Credit reporting bureaus

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Reporting on consumer credit is an important part of the financial services industry and something every consumer needs to understand in order to make sure their credit report and credit score is up to date and accurate. Learn how you can have the best credit report and the highest possible score.

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Credit reporting bureaus

  1. 1. Financial Services Industry Training Credit Reporting Bureau Saunders Learning Group, LLC Saunders Learning Group, LLC, Andover, KS
  2. 2. Training from Saunders Learning Group Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry. Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs. Contact the founder, Floyd Saunders at 316-680-6482 or at floyd@floydsaunders.com for more information. Saunders Learning Group, LLC, Andover, KS1
  3. 3. Topics 1. Role of Credit Reporting Bureaus 2. Your Credit Report 3. How to Have the Best Credit Report 4. Credit Scores 5. Improve Your Credit Score 6. Glossary Saunders Learning Group, LLC, Andover, KS Slide 2
  4. 4. Module 1Role of Credit Report BureausSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  5. 5. Credit Bureaus, Credit Reports, and Credit Scores Credit Bureaus Credit Reports Credit Scoring • Private • Information • A numerical organizations which collected by credit evaluation of your maintain credit bureaus from credit based on information on subscribers, specific criteria individuals which it creditors, public determined by the allows subscribers court records, and credit scoring to access for a fee the consumer company Saunders Learning Group, LLC, Andover, KS 4
  6. 6. Major Credit Reporting BureausThe major credit bureaus are affiliated with hundreds of smaller credit reporting agencies that gather information for them. Credit bureaus are for-profit corporations that make money by selling your personal and financial information. Not all creditors report to all three bureaus. Each credit bureau will have different information on your credit history. Saunders Learning Group, LLC, Andover, KS
  7. 7. Flow of Credit Reporting InformationSaunders Learning Group, LLC, Andover, KS
  8. 8. What is a Credit Report?A credit report is a history of everything you are doing withyour credit now and everything you have done in the past.This report is a computerized file that contains informationabout you. Information such as: Identifying Information Trade Lines Inquiries Public Record and Collection Items Saunders Learning Group, LLC, Andover, KS
  9. 9. Module 2 Your Credit ReportSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  10. 10. Information in Credit ReportsInformation on your Credit Factors that determineReport Credit Worthiness• Personal demographics • Annual income • Age • Time at current residence • Social Security # • Time at current job • Addresses • Age• Employment history • Employment• Credit history • Number of bank accounts• Criminal convictions and judgments • Number of credit cards• Two years of inquiries • Credit history 9 Saunders Learning Group, LLC, Andover, KS
  11. 11. What’s In Your Credit ReportIdentifying Information: Trade Lines: Your name, address, social security  These are your credit accounts. Creditors number, date of birth, employment and/or lenders report on each account you address and income are used to have established credit with them. identify you.  They report the type of account, such as credit These factors are not used in scoring. card, auto loan, mortgage, etc. (revolving or Updates to this information come from installment), the date you opened the account, information you supply to creditors your credit limit or loan amount, the account and/or lenders. balance and your payment history.Public Record and Collection Inquiries: Items:  Inquiries are a list of everyone who accessed your credit report within the last two years. Credit reporting agencies also collect public record information from state  The report you see lists both "voluntary" inquiries, and county courts, and information on spurred by your own requests for credit, and overdue debt from collection agencies. "involuntary" inquires, such as when lenders order your report to make you a pre-approved credit offer Public record information includes in the mail. bankruptcies, foreclosures, suits, wage attachments, liens and judgments. Saunders Learning Group, LLC, Andover, KS
  12. 12. Your Rights With the Credit Bureau  70% of Americans have at least one negative remark on their credit report  Almost 50% of reports contain incorrect or old information, so: • Be proactive: you can change things – Review your report and report inaccuracies for investigation – If applicable, add a statement to protect yourself—it is worth the time  Current law entitled you to get a copy of one credit report each year from each provider Saunders Learning Group, LLC, Andover, KS 11
