Protecting Your Future And Capital

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What is a credit score? 5 components making up credit scores.

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Protecting Your Future And Capital

  1. 1. Credit Scoring … Protecting Your Future and your Capital
  2. 2. CREDIT SCORE! What Does it Mean?
  3. 3. <ul><li>Predicts the statistical chance of a consumer becoming 90 days late or more on a particular loan obligation </li></ul>What Does The Score Mean?
  4. 4. <ul><li>Predicts the statistical chance of a consumer becoming 90 days late or more on a particular loan obligation </li></ul><ul><li>Each score is specific for each bureau </li></ul>What Does The Score Mean?
  5. 5. <ul><li>Predicts the statistical chance of a consumer becoming 90 days late or more on a particular loan obligation </li></ul><ul><li>Each score is specific for each bureau </li></ul><ul><li>Scores range from… </li></ul><ul><li>… 300 to 850 for Classic FICO </li></ul>What Does The Score Mean?
  6. 6. <ul><li>Predicts the statistical chance of a consumer becoming 90 days late or more on a particular loan obligation </li></ul><ul><li>Each score is specific for each bureau </li></ul><ul><li>Scores range from… </li></ul><ul><li>… 300 to 850 for Classic FICO </li></ul><ul><li>The higher the score the less the odds of default </li></ul>What Does The Score Mean?
  7. 7. <ul><li>Predicts the statistical chance of a consumer becoming 90 days late or more on a particular loan obligation </li></ul><ul><li>Each score is specific for each bureau </li></ul><ul><li>Scores range from… </li></ul><ul><li>… 300 to 850 for Classic FICO </li></ul><ul><li>… The higher the score the less the odds of default </li></ul><ul><li>The score is generated by analyzing the information contained in the consumer’s credit report at THAT point in time </li></ul>What Does The Score Mean?
  8. 8. CREDIT SCORE! Consumer Default: What are the Odds?
  9. 9. Odds on Consumers: 90 Days Late Score Odds Above 800 1292 to 1 760 to 799 597 to 1 720 to 759 323 to 1 700 to 719 123 to 1 680 to 699 55 to 1
  10. 10. Score Odds 660 to 679 38 to 1 620 to 659 26 to 1 500 to 600 8 to 1 Below 500 Odds on Consumers: 90 Days Late FORGET IT!
  11. 11. A Low Credit Score Can Cost You BIG! Compare 30 yr fixed rates on a $500,000 home $1,066,352 4350.95 9.9% 500-599 $871,305 3809.19 8.4% 560-619 $770,937 3530.37 7.6% 620-679 $637,722 3160.34 6.5% 680-699 $567,647 2965.68 5.9% 700-719 $499,549 2776.52 5.3% 720-850 Interest Paid Monthly Payment APR Rate FICO Score
  12. 12. Jack & Brad: $500,000/30yr. Fixed 595 681 Credit Score Equal Equal Salary Brad Jack
  13. 13. Jack & Brad : $500,000/30yr. Fixed 0 $14,288 Yearly Savings 595 681 Credit Score Equal Equal Salary Brad Jack
  14. 14. Jack & Brad : $500,000/30yr. Fixed 0 $428,630 Interest Saved over 30 Years 0 $14,288 Yearly Savings 595 681 Credit Score Equal Equal Salary Brad Jack
  15. 15. Jack & Brad : $500,000/30yr. Fixed $0 $ 2,476,911 10% return on savings compounded total in 30 yrs. 0 $428,630 Interest Saved over 30 Years 0 $14,288 Yearly Savings 595 681 Credit Score Equal Equal Salary Brad Jack
  16. 16. CREDIT SCORE! What are the determining factors?
