom

How Does My Credit Score Affect My Interest Rate? A borrower who increases his or her credit score from 620 to 720+ can potentially save $601 per month on mortgage payments, $7,214 per year, and approximately $216, 432 over the life of the 30-year loan. SOURCE: Credit Resource Corp., How Much Does a Low Score Cost You? http://creditresourcecorp.com

How Does My Credit Score Affect My Interest Rate? FICO SCORE APR MONTHLY PAYMENT INTEREST PAID Above 720 5.71% $1,453 $272,928 620 to 719 5.796% to 7.84% $1,466 to $1,807 $277,845 to $400,381 Below 620 8.452% to 9.234% $1,914 to $2,054 $438,957 to $489,365 Source: U.S> Public Interest Group Research; One In Four Credit Reports Contains Errors Serious Enough To Wreak Havoc For Consumers, US PIRG Press Release, 06/17/04 http://uspirg.org/uspirgnewsroom.asp?id2=13650&id3=USPIRGnewsroom

Check Your Report Often By regularly checking your credit report from each of the credit reporting agencies, you can make sure it’s accurate and includes only those activities you’ve authorized. If you suspect that your personal information has been hijacked and misappropriated to commit fraud or theft, take action immediately, and keep a record of your conversations and correspondence. These four basic actions are appropriate in almost every case… www.myfico.com

Check Your Report Often Contact the credit reporting agencies to place fraud alerts on your credit reports and to review your credit reports Close any accounts that have been tampered with or open fraudulently. File a report with your local police or the police in the community where the identity theft took place. File a complaint with the Federal Trade Commission. www.myfico.com

The Top 5 Credit Misconceptions We have all heard the rumors…from neighbors, relatives or friends. There are a wide variety of myths floating around about what you should and shouldn’t do to improve your credit reports and credit scores. The buck stops here! 1. Your score will drop if you check your credit – Fortunately, this one is definitely not true. Checking your own report and score is counted as a "soft inquiry" and doesn't harm your credit at all. Only "hard inquiries" from a lender or creditor, made when you apply for credit, can bring your credit score down a few points. Worried about damaging your credit while shopping around for a loan? Multiple inquiries for the same purpose within a short amount of time (a few weeks) are grouped together into a less damaging period of inquiry. 2. Closing old accounts will improve your credit score – To close or not to close, that is the question. Many people advocate closing old and inactive accounts as a way for improving your credit. In most cases, closing accounts will actually have the opposite effect. Canceling old credit accounts can lower your credit score by making your credit history appear shorter. Think twice before closing the oldest account on your credit report. If you want to reduce your levels of available credit, ask for your credit limits to be lowered or close newer accounts instead. Source: www.truecredit.com

The Top 5 Credit Misconceptions Once you pay off a negative record, it is removed from your credit report – Negative records such as collection accounts, bankruptcies and late payments will remain on your credit report for 7-10 years. Paying off the account before the end of the set term doesn’t remove it from your credit report, but will cause the account to be marked as “paid.” It is still a good idea to pay your debts, it can improve your credit score, but the major improvement will come when the record expires. Being a co-signer doesn’t make you responsible for the account – When you open a joint account or co-sign on a loan, you are taking on legal responsibility for the account. Any activity on these shared accounts, good or bad, will show up on both people’s credit reports. If you co-sign for a friend’s auto loan and they don’t make the payments, your credit profile will be hurt by their actions and visa versa. The only way to stop this double reporting is to refinance the loan or to have the creditor officially remove you from the account. Paying off a debt will add 50 points to your credit score – Your credit score is calculated using a complex algorithm that takes into account hundreds of factors and values. It is very hard to predict how many points you can gain by changing one factor. For a person with a high credit score, just one late payment can cause a significant drop. If a person has a low credit score, it may not cause a large drop at all. There is no magic way to improve your credit score, just keep paying your bills on time, reducing your debts and removing negative inaccuracies from your credit report. Good financial behavior and time are the two most important factors for your credit score. Source: www.truecredit.com

5 Steps to Improving Your Credit Score AVOID EXCESSIVE INQUIRIES BE PUNCTUAL Pay all your bills on time each month. Late payments, collections, and bankruptcies have the greatest negative effect on your credit scores. AVOID EXCESSIVE INQUIRIES A large number of inquiries occurred over a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay. Apply for new credit in moderation. MANAGE YOUR DEBTS Keep your credit card account balances below 35% of your available credit limits. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $350. GIVE YOURSELF TIME Time is one of the most significant factors that can improve your credit score. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit report open in order to lengthen your period of active credit use. CHECK YOUR CREDIT REPORTS REGULARLY & TAKE THE NECESSARY STEPS TO REMOVE INACCURACIES Don’t let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit report contact the creditor associated with the account or the credit reporting agencies to correct it immediately. www.truecredit.com

Credit Bureaus Equifax Experian Trans Union Free credit report at: www.AnnualCreditReport.com Equifax Experian Trans Union