  13. 13. How to obtain Your Credit ReportThe fastest way to obtain a credit report is to contact the credit bureausdirectly by telephone or on-line. There usually is a cost per report. EQUIFAX (800) 685-1111 www.equifax.com TRANS UNION (800) 888-4213 www.transunion.com EXPERIAN (888) 397-3742 www.experian.com You should request a copy of your credit report from all three credit bureaus at least once a year to make sure the information in your credit report is correct especially before making a large purchase, like a house or car. Saunders Learning Group, LLC, Andover, KS
  14. 14. Your Free Credit Report Getting your Credit Report  You can get 3 free credit reports each year, one from each of the three major reporting agencies • Go to www.annualcreditreport.com • Choose your state and credit reporting company • Fill out the forms. • Make sure the connection is secure (https) • Answer their questions—they are very picky! Avoid Identity Theft  Space out your free credit reports throughout the year to be sure that your report is clean Saunders Learning Group, LLC, Andover, KS 13
  15. 15. Why Your Credit Score is Important It may determine whether you get the credit you want. 75% of all mortgage loans are reviewed based on credit scores, the most common being FICO The higher your credit score, the lower your interest cost It may help you get the best deal on many types of loans: home, car, and consumer It also may reduce the cost of your insurance products which are based on your credit score Know your score!!!!!!!! Saunders Learning Group, LLC, Andover, KS
  16. 16. There is two basic types of credit reports Consumer Reports Investigative Reports This report contains your  Used for employment or insurance purposes. personal data, creditor  Much more detailed than a accounts, public records, “Consumer Report” and often will inquiries and can be be based upon interviews with accessed by any legitimate others about your lifestyle, character and reputation. business or person who is  If a business or insurance company extending you credit. requests this type of report, you will There is a small fee paid to be notified by the credit bureau.  You will also be informed of your the credit bureau for this right to ask for additional type of report. information about the report from the company you applied to. Saunders Learning Group, LLC, Andover, KS
  17. 17. Module 3 How to Have the Best Credit ReportSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  18. 18. Protect Your Credit1. Pay your bills on time, don’t get into debt, your payment record is 35% of your credit score.2. Pay the full amount each month.3. Pay 30% more than the minimum payment each month.4. Maintain an awareness of your credit payment history. Request free copies of your credit reports every year5. Give the appropriate information when applying for credit.6. Do not apply for more credit than you need.7. Don’t have too many of the same type of accounts, you don’t really need five department store credit cards. The credit mix is 10% of your score.8. Keep balances low, particularly on revolving debt as a % of your available limit. The total amount owed as a percent of your credit limit is 30% of your score.9. Don’t use more than 35% of your available credit.10. Keep your oldest accounts, your credit history is 15% of your overall score.11. Don’t apply for too many new cards! Your history of applying for credit is 10% of your credit score. Saunders Learning Group, LLC, Andover, KS
  19. 19. Manage Your Credit Report What Should You Do? Take an active role in managing your credit Review the things that go into your credit score Review your credit report every year (it is free) and purchase your credit score (I recommend a FICO score) every two years, or more often if you are planning to take out a loan for a house Saunders Learning Group, LLC, Andover, KS
  20. 20. Who can see my report?Your credit report can legally be reviewed by: Any creditor or lender to whom you have applied for credit A prospective employer A mortgage lender, when you have applied for a home loan A property management firm, when you have applied to rent Any current employer on a need-to-know basis Any person, firm, or agency to whom you have given permission Any person, firm, or agency with a legitimate need to know An insurance company, when you have applied for insurance You, as a consumer Saunders Learning Group, LLC, Andover, KS
  21. 21. Fixing Mistakes on Your Credit Report Contact the creditor (information is at the end of the credit report)  Many of the mistakes can be fixed over the phone If you cannot get the problem solved, contact the credit reporting agency’s customer service representative  Explain inaccuracies in writing with necessary support documents using the “Investigation Form” from the website  If you cannot get the problem solve, fill out a dispute form  You can put up to 100 words on your credit report explaining a situation and what you have done to try to resolve it. Saunders Learning Group, LLC, Andover, KS
