Your Credit Report and Your Score Establishing/Re-establishing Your Credit Improving Your Score... 3

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2 Contents Your Credit Report and Your Score... 1 Establishing/Re-establishing Your Credit... 2 Improving Your Score... 3 Fraud, Identity Theft and Protecting Your Credit... 4 Monitoring and Freezing... 5 Bankruptcy and Credit Counseling... 7 Spending Plan

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4 Your Credit Report and Your Score What s in your credit report and why is it so important? Your credit report contains your entire credit history from your very first loan to the last store credit card you applied for. Your credit report contains the following information: Identifying Information Your name, address, Social Security Number, date of birth and employment information. These factors are not used in scoring, nor is your income, race, color, religion, national origin, gender, marital status or age. This information is updated when you apply for credit, so do not worry if old addresses or employers appear on your report. Your Credit Accounts Lenders report on each account you have the type of account, the date you opened the account, your credit limit or original loan amount, the account balance and your payment history. This information is used in calculating your credit score. Inquiries A list of everyone who looked at your credit report within the last two years. The list includes soft and hard inquries. Soft inquiries are, for example, if you request your own credit score. Soft inquiries do not change your credit score. Hard inquiries may change your score. An example of a hard inquiry would be if you apply for a home or auto loan. Requests by lenders, employers and insurance companies are also shown. Public Record Information This includes bankruptcies, foreclosures, wage garnishments, tax liens and civil judgments each remains on your credit report for seven to 10 years, even after being paid. Payment History The number of accounts you have paid on time, any past due items, how far accounts are past due and when delinquencies or collections happened. Amounts Owed Amounts owed on specific accounts, the number of accounts with balances, the ratio of balances to credit limits on revolving accounts, and the ratio of balance to original loan amount on installment loans. Length of Credit History The amount of time since your accounts were opened and the amount of time since there has been account activity. New Credit Recently opened accounts; amounts owed and when they were opened; and the number of recent credit inquiries. Types of Credit Used Which types of credit have been used, such as revolving, installment, home, auto and unsecured. In the United States there are three major credit bureaus, also called consumer credit reporting agencies. Experian, TransUnion and Equifax. A credit bureau is a company that acquires and maintains files on almost every U.S. adult. These credit bureaus acquire data from creditors such as financial institutions, mortgage lenders and retail establishments. They search court records for lawsuits, judgements and bankruptcy filings. Agencies also review county records for tax, judgement, mechanic s liens or other legal claims. Your Credit Score: A system of statistically analyzing credit reports that provides a simple three-digit score comparing past and current credit performance to that of similar consumers. This score provides lenders, or other potential creditors such as insurance companies or landlords, a quick, fairly objective way to assess your creditworthiness or likely ability to pay back a loan, mortgage or pay the rent. Credit scores range from 300 to 850. The higher the score, the better. Someone with credit score of 720 or better is considered a low-risk borrower someone with a good credit score. 1

5 Establishing / Re-establishing Your Credit Establishing Credit Apply for a loan. Ask someone with good credit to co-sign a loan for you, but remember your co-signer shares liability for the loan with you. If you make late payments, it will reflect poorly on your co-signer s credit as well as yours. After six months to a year of making payments, reapply for the loan on your own. Apply for a credit card. Before you apply for any credit, make sure you understand the terms. How long is the grace period or the time you have to pay the balance in full before finance charges are added? Is there an annual fee or other fees associated with the card? Are there interest rate consequences if you make a late payment? Have patience. It takes time to establish credit. Remember, you are building a record of consistency in making payments on time, which demonstrates your creditworthiness. Go slowly be cautious, keep track of your overall debt and pay on time. It is much better to develop a strong credit record than to apply for too many credit cards or a loan that is larger than you can handle. Are you trying to establish credit and finding it hard to get credit when you have no credit? As many before you can attest, it s a lot easier to ruin your credit than it is to fix it. If you are just establishing credit, don t get carried away, mind your debt, and live within your means and you ll be fine. Working toward re-establishing good credit? If you re falling behind in your payments, take action immediately to keep damage to your credit to a minimum. Call your creditors to make payment arrangements and cut costs where you can. Re-establishing Credit Recognize that you are overextended. Stop purchasing with credit. Contact your creditors to see if they will set up a new payment schedule that you can maintain and take your credit cards out of your wallet store them in a spot that is hard to reach or cut them up. Consider consolidating debts. You may find it easier to make a single monthly payment instead of several. You might also get a lower interest rate that will make it easier to keep up with your payments. Debt consolidation is not a cure-all you have to learn to control your spending or you ll end up deeper in debt. Contact a financial fitness organization. Educators has partnered with GreenPath, which can be reached at (800) or online at GreenPath has offices in Racine and Milwaukee. Don t expect miracles. Don t use companies that promise to fix a poor credit rating quickly and painlessly, for a fee. The only way to improve a credit record is to establish a record of on-time payments and let time pass. Divorce Aside from its non-financial effects, divorce can cause problems with your credit record. The end of a marriage does not erase the debts you and your former spouse took on as a couple. Even if your former spouse is ordered by the court to pay debts from the marriage, you can become liable if they are not paid. Decide how to divide or dispose of property. If necessary, you can use a mediator to work through this with your former spouse. Close or separate joint accounts. Decide with your former spouse who will be responsible for paying bills, and notify your creditors of your divorce. Establish independent credit. If you do not already have credit, make sure your existing bills are paid on time if your name is still on the account or loan. 2