  17. 17. Credit Score Components <ul><li>Past Delinquencies </li></ul><ul><li>Revolving Debt Ratio </li></ul><ul><li>Average Age of File </li></ul><ul><li>Mix of Credit </li></ul><ul><li>Inquiries </li></ul>
  18. 18. 1. Past Delinquencies… 35% of Credit Score
  19. 19. <ul><ul><li>Timing of the delinquency </li></ul></ul>1. Past Delinquencies: 35% of Credit Score
  20. 20. <ul><ul><li>Timing of the delinquency </li></ul></ul><ul><ul><li>Level of Delinquency </li></ul></ul>1. Past Delinquencies: 35% of Credit Score
  21. 21. <ul><ul><li>Timing of the delinquency </li></ul></ul><ul><ul><li>Level of Delinquency </li></ul></ul><ul><ul><li>Last activity date </li></ul></ul>1. Past Delinquencies: 35% of Credit Score
  22. 22. <ul><ul><li>Timing of the delinquency </li></ul></ul><ul><ul><li>Level of Delinquency </li></ul></ul><ul><ul><li>Last activity date </li></ul></ul><ul><ul><li>Past Due Notices destroy scores </li></ul></ul>1. Past Delinquencies: 35% of Credit Score
  23. 23. <ul><ul><li>Timing of the delinquency </li></ul></ul><ul><ul><li>Level of Delinquency </li></ul></ul><ul><ul><li>Last activity date </li></ul></ul><ul><ul><li>Past Due Notices destroy scores </li></ul></ul><ul><ul><li>Missed payments (low vs. high) </li></ul></ul>1. Past Delinquencies: 35% of Credit Score
  24. 24. <ul><ul><li>Timing of the delinquency </li></ul></ul><ul><ul><li>Level of Delinquency </li></ul></ul><ul><ul><li>Last activity date </li></ul></ul><ul><ul><li>Past Due Notices destroy scores </li></ul></ul><ul><ul><li>Missed payments (low vs. high) </li></ul></ul><ul><ul><li>Pay-off collections in Escrow NOT before </li></ul></ul>1. Past Delinquencies: 35% of Credit Score
  25. 25. CREDIT SCORE! How long do delinquencies stay?
  26. 26. Delinquencies on Credit Reports <ul><li>Bankruptcies </li></ul><ul><li>… Chapter 7 & 11 10 Years from filing date </li></ul><ul><li>… Chapter 13 7 Years from filing date </li></ul><ul><li>Tax Liens* 7 Years from date satisfied </li></ul><ul><li>Late Payments 7 Years </li></ul><ul><li>Charge-offs 7 Years from 1st late pay </li></ul><ul><li>Judgments 7 Years </li></ul><ul><li>Inquiries 2 Years </li></ul>
  27. 27. 2. Revolving Debt Ratio 30% of Credit Score
  28. 28. 2. Revolving Debt Ratio: 30% of Score <ul><ul><li>Cards: …Share debt among many cards </li></ul></ul><ul><ul><li>… Use each every 6 months </li></ul></ul><ul><ul><li>… Do not close credit cards </li></ul></ul><ul><ul><li>… Pay-off before closing date </li></ul></ul><ul><ul><li>… Get added as an authorizer user </li></ul></ul>
  29. 29. 2. Revolving Debt Ratio: 30% of Score <ul><ul><li>Cards: …Share debt among many cards </li></ul></ul><ul><ul><li>… Use each every 6 months </li></ul></ul><ul><ul><li>… Do not close credit cards </li></ul></ul><ul><ul><li>… Pay-off before closing date </li></ul></ul><ul><ul><li>… Get added as an authorizer user </li></ul></ul><ul><ul><li>Credit …Ask for credit limit increases </li></ul></ul><ul><ul><li> Limit …Maintain balances below 10% </li></ul></ul><ul><ul><li>… Make sure the limit is reported </li></ul></ul>