  22. 22. Dispute Cycle Here is a sample dispute Consumer receives a cycle used by TransUnion copy of his/her credit file to insure they have Consumer indicates accurate information in information is incorrect your credit file. Contacts Contacts TransUnion Customers/Creditors Information Investigated (Customers/Creditors contacted) Information Accurate Information Inaccurate (no change made) (information verified and change made per reporting Customers/Creditors authorization) Send notice to Send notice to Notice sent to Consumer indicating Consumer indicating previous inquirers no change made changes made as per provincial legislation Consumer Consumer does accepts not accept result results (Customers/Creditors/Ministry contacted) Saunders Learning Group, LLC, Andover, KS
  23. 23. Module 4 Credit ScoresSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  24. 24.  Credit scoring is a number generated by mathematical formulas which helps lenders determine if you are a good risk for credit. The most frequently used version of the credit score is the FICO score created by Fair Isaac & Company. A FICO score is a snapshot of your credit risk picture at a particular point in time. The scores can range between 300 and 850. The higher your score, the lower the risk to lenders.Saunders Learning Group, LLC, Andover, KS
  25. 25. How does A Credit Score Work? Lenders base your interest rate on your score The higher the score, the lower the rate Research by Fico showed (Fico uses a 0-850 range):  $300,000 30-year fixed rate mortgage in 2008  Scores 760+ paid 4.873% Scores 700+ paid 5.095%  Scores 680+ paid 5.272% Scores 660+ paid 5.486%  Scores 640+ paid 5.916% Scores 620+ paid 6.462% The above mortgage at the bottom versus the top rate paid $108,523 more in interest over the life of the loan. Saunders Learning Group, LLC, Andover, KS
  26. 26. FICO Scoring System ChartThe percentages in the chart below reflect how important each of the categoriesis in determining your FICO score. Saunders Learning Group, LLC, Andover, KS
  27. 27. FICO Delinquency Chart:The chart is based on consumer’s FICO scores and what their percentage ofdelinquency is on a credit card or loan payment.FICO scores above 700 are considered very low credit riskbelow 700 are considered high risk. Saunders Learning Group, LLC, Andover, KS
  28. 28. Percent of People With High Credit ScoresThe chart below is based on the percentage of consumerswithin a FICO scores range.29% of U.S. population has a score of 750 and higher. Saunders Learning Group, LLC, Andover, KS
  29. 29. Does a credit score determine if I get credit? Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history. Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high. Saunders Learning Group, LLC, Andover, KS
  30. 30. Module 5 Improve Your Credit ScoreSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  31. 31. Grow Your Credit Score How is your “FICO” score determined?  Your Payment Record 35% Pay your bills on time Don’t get into debt!  Total Amount Owed (as % of limit) 30%  Keep balances low  Particularly on revolving debt as a percent of your available limit  Credit History: 15% Keep your oldest accounts  Application History 10% Don’t apply for too many new cards!  Credit Mix 10% • Don’t have too many of the same type of accounts! Saunders Learning Group, LLC, Andover, KS
  32. 32. Getting your Credit Score You can request a credit score at the same time you are reviewing your credit report. There are a number of different credit scores available The most common is the FICO Score Most loans are scored based on FICO scores Other credit score providers include VantageScore, PLUS Score, etc. Know what you are buying and what the industry is using You can also go to www.MyFico.com and order a credit report and FICO score for $15.95 Saunders Learning Group, LLC, Andover, KS
  33. 33. Ways to improve your creditHere are some ways to increase and decrease a FICO score: If you can pay your bills on time for 6 months you could raise your FICO almost 20 points. If your FICO score is 650 it would now be 670. Pay down the balances on your credit cards by 34% and you could raise your FICO score almost 20 points. If you owe $2,230 on a credit card, paying $750 (34%) alone could raise your score. If you miss monthly payments by the due date on all of your credit card accounts your FICO score could decrease between 75 to 125 points. If your FICO score is 650 it will now lower to 575 to 525. If you max out your credit cards to the limit your FICO score could decrease between 20 to 70 points. If your FICO score is 650 it will now lower to 630 to 580. Saunders Learning Group, LLC, Andover, KS
  34. 34. Glossary of Credit Rating TermsSaunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  35. 35. Glossary of Credit Rating Terms  Credit Score A credit score is a numerical expression based on a statistical analysis of a persons credit files, to represent the creditworthiness of that person. Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders also use credit scores to determine which customers are likely to bring in the most revenue.  Bankruptcy A proceeding in U.S. Bankruptcy Court that may legally release a person from repaying debts owed. Credit reports normally include bankruptcies for up to 10 years.  Charge-off The balance on a credit obligation that a lender no longer expects to be repaid and writes off as a bad debt.  Collection Attempted recovery of a past-due credit obligation by a collection department or agency. Saunders Learning Group, LLC, Andover, KSSlide 26