6 Improving Your Score Whether your credit is already good or could use some improvement, managing your personal finances in ways that enhance your creditworthiness is always smart. Adopting smart practices is a good place to start. Raising your score takes time. In fact, quick-fix efforts often backfire. Talk to an Educators representative about steps you can take to improve your score. Payment History Pay your bills on time. If you have missed payments, get current and stay current. Don t let a bill go to collection. Collection items stay on your credit report for seven years, even after they are paid off. Amounts Owed Keep balances low on credit cards and other revolving credit. Being at or near credit card limits can hurt your score. Pay off debt rather than move it around. If done too often, shifting from one lender to another may lower your score. Don t apply for new credit cards that you don t need, just to increase your available credit. This may also lower your score. Remember that closing an account does not remove it from your report, and can often hurt your credit score. Length of Credit History Don t apply for too much credit too quickly. Someone with little or no credit is seen as a higher risk than someone with good credit history. Long relationships with creditors have a greater effect on your credit score than newer relationships. This can be a challenge for consumers who take advantage of accounts with teaser rates to repay/refinance debt. Moves like that may lower your score. New Credit Shopping for a new loan. Visit each lender within a few days not weeks. Re-establish your credit history if you have had problems in the past. Types of Credit Used Apply for credit only as needed. Use your credit cards responsibly. Credit cards and installment loans that are managed responsibly will raise your score. Educators Credit Union offers several ways to help you track your spending, learn about personal finances and even teach your kids about money and spending. SaveUp: A free program that rewards members for saving money and paying down debt., and makes saving fun. Join at My Money Tracker: Part of Home Banking, My Money Tracker categorizes your expenses and income and helps you keep track of your spending and saving. FoolProof: A financial education program designed for high school students, helping them become savvy financial consumers. Mission Money: An interactive, online simulation that helps educate middle schoolers about the fundamentals of personal finance. 3

