Credit, Risk Assessment Score and Budgeting

American Debt Counseling, Inc. Credit, Risk Assessment Score and Budgeting www.americandebtcounseling.org

Credit Reports & CRA’s

What is a Credit Reporting Agency?
A credit reporting agency (CRA)
gathers and maintains credit data
aka credit report/credit history
shows payment history
available to subscribers who have a “ permissible purposes”
lenders
employers
landlords
government agencies

Understanding Your Credit Report
Credit Reports Contain:
Identifying Information
Name
Current and former addresses
SSN, Date of Birth, Employers
Public Record/Collection Acct Information
Tax or State Liens
Bankruptcy
Foreclosure
Judgments

Credit Information
Opening Date
High Credit or Credit Limit
Loan Amount
Monthly Payment
Balance
Past Due Amount
Type of Account and Rating
O, R, I
1,2,3,4,5,7,8,9
Responsible Party
Joint, Individual, Maker/Co maker

Inquiries (Hard)
Credit Inquiries
Automobile
Mortgage
Credit Cards
Employment Inquiries
Current or future employers (EMP)

Inquiries (Soft)
Promotional Inquiries
Pre-approved offers (PRM)
Account Monitoring (AM)
Account Review (AR)
Consumer Copy (ECIS)

How Long Does Information Stay On File?
Credit Accounts
Accounts paid as agreed
Up to 10 years from DLA
Accounts not paid as agreed
7 years from DLA
Collection Accounts
7 years from DLA (Date of Last Activity)

Bankruptcy and Judgments
Chapter 7 – Liquidation of debts
reported for 10 years
Chapter 13 - Reorganization or Repayment
reported 7 years
Lawsuit or an unpaid judgment
reported for 7 years
or until the statute of limitations runs out, whichever is longer

Tax Liens
Paid IRS Tax Liens
7 years from date paid
Unpaid IRS Tax Liens
indefinitely
Student Loans
Defaulted Student Loans
indefinitely
cannot be included in bankruptcy

How Do I Get A Copy of My Credit Report?
Contact the three major credit reporting agencies:
Equifax www.equifax.com
Experian www.experian.com
Trans Union www.transunion.com

What Does It Cost?
You’re entitled to a free credit report if:
Your application has been denied for
credit
insurance
employment
AND
You request your report within 60 days of receiving the notice of the adverse action.

Ways to Obtain a Free Copy?
You’re also entitled to a free copy of your credit report once a year if:
You're unemployed and plan to look for a job within 60 days,
You're on welfare, or
Your report is inaccurate because of fraud.

Ways to Obtain a Free Copy? Cont.
Go to www.annualcreditreport.com
To access this website you will need your address, social security number etc.
Once access has been granted you will be able to separately access each CRA.
Transunion and Equifax allow registration which will keep information for 30 days.

How Do I Correct Errors on My Credit Report?
Get a copy of your credit report
Highlight the error's
Write a letter of dispute that includes an explanation of the error's
Locate and photocopy
documents to show items reported incorrectly
Send everything to CRAs
highlighted copy of your credit report,
your letter of dispute,
and a copy of any additional information

What Is The FICO ® Credit Score, Anyway?

FICO ® Credit Score
What is a FICO ® Score?
A generic risk score used by lenders, developed by Fair, Isaac Corporation in conjunction with Equifax, Experian and TransUnion.
Predicts how likely you are to repay your debt; if you qualify for the loan; and what your interest rate will be.

CRA Product Names
Equifax---------------- BEACON ®
Experian-------------- Experian/Fair Isaac Risk Model
TransUnion---------- EMPIRICA ®

Score Ranges
300 to 900
The higher the score the better the credit
The lower the score the riskier the credit

FICO ® Credit Score Interest Rate
What a Difference a Score Makes!
Score APR
720-850 5.604% A+
700-719 5.729% A
675-699 6.267% B
620-674 7.417% C
600-619 8.531% D
500-599 9.289% F

What a FICO ® Score Considers
Five types used to calculate a FICO ® score . (Each type counts as a percentage of a total FICO ® score)
Payment history= 35%
Amounts owed= 30%
Length of credit history= 15%
New credit= 10%
Types of credit in use= 10%