  36. 36. Glossary of Credit Rating Terms  Consumer credit file A credit bureau record on a given individual. It may include: consumer name, address, Social Security number, credit history, inquiries, collection records, and public records such as bankruptcy filings and tax liens.  Credit bureau A credit reporting agency that is a clearinghouse for information on the credit rating of individuals or firms. Is often called a “credit repository” or a “consumer reporting agency”. The three largest credit bureaus in the U.S. are Equifax, Experian and TransUnion.  Credit bureau risk score A type of credit score based solely on data stored at the major credit bureaus. It offers a snapshot of a consumers credit risk at a particular point in time, and rates the likelihood that the consumer will repay debts as agreed.  Credit history A record of how a consumer has repaid credit obligations in the past.  Credit obligation An agreement by which a person is legally bound to pay back borrowed money or used credit. Saunders Learning Group, LLC, Andover, KSSlide 27
  37. 37. Glossary of Credit Rating Terms Credit report Information communicated by a credit reporting agency that bears on a consumers credit standing. Most credit reports include: consumer name, address, credit history, inquiries, collection records, and any public records such as bankruptcy filings and tax liens. Credit risk The likelihood that an individual will pay his or her credit obligations as agreed. Borrowers who are more likely to pay as agreed pose less risk to creditors and lenders. Default A failure to make a loan or debt payment when due. Usually an account is considered to be “in default” after being delinquent for several consecutive 30-day billing cycles. Delinquent A failure to deliver even the minimum payment on a loan or debt payment on or before the time agreed. Accounts are often referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles. Saunders Learning Group, LLC, Andover, KS
  38. 38. Glossary of Credit Rating Terms Equal Credit Opportunity Act (ECOA) Federal legislation that prohibits discrimination in credit. The ECOA originally was enacted in 1974 as Title VII of the Consumer Credit Protection Act. Fair Credit Reporting Act(FCRA) Federal legislation that promotes the accuracy, confidentiality and proper use of information in the files of every “consumer reporting agency”. The FCRA was enacted in 1970. FICO® scores Credit bureau risk scores produced from models developed by Fair Isaac Corporation are commonly known as FICO scores. Fair Isaac credit bureau scores are used by lenders and others to assess the credit risk of prospective borrowers or existing customers, in order to help make credit and marketing decisions. These scores are derived solely from the information available on credit bureau reports. Inquiry An item on a consumers credit report that shows that someone with a “permissible purpose” (under FCRA rules) has previously requested a copy of the consumers report. Fair Isaac credit bureau risk scores take into account only inquiries resulting from a consumers application for credit. Saunders Learning Group, LLC, Andover, KS
  39. 39. Glossary of Credit Rating Terms Installment debt Debt to be paid at regular times over a specified period. Examples of installment debt include most mortgage and auto loans. Insurance bureau score An insurance rating based solely on credit bureau data stored at the major credit bureaus. It offers a snapshot of an individuals insurance risk at a particular point in time, and helps insurers evaluate new and renewal auto and homeowner insurance policies. Late payment A delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed. Revolving debt Debt owed on an account that the borrower can repeatedly use and pay back without having to reapply every time credit is used. Credit cards are the most common type of revolving account. Saunders Learning Group, LLC, Andover, KS
  40. 40. Thank You !Saunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  41. 41. Questions Saunders Learning Group, LLC, Andover, KS
  42. 42. About the Author/Presenter  Floyd Saunders has worked on Wall Street with both Bank of America and JPMorgan, where is was a vice president in global financial systems. He has worked across the industry in retail, commercial, and investment banking.  He has taught courses in Money and Banking and extensively for the American Institute of Banking and various colleges.  As a consultant, he developed and taught a wide range of banking and investing courses.  He authored three programs for the American Bankers Association: Banking on Mutual Funds and Annuities, Introduction to Securities Markets and Investing in Securities.  He is the author of “Figuring Out Wall Street” and his next book is “Family Financial Freedom” a book on personal money management. Saunders Learning Group, LLC, Andover, KS

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