FICO = Fair Isaac Company higher the FICO score the better
Credit score and reports
Credit History Reporting Credit Lender Reporting Credit Report Agency (CRA) Report Keep a record of Record created consumer’s credit consumer’s credit by the CRA of an transactions to transactions individual’s credit CRA’s (credit history) history Lender Agencies include: examples: store If an individual accounts, credit Equifax has not acquired card TransUnion, credit, they will companies, utility not have a report companies, etc. Experian
Information in a Credit ReportInformation can be divided into 4 categories: Personal Information Accounts Summary Public record items related to credit Credit Inquiries Lenders may or may not report information to all three credit reporting agencies. An individual’s information may be different in each report.
Credit Inquiries Requests for an individual’s credit report Completed by: Insurance agencies Potential credit companies Financial institutions Landlords Potential employers, etc.
Credit Inquiries Not all credit inquiries are the same! Type of inquiry Soft check Hard check Do they impact Not usually Yes your credit score? Examples •Individuals checking Permission given by the their credit reports individual when seeking •Credit card companies credit pre-approving •Credit card individuals •Automobile loan •Pre-employment checks •Insurance
Medical Information Information • Where an individual was NOT treatedallowed on a • What they were treated forcredit report: Information • Information regarding lateallowed on a medical paymentscredit report
Equal Credit Opportunity Act Prohibits credit discrimination on the basis of: Race Religion Marital status Nationality Gender Age
Credit ScoresMathematical tool created to help a lender evaluate therisk associated with lending a consumer money•Based upon information in the credit report•At a particular point in time•Numeric “grade” of a consumer’s financial reliability•Used by lenders to determine a consumer’s risk ofdefaulting on a loan
Credit Scores Most common scoring system is FICO Credit scores range from 300- 850, with 850 being the best score
Credit Score Impact $256,680 saved over the lifetime of this loan because of a good credit score!
How Credit Scores areDetermined Five categories of information from a credit report are used: • Payment history • Outstanding debt • Length of credit history • Pursuit of new credit • Types of credit in use
Information not included in a FICOscore FICO score is only based upon credit use Information not included is: Personal information such as age, where you live, marital status, race, color, religion, national origin, gender Employment information Interest rates charged on accounts Overall wealth (assets an individual may have) These variables may still be considered when a lender reviews a loan application.
Positive vs. Negative Credit Impact Positive Negative Informs the lender a Informs the lender a consumer is: consumer is: Not financially Financially responsible responsible May be a higher risk Less risk Impact on the Benefits to the consumer consumer May pay higher interest rates Lower interest rates May not be able to Access to additional qualify for credit credit May limit employment opportunities
Positive Credit Practices Positive Practice good banking techniques, such as keeping a checkbook balanced, managing accounts online, and not bouncing any checks Pay bills consistently and on time Maintain reasonable amounts of unused credit Apply for credit sparingly, thus keeping credit inquiries to a minimum Check credit reports annually and search for errors
Negative Credit Practices Negative Having non-sufficient funds (NSF) when writing checks, also known as bouncing checks Routinely paying late on credit cards, utility, and cell- phone bills Maxing out limits on credit cards Numerous credit applications in a short period of time
Building credit history Important for consumers to build a credit history to be able to purchase items on credit For example – house, vehicle Having no credit history may be just as challenging to a consumer as having a negative history
Establishing Credit Strategies to build credit include acquiring and positively managing small lines of credit Co-signer Secured Credit card Require a cash security deposit to ensure payment of the card Small loan from financial institution
Requesting A Credit Report One free credit report annually from each of the three credit reporting agencies Credit scores are available for a small fee Access the website: annualcreditreport.com Calling toll free: 1-877-322-8228 Send a written request: Annual Credit Report Request Service PO box 105281 Atlanta, GA 30348-5281