Credit Histories & Credit Scores

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1 Credit Histories & Credit Scores

2 Credit Histories - Definition A continuing record of a borrower s debt commitments and how well they have been honored. (Similar to a transcript)

3 Credit Score - Definition Measurement used to rate applicants in relation to creditworthiness and the likelihood of repayment. (Similar to a GPA)

4 Other Businesses You Business Credit Bureau

5 Three Major Credit Bureaus EXPERIAN* EQUIFAX TRANSUNION *Most western companies report to Experian

6 Free Credit Report Provided by the Fair and Accurate Credit Transaction Act (FACTA) Every person can request a credit history for free once per year, and if denied credit.

7 Question for Thought! Have you pulled your free credit report? a. Yes. b. I ve thought about it, but haven t yet. c. No. d. I don t see a need to pull my credit report.

8 What Is In a Credit Report? Identifying information: name(s), addresses, social security number, employers, spouse, birth date Credit information: accounts with banks, retailers, credit cards, type of loan, date opened, credit limit or loan amount, account balance, payment pattern Public record information: bankruptcies, tax liens, judgments, collection agency accounts, foreclosures, wage garnishments, unpaid child support Inquiries: names of those who have obtained copies of your credit report (stays on 2 years), soft (you, current creditors), hard (when you apply for credit)

9 What to Look For Potentially negative items zero is good Open accounts keep older accounts Status of accounts open/never late is good, may also show closed, past due, maxed out limits, etc.

10 Mistakes 79% of all individual credit files contain mistakes and 25% contain serious mistakes enough to cause credit denial Could be your information under a different name such as a parent company Follow directions to dispute credit bureau must investigate (National Association of Public Interest Research Groups)

11 Question for Thought! When will you pull your free credit report? a. Today. b. This weekend. c. Between semesters. d. I still don t see a need to pull my credit report.

12 Negative Items Make good, on-time payments Lenders want to see about 2 years of good payments Avoid credit repair companies Write a 100 word explanation of negative items

13 Review! Which of the following would NOT be on a credit report? a. Spouse s name b. Educational background c. Past addresses d. Past employers

14 Review! Which of the following would NOT be on a credit report? a. Spouse s name b. Educational background c. Past addresses d. Past employers

15 How Long Does Information Stay on a Credit Report? Inquiries 2 years Bad credit information usually 7 years Judgements, Foreclosures, etc. Bankruptcies 10 years

16 Who Can Look at your Report? Creditors new and current Employers Insurance Companies Landlords Others with a legitimate business reason (government agencies, courts, child support services) You

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18 Credit Scores A number that summarizes a consumer s credit risk Estimates risk of default to a potential creditor Calculates the probability of an individual s potential for default Used by lenders to identify and predict future credit behavior Affects what interest rate consumers will be charged Usually need at least one account for six months or longer Score depends on model and credit bureau used Neighbor Works America

19 Information Zones and Scores Identifying information: No impact Credit information: Impact Public record information: Impact Inquiries: Soft no impact Hard impact, stays on report for 2 years, only impacts score for 1 year Neighbor Works America

20 FICO Score (Fair Isaac and Co.) Scores range from (700+ good) Based on: Payment History (35%) Have you paid your bills on time? Amounts Owed (30%) How much is too much? Types of Credit (10%) Healthy mix of revolving and Installment debt? Length of Credit History (15%) How old are your accounts? New Credit (10%) Are you taking on more debt?

21 FICO and the Population 800 & above 13% of population % % 58% % % % % Up to 499 2% Note: FICO is the gold-standard of credit scores all others are basically worthless.

22 Review! Which of the following holds the most weight in your credit score? a. How many recently opened accounts you have. b. How many times lenders request your credit report. c. What percent of your available credit you are using. d. How you have made past payments.

23 Review! Which of the following holds the most weight in your credit score? a. How many recently opened accounts you have. b. How many times lenders request your credit report. c. What percent of your available credit you are using. d. How you have made past payments.

24 How to Build a Good Report Get a loan and pay for at least 6 months Get a credit card and use it if you pay off the balance each month it is interest free credit and it does build a credit history! Co-signer (never co-sign for someone else) Secured credit card (Great option) Be Responsible! No credit is better than bad credit!

25 Non-Traditional Credit Rent Utilities Car insurance Cell phone Child care expense Report: (cost involved) Many lenders are reluctant to use a non-traditional credit report

26 Credit Freeze Your file cannot be shared with potential creditors Can help prevent identity theft Write to each of the three credit bureaus or submit online Fee charged unless you are a victim ($10 for each bureau depending on state) Can have freeze temporarily lifted for a temporary period of time (fee charged)

27 Question for Thought! Which of the following best describes you? a. I have never had a loan so I wouldn t have a credit record. b. I probably have a small but good credit history. c. I have a fairly extensive credit history and it should be in good standing. d. I have at least a few negative marks on my credit history.

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