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Understanding your Credit

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This was from a lunch and learn series that I put together to help people understand their credit report.

This was from a lunch and learn series that I put together to help people understand their credit report.


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    • 1. Understanding Your Credit Report Nick Sosnowski, V.P. of Lending, IAA Credit Union
    • 2. What the Heck is “Credit”
    • 3. What the Heck is “Credit”
      • “Credit” is referring to your Credit Report. It is used to…
        • Help you borrow money
          • Credit Cards, Car, House, etc…
        • Qualify you for a job.
        • Underwrite Insurance*
      • How you manage your finances today can haunt you almost…
      Forever
    • 4.
      • What shows up on your report:
        • All of your personal information
          • Name, addresses, Social, Date of Birth, etc..
        • All debts you have borrowed
        • How you have repaid those debts
        • Any bills you may have not paid
          • Cell phone, Video Rental, Tickets, etc,,,
        • Public Records
        • List of people who have pulled your report recently.
      What the Heck is “Credit”
    • 5.
      • Three main Credit Reporting Companies
        • TransUnion Corp www.transunion.com
        • Experian www.experian.com
        • Equifax www.equifax.com
      • Each one will have slightly different information on you. What shows on one may not show on another.
      • Free report one time a year at: www.annualcreditreport.com
      What the Heck is “Credit”
    • 6. So Lets jump on in and take a look…
    • 7.
      • Lenders are most concerned with your “Credit Score”. This is a numerical representation of how good your credit is.
      Lenders Give Credit Grades: A+ 740+ A 700 - 739 B 670 – 699 C 630 – 669 D 600 - 629
    • 8. Credit Score
      • There are many different types of score, but they are all pretty close.
      • Many factors can affect your score:
        • Slow Pay, Collections, Bankruptcy, Foreclosure
        • How Long (Oldest Account, Age of items above)
        • Percentage of Credit Limits Used
        • Number of inquiries (How many how long)
    • 9. What makes up your credit score?
    • 10.
      • Payment History – 35%
      • How you repay all of your debts.
      • The number of times you went 30, 60, or over 90 days past due.
      • Weight is assigned to how recent the history is:
      Credit Score 10% Prior 36-48 Mos 20% Prior 24-36 Mos 0% Older than 4 years 30% Prior 12-24 Mos 40% Most Recent 12 months Weight Assigned to the history Timeframe (Approx.)
    • 11.
      • Capacity – 30%
      • How much you owe compared with your credit limits.
        • Installment balances compared to the original loan amounts.
        • Revolving limits vs. balances on an account by account basis and total.
      Credit Score
    • 12. Credit Score – Capacity Joe The Story of Old Joe…
    • 13. Has 5 Cards with $2,000 limit on each TOTAL LIMITS=$10,000 Pays off his balances each month but averages $1,500 in charges each month. AVAILABLE RATIO ($10,000-$1,500)/$10,000 = 85% Credit Score - Capacity A+
    • 14. Since he never uses 4 of the 5 cards he closes them. TOTAL LIMITS = $2,000 New AVAILABLE RATIO: ($2,000-$1,500)/$2,000 = 25% Credit Score - Capacity F Expect a score drop of 70-90 points!
    • 15.
      • Length of Credit History – 15%
      • How long your credit goes back.
      • Leave your older cards open since they produce a greater impact in the score.
      • Avoid opening multiple accounts in a short period of time.
      Credit Score
    • 16. Types of Credit – 10% Look for an overall mix of Credit Cards, Mortgages, and installment debt. Avoid consumer finance companies. Credit Score
      • New Credit – 10%
      • Looks at Number of new accounts and recent credit requests (Inquiries)
      • Shop for credit within a 2 week window to avoid negative effect.
    • 17. So what does my report look like?
    • 18.  
    • 19. Accounts that have been placed by a collection agency or charged off. Includes 1 st Mortgages, 2 nd Mortgages, Home Equity Lines, Land Loans Includes all credit cards, store cards, credit lines, sometimes Home Equity Have a beginning and an end. Car Loans, Boat Loans, can include Mortgages Everything Else. Single Pay loans, Traditional Amer. Express Cards, Diners Club
    • 20.
      • Anything filed with the county clerk could show up here (Only Bad).
      • Bankruptcy
      • Foreclosure
      • Defendant in a lawsuit
      • Tax liens (State and Federal)
      • BUT NOT Divorce, Real Estate Taxes
    • 21.
      • Too many inquiries in a short period of time can hurt your credit. That is why you should only apply for credit when you need it, never to get a discount or get something free.
      • You should also be careful not to allow multiple people to pull your credit while shopping rates on loans.
    • 22. Reflects your minimum payment not what you actually pay. It is better to have it low and pay more.
    • 23. High Balance will be the most you ever charged. The Limit is your credit limit. Lenders can tell if you have gone over your limit
    • 24. The comments are VERY important. A Closed account could be closed for many reasons, so you want it to say nothing or what this account says.
    • 25.  
    • 26. What to Lenders See? Not Always Reliable
    • 27.  
    • 28. AVAILABLE RATIO! Always have at least 1 back-up card that you don’t use!
    • 29. Account Number
      • Relationship to the Account
      • Individual
      • Joint / Cosigner / Authorized User
      Date Last Reported Credit Limit Highest Balance Current Balance
      • Pay History:
      • 1’s Good
      • 2,3,4,5 = BAD
      • Current Rating = R01
    • 30.
      • Do not believe these statements:
        • “Credit problems? No problem!”
        • “We can erase your bad credit-100% guaranteed.”
        • “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever.”
      How to take care of your Credit
    • 31.
      • The Truth
        • No one can legally remove accurate and timely negative information from your members credit reports.
      • There is only one way….
      How to take care of your Credit
    • 32. How to take care of your Credit
      • ONLY TIME BUILDS GOOD CREDIT!
      • For your kids…Make sure they open a credit card early and use it at least once a month.
        • Pay if off to avoid finance charges.
      • Track your bills and make sure your payments are made promptly.
        • Don’t panic if you make a mistake, just call.
    • 33.
      • Don’t apply for a lot of credit in a short period of time.
          • Comparison shop within 14 day window.
          • Save 10% if you open a card / Beware of the free hat.
          • Don’t open new cards to get special rates. Ask your current card companies if they can match a deal.
      • Make sure you pay your obligations.
        • Even though tickets stink, it is better to pay them now than have to deal with the credit blemish when you buy a car or house.
      • Keep your available amount high.
        • Avoid closing cards.
        • Spread your balances around several different cards.
      How to take care of your Credit
    • 34.
      • WATCH YOUR CREDIT REPORTS
      • Obtain a free credit report annually at www.annualcredit report.com
        • Watch for fake websites offering free reports!
      • Beware of Credit monitoring services. They are even offered by the big three.
      How to take care of your Credit
    • 35.  
    • 36. So now I know everything about credit reports, what do I do next?
    • 37. What to do next…
      • Go out to www.annualcreditreport.com and get a copy of your credit report.
        • Review it and look for errors.
        • Get errors corrected by filing disputes.
      • Confused and need help interpreting what you see?
        • Let us help. Give us a call and let us guide you through your report.
        • Don’t be embarrassed, we see this stuff every day!
      We can help you read it, guide you to improve it, but we CAN’T help you correct your credit.
    • 38. QUESTIONS? Nick Sosnowski V.P. of Lending 557-2541 [email_address]