Clearing Up the Confusion

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1 Credit Scores Credit Reports & Insurance Scores: Credit Scores, Credit Reports & Insurance Scores: Clearing Up the Confusion

2 Credit Scoring Scoring is based on the theory that a customer with a poor credit history is more likely to present a claim and could also be a more likely moral risk. Scoring has been around for 20+ years. 2

3 Fair Isaac Company (FICO) Develops predictive models Credit Scoring A score is an objective snapshot of credit habits Different for each entity that uses credit scoring How are thesescoresscores developed? credit information received from credit bureaus entered into computer model what htinformation is in this score? 3

4 Credit Reporting Agencies Credit Reporting Agencies Experian Equifax TransUnion What is the scoring range? 1. numerical range of a change is coming 4

5 Permissible Uses of Credit Scores Applications for credit, insurance, rentals for personal, family or household purposes and professional licensure. Employment, which includes hiring, promotion, reassignment or retention. A Credit Reporting Agency may not release a credit report for employment decisions without consent. Court orders, includinggrand grand jurysubpoenas subpoenas. 5

6 What Information Is In a Score? 1. name, addresses, DOB, SSN 2. current and past employment a. position, length of employment, salary 3. personal history 4. credit history 5. information from public records 6

7 What s in your FICO score? FICO Scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories. The percentages in the following chart reflect how important each of the categories is in determining your FICO score. 7

8 8

9 What s in your FICO score? 9

10 Payment History Account payment (credit cards, retail tilaccounts, installment loans, mortgage) Presence of adverse public records (bankruptcy, suits, liens, wage attachments, collection or past due items) Severity of delinquency Amount past due on delinquent or past due accounts Number of past due items in file 10

11 Amounts Owed Amount owing on accounts Number of accounts with balances bl Proportion of credit line used Proportion of installment tloan amounts still owing 11

12 Length of Credit History Time since the account was opened Time since there was account activity 12

13 New Credit Number of recently opened accounts Types of accounts opened Number of recent credit inquiries Time since recent account openings Time since credit inquiry Re establishment of positive credit history following past payment problems 13

14 Credit cards Retail accounts Installment loans Mortgage Types of Credit Used Consumer finance accounts 14

15 How scoring is supposed to help 1. scores give lenders fast, objective measurement of your credit risk 2. people get loans faster 3. credit decisions i are fairer 4. credit mistakes count for less 5. more credit is available 6. credit rates are lower overall 15

16 Credit Report vs. Credit Score Credit Report Detailed history of an individual s current and past credit related transactions 16

17 Fair Credit Reporting Act (FCRA) Set up guidelines for use of credit information 1970 First federal law to regulated the use of personal information by businesses 1997 credit scoring and adverse action Insurance Loans Mortgage, otgage, cedtca credit cards Employment Housing Other Business Needs Professional licensure 17

18 Adverse Action Fair Credit Reporting Act Insurance higher premiums or denial of coverage Loans higher interest or denial of loan Employment not being hired or denial of promotion Housing denial of rental Professional licensure denial of license 18

19 Credit Report What s in my credit report? 1. identifying information: SSN, DOB, employment 2. trade lines = credit accounts 3. credit inquiries 4. public record and collections 5. each credit reporting agency formats and reports this information ato different e 19

20 What s In My Credit Report? Identifying Information Name Address Social Security Number Current Employment Personal History Credit dithistory Information From Public Records 20

21 What s In My Report? Current Employment Position, length of employment, salary Personal History DOB, dependents, previous addresses & employment Information From Public Records Bankruptcy, overdue child support, civil suits, tax liens 21

22 Credit Report More Info Credit History Prompt payment of bills How much and how often borrowed All consumer credit over past 7 years incl. names of creditors, number of payments on time, number of late payments and how late Names of company that have requested a copy of your report in the last 2 years 22

23 Credit Reports Top Three Credit Reporting Agencies 1. Equifax 2. Experian 3. TransUnion 2323 Fair and Accurate Credit Transaction Act (FACTA) 1. free access to all 3 credit reports 2. adverse action 23

24 A.What is it? III. Insurance Scoring 1. Insurers use scores to predict the likelihood of future losses Different categories used by each insurer Confusion caused and animosity aimed at agents and brokers 24

25 Credit Scoring American Insurance Association Having a good insurance score does not necessarily mean you are a good driver or a more responsible homeowner. However, research has shown that consumers with better insurance scores generally file fewer claims and have lower insurance losses. That is not to say that all people with low insurance scores are higher risks. 25

26 How Can Insurers Use Credit Scores? Insurers Cannot Deny an applicant a personal lines policy solely because of credit information Must consider other underwriting characteristics Can offer coverage through an affiliate or a different tier based on credit score Cancel, non renew, or increase renewal premium due to credit score Can still base action on other underwriting factors 26

27 How Insurance Scoring Can Be Applied Article 28 Regulation 182 NYS Insurance Department t Effective April 23, 2005 Insurers cannot use credit scores calculated using: Income Address Ethnic Group Marital lstatus Gender Zip Code Religion Nationality 27

28 How Insurance Scoring Can Be Applied Since 2000: Maryland dbanned di insurers use of credit scores 27 states have restricted it 28

29 Credit/Insurance Scores: Fact, Fiction and FAQs Fiction: 1. A score determines whether or not I get credit 2. A poor score will haunt me forever. 3. Credit scoring is unfair to minorities 4. Credit scoring infringes on my privacy 5. A score will drop if I apply for new credit 29

30 Credit/Insurance Scores: Fact, Fiction and FAQs What to do to keep favorable credit and insurance scores 1. Pay your bills on time 2.Use credit and credit cards responsibly 3. Raising a low score takes time and discipline Security Freeze Law Loans Savings Calculator 30

31 NYS Security Freeze Law General Business Law Article 25 Fair Credit Reporting Act Section 380t Security Freeze Prevents anyone from opening new credit in your name pdf 31

32 How to Obtain A Security Freeze Each Credit Reporting Agency NYS Security Freeze Law Personal Identification Number (PIN) No charge to place / $5.00 charge to unfreeze/subsequently freeze, etc. FAQs 32

33 My FICO y p 33

34 Loan Savings Calculator Interest Rates as of 12/01/ month loan for a used automobile in which the interest rate does not change during the entire term of the loan. Interest rates on loans for used cars are generally higher than for new cars. 34

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37 (excellent) FICO Scores (good) (fair) (bad) 37

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39 What To Do? Pay your bills on time If you have missed payments, get current and stay current If you have trouble making ends meet, contact your creditors Keep balances low on credit cards and other revolving credit Pay off debts rather than moving it around 39

40 What To Do? Don t open new accounts rapidly Apply for and open accounts only as needed Closing Cos gan account doesn t make aet it go awayay It is okay to request and check your credit report Fair and Accurate Credit Transaction Act 3 free credit reports com 40

41 Questions???? Thank you!! Dee Macheda 41

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