7 Fraud, Identity Theft and Protecting Your Credit Once you have obtained credit, it is necessary to protect it. This means being careful with your credit, debit and ATM cards, as well as your account and personal identification numbers (PINs). Carry only the cards you expect to use, and keep the others in a safe place. Maintain a list of accounts and telephone numbers of the companies that issued your cards. If the cards are lost or stolen, notify the companies quickly. If your notification is received before the cards are used, you have no legal responsibility for unauthorized charges. If notification is received after the cards are used, your legal responsibility is limited to $50 for each card. Never give out your credit card, checking or savings account information to a telephone solicitor with whom you are not familiar. Those numbers can be used to access your account and withdraw money without your permission. Save sales receipts to compare with your bill, and when you discard documents with account numbers on them, be certain that the numbers can t be read. If you disagree with an item on a bill, you are responsible for notifying the creditor in writing within 60 days of receiving the bill, unless otherwise stated in your account agreement. You should include your name, account number, the item you believe is in error and the reasons why. If you get a notice or feel that your personal information may have been compromised, take steps quickly to minimize the potential for the theft of your identity. Report identity theft to local law officials, provide all documentation available and ask for a copy of the police report. Keep it on hand for creditors. Immediately contact the fraud units of one or all of the three major credit reporting agencies listed on the back of this booklet and ask that a fraud alert be added to your account. Add a 100-word victim s statement to your report indicating your information was used to apply for credit fraudulently. Try to include a phone number where you can be reached to verify any credit applications. Financial Accounts: Block and have cards re-issued on compromised accounts immediately. Consult with your financial institution about whether to close bank/brokerage accounts or change your passwords and have the institution monitor for possible fraud. Place passwords on any new accounts that you open. Avoid using your mother s maiden name, your birth date, the last four digits of your Social Security Number (SSN), your phone number or a series of consecutive numbers. If your checking account information is used to set up a fraudulent account or checks are stolen, report the crime to local authorities, your financial institution and the check verification bureaus: ChexSystems at (800) or online at and Certegy at (800) or online at Remember to stop payment on any individual checks that were stolen. If your ATM card has been stolen, get a new card and change the PIN. Social Security Number: Contact the Federal Trade Commission to report possible identity theft at gov or call (877) IDTHEFT. You may want to contact the Internal Revenue Service at or call (800) You should also call the toll-free number of any or all of the three nationwide consumer reporting companies listed on the back cover and place an initial fraud alert on your credit reports. Driver s License: Visit the state Department of Motor Vehicles website at to find the procedure to get a duplicate driver s license. You can also ask the DMV to place a notation on your record to require additional proof of identity. Be aware that this will require you to provide additional proof (birth certificate, passport, etc.,) at the DMV or if you get pulled over by law enforcement. You can call the DMV at (608) Once you ve taken these steps, watch for signs that your information is being misused. Follow up with creditors if your bills don t arrive on time. A missing bill could mean an identity thief has taken over your account and changed your billing address to cover his tracks. Other signs include: receiving credit cards that you didn t apply for, being denied credit or being offered less favorable credit terms, like a high interest rate for no apparent reason. Getting calls or letters from debt collectors or businesses about merchandise or services you didn t buy is another possible sign that your identity may have been stolen. 4

8 Monitoring and Freezing Credit Monitoring Have you ever seen an online advertisement offering a free credit report? Be careful. Many websites claim to offer free credit reports, free credit scores or free credit monitoring. You can monitor your own report for free on a regular basis by: Visiting Educators once a year to review your credit report and score with an Educators representative, or review your report any time you apply for an Educators loan. Ordering a copy of your report from one of the three reporting bureaus every four months at Tips on Ordering Your Own Report Knowing the information in your credit report and understanding what it means is an important step in using credit wisely and protecting your identity. Checking your credit report on a regular basis helps you ensure: All of the information reported is accurate and up to date. You are aware of your score and its purchasing power. No one else has used your personal information to establish credit. If you want to order your free annual credit report online, go to: Once you have filled in your personal information at you will be directed to individual websites operated by the three nationwide consumer reporting companies (Experian, TransUnion and Equifax). To order your report at you must provide your name, address, Social Security Number and date of birth. To further verify your identity, each company may also ask you for information, like the amount of your monthly mortgage payment. You may also order your free report by calling (877) or mail a completed Annual Credit Report Request Form (found at to: Annual Credit Report Request Service, P.O. Box , Atlanta, GA Adapted from Federal Trade Commission publication Building a Better Credit Report, available at Freezing Your Files A security freeze can help prevent identity theft. Placing a security freeze on your credit files indicates that your information cannot be shared with potential creditors. Most businesses will not open credit accounts without first checking your credit history. If your files are frozen, even someone who has your name and Social Security Number would not be able to obtain credit in your name. A security freeze prohibits, with certain specific exceptions, the credit reporting agency from releasing your credit report or any information from it without your authorization. How Do I Place a Security Freeze? You must contact each of the three credit agencies and provide identifying information. If you are a victim of identity theft, you must provide proof that you are a victim. Proof includes reports you have made to law enforcement agencies. Without proof, there is a $10 charge. The agencies accept freeze requests online. You may have to send a request or proof via mail if you are a victim of identity theft. Experian Security Freeze P.O. Box 9554, Allen, TX TransUnion Security Freeze P.O. Box 6790, Fullerton, CA freeze.transunion.com Equifax Security Freeze P.O. Box , Atlanta, GA Include: Evidence that you have made a report (copy of a complaint, police or investigative report concerning identity theft). If this is not available, include payment by check or money order. Your full name (including middle initial, as well as Jr., Sr., II, III, etc.), address, Social Security Number and date of birth. Addresses where you have lived during the past five years. Proof of your current address, such as a recent utility or phone bill. Photocopy of government issued identification (driver s license or ID card, military identification, etc.). How Long Does It Take For a Security Freeze To Go Into Effect? After five business days from receiving your letter, the credit reporting agencies will place the freeze and stop providing credit reports to potential creditors. After 10 business days from receiving your letter to place a freeze on your account, the credit reporting agencies will send you a confirmation letter containing a unique PIN (personal identification number) or password keep this in a safe place. You ll need this number when you want to release the freeze on your credit files. 5

