1. 1 FICO Scoring Cracking the Secret Code

2. 2 Objectives State the reasons for the development of FICO scores. Describe how credit reports are created. List the five biggest factors affecting a FICO score. Refute common myths about FICO scores. Explain the upcoming changes for FICO 08.

3. 3 How did FICO Scoring come about? In 1956, Fair Isaac was founded Formulas eliminated bias Greater efficiency Individual formulas Rise of the credit reporting agencies

4. 4 How Scores Changed the Industry Consumer lending exploded in the 1990s. Freddie Mac and Fannie Mae bless FICO. Consumers demand to know more about FICO. The cat gets out of the bag.

5. 5 Where does the Credit Report come from? Credit Report

6. 6 How do we get a FICO Score? Agencies gather from bureaus and then calculate Lots of variables Confusion for customers and lenders Grouping of customers (Scorecards)

7. 7 What are the Top 5 Components of the FICO Score? Payment history How much you owe How long you have had credit Your last application for credit The types of credit you use

8. 8 Caution – Results May Vary Scores vary from agency to agency Scores vary from lender to lender Different editions of FICO

9. 9 So what do Americans have for Scores? FICO ScorePercent with Score 300-4991% 500-5495% 550-5997% 600-64911% 650-69916% 700-74920% 750-79929% 800-85011%

10. 10 Risk of Default

11. 11 What Else can hurt your Score? Collections, bankruptcies, judgments, etc. Too many credit cards Transferring balances Closing credit cards High number of consumer finance company cards

12. 12 FICO Myth or Fact? You will not hurt your score by checking your own credit report. If one late payment occurs, higher FICO scores will drop further than lower FICO scores will. You have to pay interest and revolve a credit card balance to have a chance at getting the best possible credit score. If you disagree with an item, adding a written dispute statement to your credit report can help your score. Your closed accounts should read closed by consumer – not closed by lender – or they will hurt you. Credit counseling is as bad as bankruptcy for your score. Paying off old bad debt can hurt your FICO score.

13. 13 Whos Keeping Score? Lenders Insurers Landlords Employers Cell Phone Carriers

14. 14 What Else are Scores Used for? Detecting fraud Estimating profit Predict bankruptcy risk Estimate payments on delinquencies Anticipate likelihood of responding to a credit card offer

15. 15 What is the True Cost? Emily with a FICO of 750 Mortgage of $350,000 Interest Rate 5.5% Monthly Payment $1,987 10-Year Int. Paid $174,760 Sally with a FICO of 650 Mortgage of $350,000 Interest Rate 7.375% Monthly Payment $2,417 10-Year Int. Paid $243,020 Sallys Penalty $68,261

16. 16 What is FICO 08? Occasional mistakes hurt less. Shopping around is not as negative. Different types of credit really help. Keep balances low by spreading them around.