Credit Builders Alliance

Transcription

1 Credit Builders Alliance June 8, 2014 Maxine Sweet Vice President, Public Education Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian.

2 What You've Always Wanted to Know About Credit Reports and Scores Experian education resources Experian services for consumers Overview of basic consumer presentation Scores from the consumer perspective Vantage Score resources Questions 2

3 Credit reports and financial services make the world go round 3

4 Educate your children to live credit smart Trying to protect young people from credit is like trying to protect them from drowning by not teaching them how to swim. 4

5 You need good credit references Credit References Financial Success! Diploma Academic Credentials Employment References 5

6 Credit does not equal debt Build a positive credit history so you can get the best terms when you invest in debt. 6

7 Are your business credit report and your personal credit report linked? No. But they can be related......if you secure business debt with personal credit. 7

8 Experian Education Resources - Documents 12 Common Questions about Consumer Credit and Direct Marketing English and Spanish Credit Score Basics Home Buying and Credit Divorce and Credit New Credit Reports on Credit English and Spanish Experian s Fraud Prevention and Victim Assistance Mini-Disk 8

9 Education Resources - Videos Credit 101 More than 30 videos currently Credit Town Hall Answered consumer questions live for approximately 45 minutes 9

10 Experian Education Resources On the Web Free annual FACT Act credit report Access to free report from each of the three credit reporting companies Experian Ask Experian advice column, sample consumer report, frequently asked questions, monitoring Credit trends and information to inspire consumers to use credit wisely Electronic versions of our published materials, sample credit report, videos, PowerPoint presentations with talk notes and more 10

11 Experian Consumer Resources Credit and beyond ProtectMyID.com For fee service that monitors credit report and other sources to provide early alert to identity theft and services to aid in rapid recovery FamilySecure.com For fee service that monitors 2 adults and unlimited children for credit activity For fee vehicle history reports to help consumers make good pre-owned auto purchasing decisions 11

12 Rental payment history data What is it? United States Population On-time as well as late payments Bad checks and/or insufficient funds (NSF) Unfulfilled lease terms Outstanding balances/write-offs Previous collections activity Why is it important? 96 million of 300 million U.S. residents rent Rental payments not previously on credit report 64 million U.S. consumers insufficient/no credit history Consumers rejected with good payment history Owners 69% Renters 31% 12

13 Build credit history Impact to VantageScore RentBureau Consumers New Consumers 10% thin-file 22% no-hit 87% of new consumers scoreable 68% scoreable 32% unscoreable New consumers now more likely to get a valid VantageScore Study conducted by Experian. A thin-file consumer is defined as one containing insufficient tradeline information to receive a score. 13

14 Electronic rent payment processors ClearNow and WilliamPaid Easy solution for making rent payments Rent electronically collected via various payment methods Recurring, automatic debits encourage on-time payments For more information visit Residents opt-in for credit reporting Renters of any size or type of property can now report to Experian RentBureau 14

15 Give me a little credit Credit reports and credit scores Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian.

16 Live Credit Smart Credit is a privilege you earn The choice is yours 16

17 The three national credit reporting companies Credit reporting companies serve consumers and businesses by making possible: Instant credit Lower-cost credit Nationwide credit Widespread availability Account management 17

18 The credit cycle You pay lender Credit reporting companies share with new lenders Lender updates records Lender shares history with credit reporting companies 18

19 The players in the credit cycle Credit reporting companies The government You Lenders Risk score modelers 19

20 The Fair Credit Reporting Act Permissible purposes Open or manage credit accounts Offers of credit Employment purposes Underwrite insurance A business transaction initiated by the consumer Court order or federal jury subpoena Valuation of risk of an investor Eligibility for government license Disclosure to consumer 20

21 Information comes from you Information you provide in an application for credit, housing, or insurance is reported to credit reporting companies 21

22 Initiating a dispute Get a copy of your Experian credit report Toll-free number on report gives you access to customer service Report number identifies you and your record You and customer service representative will be looking at the same information in the same order Can dispute online, by telephone or by mail Dispute must be specific 22

23 How long is information kept on a report? Open accounts in good standing Closed accounts in good standing Late or missed payments Collection accounts Civil judgments Chapter 7 bankruptcy Chapter 13 bankruptcy Unpaid tax liens Paid tax liens Credit inquiries Indefinitely 10 years 7 years 7 years 7 years 10 years 7 years 10 years 7 years 2 years 23

24 What s NOT in a credit report? Credit reporting companies do not store: Criminal background Medical information Buying habits / transaction data Bank account information Credit scores 24

25 Common myths about credit reporting When paid, the bad debt will go away The credit reporting company denied me credit I m not responsible for those charges on our account A divorce decree separates joint accounts Consumers must give their permission for a report to be issued (employment is the exception) Requesting your own report and preapproved offers harms your credit history There is only one credit score and it is on every report 25

26 Three Blind Men Describe An Elephant 26

27 Basics of credit scores A credit report DOES NOT rate your credit 27

28 What is a credit score? Used instead of a manual score sheet Valuable risk management tool Many different models, with many different scales available from many different sources. ALL scores are educational. None are THE real score. Credit reporting companies often apply the model selected by the creditor when delivering the credit report; however, the credit scoring model, or formula, is proprietary to the developer and is not known by the credit reporting company

29 Risk factors are the key Generated when a risk score is calculated Tell the consumer what to address in their credit history to become more creditworthy Are largely consistent from model to model Are usually included in or described in an adverse action notice Experian provides risk factors to consumers with the scores it provides through its direct-to-consumer services 29

30 Which score do consumers receive? Experian and TU VS 3.0 Equifax a FICO model Experian Plus score Third party credit report/score services Varies by service most use FICO range Mortgage lenders A FICO model Lenders as required by Dodd-Frank Act Varies by lender 30