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10 Bankruptcy and Credit Counseling Considering bankruptcy? This legal process allows someone deeply in debt to create a plan to get out of debt. Bankruptcy should be an option of last resort. A bankruptcy, even when discharged, will stay on your credit report for 10 years. Although bankruptcy will clear most of your debts, it may not eliminate spousal and child support payments, some student loans, taxes or fines. Filing bankruptcy can be expensive court costs and attorney s fees add up, and are non-dischargeable. Financial counseling can help you determine if bankruptcy is the right option or if you could use the money you would spend on a bankruptcy to bring your accounts current. Two basic types of bankruptcy are: Chapter 13 A Chapter 13 bankruptcy puts you on a debt repayment plan of up to five years. With a Chapter 13 filing, you generally don t lose any property or possessions. Credit Counseling Credit counseling is an excellent alternative if you are considering bankruptcy or just looking to re-establish your credit. These options are available for you to use as you wish. Consumer Credit Counseling Services of Greater Milwaukee (a service of the Center for Financial Wellness, part of Aurora) 7 locations in Milwaukee, Waukesha and Walworth Counties (414) Money Management Inc. (partners with Racine Family Services) 524 Main St., Racine (262) GreenPath (an Educators Credit Union partner) Offices in Racine and Milwaukee (800) Chapter 7 A Chapter 7 bankruptcy involves the liquidation of all your assets, except those exempt by law, to pay your debts. This means that you may lose your home, car, electronic equipment or anything of value. With the new bankruptcy laws in effect, fewer people will be allowed to file Chapter 7 bankruptcies. More people will be required to file Chapter 13. You won t be allowed to file Chapter 7 if your income is above the state s median and you can afford to pay 25 percent of your unsecured debt. The court also applies living standards derived by the IRS to determine reasonable living expenses to figure what is left to pay debts. Two classes are required during the process of the bankruptcy a pre-filing credit counseling class and a pre-discharge debtor education class. 7