What A FICO ® Score Does Not Consider
Race, color, religion, national origin, sex and marital status
Age
Employment
salary
occupation
title
employer
date employed
employment history
Residence

What A FICO ® Score Does Not Consider
Reported child/family support obligations
Interest rate on existing accounts
Consumer/CRA Inquiries
Information not found in credit report
Information not proven to be predictive of future credit performance
Participant in credit counseling

Tips For Improving Your FICO® Score
Pay bills on time
Bring past due accounts current and keep them current
Keep balances low
Contact creditors immediately if problems arise
Pay debt off – don’t move it around
Don’t open several new accounts
Don’t have excessive inquiries
Use caution when closing accounts

Credit Repair Companies
Everything a credit repair company can do legally, you can do yourself !
Credit repair companies charge money—sometimes lots of money
No one can legally remove accurate negative information from a credit report
If you decide to work with a company, research its offer carefully

Payday Loans
Payday Loans
Personal check in exchange for cash
Held 15 days
Fees range from $30 and up
Rollovers
Additional Fees added

Be Patient
the Payoff Is Worth It!

The True Cost of Credit Card Debt

The True Cost of Paying the Minimum Payment!
(For all details, see credit card disclosures)
EXAMPLE
$2,000 X 2% (minimum monthly payment %) = $40.00
$40.00 $2,000.00
- 30.00 Finance Charge Amt to Principal - 10.00
$10.00 Amt to Principal New Balance $1,990.00
How does interest work? A. Average Daily Balance $2,000 Maxed-0ut Credit Card! B. Annual Percentage Rate 18% APR Or 1.5% per month C. Minimum Payment Percentage 2% of balance 2% x $2000 = $40 E. Finance Charge $30.00 1.5% x $2000

The True Cost of Paying the Minimum Payment!

Stretching Your Dollars

What is a budget/spending plan?
Your budget/spending is the foundation for your financial success.
It’s what you can do within your income.
It’s not about denying yourself.
Budget/Spending Plan

What Do I Do First?:
Get Organized
File box
Jar
Shoe box
Large manila envelope
GET AND SAVE RECEIPTS

Next, create the budget/spending plan by:
using money management software
using a paper a budget form
using a budget workbook
Then, complete the budget/spending plan
in detail:
be honest with yourself.
it won’t work if your budget doesn’t truly reflect how you spend.

Developing A Spending Plan
Expense Categories
Fixed (Examples of Fixed Expenses)
Child care
Rent/mortgage
Installment payments
Car, home and personal-type loans
Insurance premiums
Tithes

Flexible (Examples of Flexible Expenses)
Food
Utilities
Gas
Home phone/cell phone
Car maintenance
Credit card payments
Personal/Medical Needs

Luxury
New Clothes
Going out to eat
Entertainment/Recreation
Gifts

Savings included in your budget:
Three types of savings:
Emergency Reserve
Three months of living expenses in the event
laid-off
medical reasons
divorce
Short-term
Vacation, special occasion, special purchase
Long-term
Down payment on a home
Buying a new car
Retirement

Review:
Put in writing
Keep it simple
Stick to major categories
Review plan and make changes
Keep records and receipts
Buy what you “need”
Allow for relaxation/entertainment
Save what is left

Credit Counseling

Credit Counseling
Are you Knee-Deep In debt?
Do you have more month than money?
When debt becomes overwhelming:
Talk with your creditors.
Consult with a certified credit counselor.

Credit Counseling
What can a certified credit counselor do?
Review your finances and help you set up a budget.
Review your credit situation.
Look at the possibility of a Debt Repayment Plan (or debt management plan, aka DMP).

Credit Counseling
How does DMP work?
May reduce interest rates and fees.
Helps you begin making consistent, on-time payments
payments made to the counseling agency.
You will see results over time
Credit Score/Credit History begins to improve.

Credit Counseling Review
Is there a fee for their services?
What are they?
What services does the agency offer?
Budget/Credit Counseling
Debt Repayment
Credit Report Review

Credit Counseling Review
Is the agency truly accredited and, if so, by whom?
Are the counselors certified and, if so, by whom?

Have A Nice Day!

Credit, Risk Assessment Score and Budgeting

by American Debt Counseling Inc on Oct 08, 2009

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