31 What influences your VantageScore credit score? 31

32 Ten rules for managing credit 1. Establish a credit report 2. Always pay as agreed 3. Get a credit card/don t revolve 4. Use caution in closing accounts 5. Apply for credit judiciously 6. Time is key 7. Demonstrate stability 8. Have a plan 9. Put credit to work for you 10.Share your knowledge 32

33 Segmentation schematic 1 High Risk 2 Low Risk Previous Bankruptcy Total Population 3 High Risk 4 Low Risk Thin File No Previous Bankruptcy Thick File Highest Risk Higher Risk Lower Risk Lowest Risk 5 Bankruptcy Profile 6 Bad Profile 7 Bankruptcy Profile 8 Bad Profile 9 Bankruptcy Profile 10 Bad Profile 11 Bankruptcy Profile 12 Bad Profile 33

34 Improving a score and avoiding score drops The impact on credit scores from each single credit activity appearing in your credit files varies, but there are generally things that have good or bad consequences. Action Lender interpretation Score impact Pays bill on time Wisely handling debt Improvement Low credit utilization Sufficient access to credit, unlikely to need additional funds Improvement Mature accounts Experienced credit user Improvement Uses diverse range of loan Experience with different types of products repayment requirements Improvement Low risk Inquiry about new loan Opens a new loan New accounts Why the need for credit -exposure or normal expansion? Why the need for credit -exposure or normal expansion? Will consumer effectively manage new credit? Small drop Small drop Small drop Maxes out credit card (high utilization) Pays late -first time Tipping point: potential for significant exposure Tipping point: potential for significant exposure Drop Drop Pays multiple loans late All credit at risk Larger drop Miss multiple payments on a All credit at risk loan (3 or more) Larger drop Charge off Default Major score drop Foreclosure Default Major score drop Bankruptcy Default Maximum score drop, extended time impact VantageScore Solutions, LLC 2014 High risk 34

35 Detailed Impact of Actions in Two Scenarios Missed payments and defaults have a significant negative impact Starting Score Scenario Missed payments Score DROP Ranges Bankcard 30 days days Auto 30 days days Mortgage 30 days days Charge-off or foreclosure Unpaid Charge-off, placed at collections agency Filing bankruptcy VantageScore Solutions, LLC

36 Detailed Impact of Actions in Two Scenarios Opening new accounts will have a minor temporary impact on a score while poor credit card management results in a deeper drop to a credit score Starting Score Scenario Score DROP Ranges Obtaining credit Making an inquiry Opening a newcredit card(additional) Opening a new mortgage (addition) Opening a new auto loan (addition) Using credit cards Using all available credit on one credit card Spreading credit usage over multiple credit cards Closing an old credit card account VantageScore Solutions, LLC

37 Detailed Impact of Actions in Two Scenarios Proper credit management will improve a credit score Starting Score Scenario Score improvements Score INCREASE Ranges Paying down the mortgage by $25, Accounts age by one year Reducing the percentage of credit card limit usedby 50 30% VantageScore Solutions, LLC

38 Impact from a negative event in a credit file diminishes with time Score recovery time Max Impact +1 month +3 months +6 months +1 year +2 years 7-10 years -10% Impact to credit score -30% -50% -70% -90% Obtaining new credit Closing an account Maxing out credit card Missed payment, default Bankruptcy VantageScore Solutions, LLC

39 Credit Reports Credit Reports When someone is sued and the item becomes a public record, why does it sometimes still show as a collection item? Disputing items like this does not remove the collection and it appears to inflate the individual s credit report debt. 39

40 Reporting and Repairing Credit Reporting Why aren t all creditors/data furnishers required, by law, to report to all three credit bureaus? Disputes If an entity that reported an account has gone out of business, how does a client dispute it? How does the credit bureau dispute process work exactly? If I disputed a credit charge and the company filed me as delinquent on payments, can I get my credit improved retroactively after winning the dispute? How do I fix an error with my credit scores? Debt Management What information can a client ask to be provided in regards to debt verification for an account showing in collection on his credit report? 40

41 Credit Scores Credit Scores What is the time frame in which one should make a major purchase so that hard pulls do not affect credit scores? When a collection item(s) falls off the credit report, by how much does a credit score improve/increase? Does checking my credit score too often affect my rating? Instead of describing the ambiguous ways to improve a credit score, is there a formula or rule of thumb to get a definable increase in score (ie to improve a score by 50 pts, make regular payments on x amount of debt for x time)? Even though the degree of improvement possible is relative to your current rating? How does an individual account, joint account and authorized user account weigh on your credit scores Do the credit bureaus weigh secured cards, unsecured cards and retail cards differently At what length of time is a loan actually worse for your credit scores. Does a loan really help you if it's amortized out to 3-6 months? 41

42 Other questions? 42

43 Challenging questions you may be asked What if I don t want to have a credit report? Why do I have to pay for a score when I can get a free report? Isn t a short sale the best way to get out of a mortgage without negatively impacting your scores? Isn t it better for your scores to carry a balance versus paying in full each month? Why are inquiries important? Don t all those preapproved offers ruin my credit? Doesn t shopping for the best rate ruin my credit? Does adding a consumer statement explaining a bad debt effectively off-set the negative impact? If I am in a Debt Management Program (DMP) does that negatively impact my scores? If you have missed payments or had collection accounts, isn t it best to cut up all your cards and cancel the accounts? Is it wise to close unused accounts to help scores? Shouldn t you always say no to store cards? Is it fair to use reports for employment purposes? Don t people with bad credit need jobs more than other candidates? 43

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