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12 Spending Plan The most important part of establishing and maintaining good credit is to live within your means. And you can t do that without a budget and spending plan. It sounds easy, but if it were so easy, debt would not be such a big problem for people. In its most basic form, budgeting is about one simple rule expenses should never exceed income. A well-designed plan is not about hardship, it s about achieveing your financial goals. If your current spending habits are keeping you from your goals, it s important to make some changes. It may be difficult at first, but most life changes are. Just remember you are trying to achieve your goals. Budget Guidelines These are the suggested percentages of net income that should be allocated to your expenses: Housing: Spend no more than 35% of net income (after taxes) on housing. Depending on whether you rent or own, to include: mortgage/rent, utilities, insurance, taxes and home maintenance. Savings: Save at least 10% of net income throughout your working life. Make sure you have 3 to 6 months of expenses in an emergency fund before you start saving for other goals. Transportation: Spend no more than 15% of net income on transportation. That includes: car payment, auto insurance, tag or license maintenance, gasoline and parking. Debt: Spend no more than 15% of net income on all other consumer debt: students loans, retail installment contracts, credit cards, personal loans, tax and medical debts. Other: Spend no more than 25% of net income on all other expenses: food, clothing, entertainment, child care, medical expenses, charity and vacations. Helpful Hints Stay Organized: Pay your bills on time, set up an area in your home for money management, have your spending plan on hand and refer to it often. Track Spending: Carry a small notebook with you and record every purchase you make. Add up your daily spending. After a few weeks of doing this, you will have a good idea of where and how you spend your cash. Emergency Account: Establish and maintain a savings fund that would act as a safety net in the event of an emergency, such as illness or job loss. This will prevent you from turning to credit cards or family in times of financial crisis. A good rule of thumb is having three to six times the amount of your essential living expenses readily available. Special Savings Accounts: Set aside money for a specific purpose. Some examples are insurance, vacation, taxes or Christmas. Direct Deposit: To help you save effectively, sign up for automatic deposit with your financial institution. Credit Cards: Credit cards are extremely convenient, useful and have good features but it is easy to get in over your head in a hurry. When it comes to credit cards, compound interest can work against you. If you carry a balance from month to month, you re paying interest on your interest. Consolidation: If you are juggling many different credit cards, try consolidating them into one or two. It can make repayment easier and more efficient. Credit card debt can easily spiral out of control, so limit credit card use to only when you can afford to repay the balances in full. Close unused and unnecessary accounts. Be realistic: Recognize that your goals won t be achieved overnight, and that changing habits takes work. Need more help? Educators can assist you with basic budgeting. Visit our website at contact us or stop into a branch. If you need more detailed assistance, we recommend other options: GreenPath, a non-profit financial credit counseling organization, offers free money management and financial education services in person or online. They can be reached at (800) or at Or, contact Consumer Credit Counseling Services of Greater Milwaukee at (414) or online at Bottom Line Once you have determined the total of your income and expenses you are ready to determine your bottom line. Subtract the total of all expenses from your income. If the result is a positive number, you can add the extra money to your savings to reach your goals sooner. If your expenses exceed your income, you ll need to make adjustments to bring your finances back into balance. Could you increase the amount you re saving by earning more or spending less? Making lifestyle changes means breaking poor habits. You may be accustomed to shopping without considering whether you can afford the items (and charging them to credit cards). Adjusting this behavior may be difficult. It will take work and commitment to change habits. Keep in mind that the advantages of doing so far outweigh the short-term pain and can help you achieve other goals. Monthly Net Income - Expenses = Balance 9

13 What Are You Going To Do Now? Keep the plan going! A well-developed spending plan is your springboard to financial independence. The key is to spend wisely and use your dollars effectively. It will help you clarify objectives, organize personal finances, refine spending and attain your goals. To make sure you are staying on track, it s a good idea to review your expenses and spending habits annually. Setting Goals Your financial goals are specific things you want to do with your money. They are the rewards that can encourage you to stick to your spending plan. Would you like to repay a debt, buy a new car or save for a down payment on a house? Keep your goals reasonable and realistic. Once you have determined what your goals are, the calculation is simple: the amount of the goal divided by the number of months you have to save. Short-Range Goals Mid-Range Goals Long-Range Goals Target Date Getting Started Needed There are two simple parts to a spending plan: Income and Spending. Begin with monthly income, as it will determine what you can afford to spend and save each month. Then fill in your monthly expenses. Some essential expenses will be fixed (the same amount every month) while others will be variable (for example gas and electric may be more or less based on the season). For those that are variable, determine an average by totaling what it typically costs for a year, then divide that amount by 12 months. Current Savings Additional Savings Needed Pay Periods Until Target Date Savings Needed Per Pay Period Savings Needed Per Month Monthly Income Paycheck Paycheck Tips/Commission/Other Social Security/Pension Child Support/Alimony Monthly Net Income Housing Rent or Mortgage Gas/Electric Water Phone Cell Phone TV/Cable/Internet Insurance/Maintenance Property Taxes Transportation Car Payment Car Payment Gas Insurance/Maintenance Bus/Taxi/Toll/Parking Loan Payments Credit Union Credit Card Credit Card Credit Card Loan Student Loan Family Life Insurance Legal (Child Support/Alimony) Child Care (Daily/Occasional) Allowances Gifts Health Medications Doctor Dentist Optometrist/Lenses Insurance Exercise Classes/Health Club Misc. Food Groceries Work Lunches School Lunches Education Lessons Tuition Books/Supplies Personal Haircuts Toiletries Clothing Other Donations Entertainment Vacations Dining Out Movies/Plays/Music/Sports Savings Credit Union Education Company Savings Plan IRA Other Pets (Food and Medical) Debt Monthly Net Income - Debt = 10