Understanding Your Credit and Credit Score By Money Smart Week of El Paso Partners

Who is Fair ISACC?

Earl Isaac - Mathematician Bill Fair – Engineer Earl Isaac - Mathematician Founded in 1956, provides consulting services and enterprise decision management systems. They both developed the FICO scores. FICO is a registered trademark of Fair Isaac Corporation. The company is based in Minneapolis and has offices in North America, South America, Europe, Australia, and Asia. The company employs about 2200 people.

What is a Credit Score? A number that summarizes your credit risk, based on a snapshot of your credit report at a particular point in time. A Credit score helps lenders evaluate your credit report and estimate your credit risk. Your credit score influences the credit that’s available to you and the terms i.e. interest rate and terms.

Why are FICO scores important? Helps us get loans faster Credit decisions are fair Other credit problems count for less 1- Means you will get an answer more quickly. Today many credit decisions can be made within minutes. 2. – Lenders can focus only on the facts related to credit risk, rather than their personal opinions or biases. Facts like race, gender, religion and marital status are not considered by FICO. 3 - Poor performance in the past fades a way over time. Good payment patterns helps these problems.

How fast does your FICO score change?

Your score changes whenever your credit report changes Bankruptcy can affect your score Late payments Paying on time

What does a FICO score consider?

Types of Credit – 10% New Credit – 10% Length of Credit History – 15% Amount Owed – 30% Payment History – 35%

Payment History Pay Your Bills on time Get current and stay current Be aware of collection accounts Contact your creditor if you are having trouble making your payments Pay – Delinquent payments and collections can have a negative effect on your FICO score Get current - The longer you pay your bills on time, the better your FICO score Be aware – Still will consider this information Contact – Seek assistance from a legitimate credit counseling agency

Amounts Owed Keep balances low on credit cards and other revolving debt Pay off debt rather than moving it around Don’t close unused credit cards Don’t open a number of new credit cards Avoid credit repair agencies that charge a fee for their services Keep balances – High outstanding debt can lower your FICO score Pay off debt – The most effective way to improve your FICO score Don’t close – owning the same amount but having fewer open accounts may lower your FICO score Don’t open – Could backfire and actually lower your score Avoid credit – No one can force credit reporting agencies or lenders to remove accurate information from a credit report.

Length of Credit History New accounts will lower your average account age, which will have a larger effect on your FICO score. Longer credit history will increase your FICO score

New Credit Do your rate shopping within a short period of time Be careful about opening new accounts that you don’t need Re-establish your credit history if you have had problems It’s okay to check your own credit report and FICO score Do your – Shop for all rates within 30 days Be careful - Opening new accounts can lower your FICO score in the short term. Re-establish – Opening new accounts responsibly and paying them off on time will raise your FICO score in the long term Its okay – This won’t affect your credit score as long as you order your credit report directly from the credit reporting agency

Types of Credit in Use Apply for and open new credit accounts only as needed Have credit cards – but manage them responsibly Closing an account doesn’t make it go away Apply for – Don’t open accounts just to have a better credit mix Have credit cards – Having credit cards and installment loans will raise your FICO score Closing – A closed account will still show up on your credit report ,and its history will be considered by your FICO score.

Credit Report A credit report tells creditors the following: Who you are How much debt you have Whether you have made payments on time Whether there is negative information about you in public records How many inquires are listed in your credit report

Free Annual Credit Report Visit: www.annualcreditreport.com Call: 1-877-322-8228 Mail Annual Credit Report Request Service P.O. Box 105281 Atlanta, Georgia 30348-5281

Credit Reporting Agencies Equifax – (800) 685-1111 www.equifax.com Experian – (888) 397-3742 www.experian.com TransUnion – (800) 888-4213 www.transunion.com

Turned Down For Credit The Equal Credit Opportunity Act (ECOA) gives you the right to obtain the reasons why you were declined credit. You have 60 days to request a copy of the report from the three credit reporting bureaus.

Reasons for Denial Bad Credit History (Delinquent credit obligations) Do not meet income or residence requirements Too many inquiries Public records Credit Utilization Too many credit cards Limited credit history

Checking Your FICO Score FICO scores can be checked online, although in most cases there will be a charge to obtain

Checking Your Credit Report Review your credit report on a yearly basis Review your credit report from each of the credit reporting agencies

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