Building a Positive Credit Report Presentation by Dr. Jean Lown Financial Planning for Women April 11, 2012 April 11,

Overview Credit Report Credit Report How & why to get your free report How & why to get your free report Credit Bureaus: The big 3 Credit Bureaus: The big 3 Credit Score Credit Score What it is What it is How it is used How it is used Whats a good score? Whats a good score? 2

What is a credit report? Definition: Definition: A continuing record of a borrowers debt commitments and how well they have been honored. 3

How do you build a credit history? Time and good behavior Time and good behavior Start with a low limit credit card Start with a low limit credit card You dont have to carry over a balance, but you do need to use it. –Rod Griffin, Experian You dont have to carry over a balance, but you do need to use it. –Rod Griffin, Experian Small loan Small loan For vehicle? For vehicle? Pay on time Pay on time Use less than 50% of your credit limit Use less than 50% of your credit limit 4

Other ways to get credit Use a co-signer Use a co-signer Get a secured credit card Get a secured credit card Document proof of paying rent, utilities, insurance, etc. as an alternative form of credit Document proof of paying rent, utilities, insurance, etc. as an alternative form of credit 5

Who Can Look at Your Credit Report? 1.Creditors – new & current 2.Employers & prospective employers 3.Insurance companies 4.Government agencies 5.Anyone else with a legitimate business reason (i.e. landlords) 6.You 6

What is in a Credit Report? 1.Identifying information Name, current & past addresses, SS# Name, current & past addresses, SS# 2.Credit use information Active and inactive accounts Active and inactive accounts Payment history Payment history 3.Public record information Criminal convictions, foreclosures, lawsuits Criminal convictions, foreclosures, lawsuits 4.Inquiries by creditors & your applications for credit by creditors & your applications for credit 7

What to look for Potentially negative items Potentially negative items Open accounts: Open accounts: Status of accounts: Status of accounts: open/never late is good open/never late is good closed, past due, maxed out limit, etc. closed, past due, maxed out limit, etc. 8

Find wrong information? Contact credit bureau Contact credit bureau Report explains how to correct mistakes Report explains how to correct mistakes Is it your mistake? Is it your mistake? Spouse could have taken on debt Spouse could have taken on debt Company name is different than you recognize but really your account Company name is different than you recognize but really your account Bought electronics, etc; store provides credit through finance company Bought electronics, etc; store provides credit through finance company 9

Negative Information? Can write 100 word explanation that goes out with credit report. Can write 100 word explanation that goes out with credit report. legitimate reason for problem legitimate reason for problem Business went bankrupt due to 2008 crash Business went bankrupt due to 2008 crash lost job, was ill, etc. lost job, was ill, etc. Negative Information should be removed after 7 years Negative Information should be removed after 7 years 10 years for bankruptcy 10 years for bankruptcy 10

Close accounts you arent using? Consider impact on credit score if your credit utilization ratio increases Consider impact on credit score if your credit utilization ratio increases Gradually close unused accounts Gradually close unused accounts 11

CBs do NOT decide if you get credit! Each lender makes a decision Each lender makes a decision Lenders offer range of loan/card rates based on your credit score Lenders offer range of loan/card rates based on your credit score Stay tuned to learn about credit scores Stay tuned to learn about credit scores 12

Free Annual Credit Report Get a free credit report once/year/credit bureau: Experian, TransUnion, Equifax: Get a free credit report once/year/credit bureau: Experian, TransUnion, Equifax: Order 1 free report every 4 months to monitor for identity theft Order 1 free report every 4 months to monitor for identity theft Mark calendar: April, August, & December Mark calendar: April, August, & December 13

Q on Credit Report? 14

Credit Scores Determines what you will pay for credit Determines what you will pay for credit Higher score = lower cost credit Higher score = lower cost credit FICO=Fair Isaac Company FICO=Fair Isaac Company Scores: 1 for each credit bureau 3 Scores: 1 for each credit bureau Average is 678; range from Average is 678; range from Most scores are in the 600s-700s Most scores are in the 600s-700s 15

FICO Score Score is based on: Score is based on: Payment history (35%) Payment history (35%) Outstanding loan balances (30%) Outstanding loan balances (30%) Length of credit history (15%) Length of credit history (15%) Inquiries (10%) Inquiries (10%) Types of credit (10%) Types of credit (10%) Variety is good: credit cards, vehicle loan, mortgage Variety is good: credit cards, vehicle loan, mortgage Avoid finance companies Avoid finance companies 16

Estimate your FICO Score Range: Range: score-fico-calculator.aspx score-fico-calculator.aspx score-fico-calculator.aspx score-fico-calculator.aspx About FICO Scores: About FICO Scores: (click on About FICO Scores near middle of page) (click on About FICO Scores near middle of page) 17

Be Aware of Scams Debt relief companies Debt relief companies Credit repair scams Credit repair scams Claims to repair your credit are just not true. Claims to repair your credit are just not true. Only time, effort and a plan to repay your debt will improve your credit report. Only time, effort and a plan to repay your debt will improve your credit report. 18

Summary Order a free credit report today Order a free credit report today Educate yourself at FTC.gov Educate yourself at FTC.gov Build a strong credit history Build a strong credit history Use credit cards prudently Use credit cards prudently 2 cards are enough 2 cards are enough Pay in full at end of month or be a debt slave Pay in full at end of month or be a debt slave 19

Resources Federal Trade Commission Federal Trade Commission Credit reports & credit scores Credit reports & credit scores Myfico.com Myfico.com Credit Education Center Credit Education Center Housing & Financial USU Family Life Center Housing & Financial USU Family Life Center 20

May 9 FPW & PF magazine give-away The best mutual funds for your IRA The best mutual funds for your IRA Learn about Individual Retirement Accounts Learn about Individual Retirement Accounts Types of mutual funds Types of mutual funds Specific funds selected by Advanced Family Finance class Specific funds selected by Advanced Family Finance class Students have done the research Students have done the research They will recommend specific funds They will recommend specific funds 21