  30. 30. <ul><ul><li>Spouse: …Keep credit separate from spouse </li></ul></ul><ul><ul><ul><ul><ul><li>… Transfer debt to one spouse </li></ul></ul></ul></ul></ul>2. Revolving Debt Ratio: 30% of Score
  31. 31. <ul><ul><li>Spouse: …Keep credit separate from spouse </li></ul></ul><ul><ul><ul><ul><ul><li>… Transfer debt to one spouse </li></ul></ul></ul></ul></ul><ul><ul><li>Business …Utilize Business Credit! </li></ul></ul><ul><ul><ul><ul><ul><li>… Reports don’t distinguish </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> personal from business </li></ul></ul></ul></ul></ul>2. Revolving Debt Ratio: 30% of Score
  32. 32. 3. Average Age of Credit File… 15% of Credit Score
  33. 33. 3. Average Age of Credit File: 15% <ul><ul><li>The longer the history, the better </li></ul></ul>
  34. 34. 3. Average Age of Credit File: 15% <ul><ul><li>The longer the history, the better </li></ul></ul><ul><ul><li>Hold onto old credit cards </li></ul></ul>
  35. 35. 3. Average Age of Credit File: 15% <ul><ul><li>The longer the history, the better </li></ul></ul><ul><ul><li>Hold onto old credit cards </li></ul></ul><ul><ul><li>Piggyback off Mom to get history </li></ul></ul>
  36. 36. 4. The Mix of Credit … 10% of Credit Score
  37. 37. 4. Mix of Credit: 10% of Credit Score <ul><ul><li>A mixture is best </li></ul></ul>
  38. 38. 4. Mix of Credit: 10% of Credit Score <ul><ul><li>A mixture is best </li></ul></ul><ul><ul><li>3 to 5 revolving credit cards </li></ul></ul>
  39. 39. 4. Mix of Credit: 10% of Credit Score <ul><ul><li>A mixture is best </li></ul></ul><ul><ul><li>3 to 5 revolving credit cards </li></ul></ul><ul><ul><li>A mortgage account </li></ul></ul>
  40. 40. 4. Mix of Credit: 10% of Credit Score <ul><ul><li>A mixture is best </li></ul></ul><ul><ul><li>3 to 5 revolving credit cards </li></ul></ul><ul><ul><li>A mortgage account </li></ul></ul><ul><ul><li>Auto loan </li></ul></ul>
  41. 41. 4. Mix of Credit: 10% of Credit Score <ul><ul><li>A mixture is best </li></ul></ul><ul><ul><li>3 to 5 revolving credit cards </li></ul></ul><ul><ul><li>A mortgage account </li></ul></ul><ul><ul><li>Auto loan </li></ul></ul><ul><ul><li>Equity lines of credit </li></ul></ul>
  42. 42. 5. Inquiries … 10% of Credit Score
  43. 43. 5. Inquiries: 10% of Credit Score <ul><ul><li>Inquiries affect the score for 1 year </li></ul></ul>
  44. 44. 5. Inquiries: 10% of Credit Score <ul><ul><li>Inquiries affect the score for 1 year </li></ul></ul><ul><ul><li>Inquiries can cost 0 – 50 points </li></ul></ul>
  45. 45. 5. Inquiries: 10% of Credit Score <ul><ul><li>Inquiries affect the score for 1 year </li></ul></ul><ul><ul><li>Inquiries can cost 0 – 50 points </li></ul></ul><ul><ul><li>Score is only reduced for 1st 10 inquiries </li></ul></ul>
  46. 46. 5. Inquiries: 10% of Credit Score <ul><ul><li>Inquiries affect the score for 1 year </li></ul></ul><ul><ul><li>Inquiries can cost 0 – 50 points </li></ul></ul><ul><ul><li>Score is only reduced for 1st 10 inquiries </li></ul></ul><ul><ul><li>Auto & mortgage inquiries </li></ul></ul><ul><ul><li>… have a 30 day buffer period </li></ul></ul><ul><ul><li>… within a 45 day period are treated as 1 </li></ul></ul>
  47. 47. 5. Inquiries: 10% of Credit Score <ul><ul><li>Inquiries affect the score for 1 year </li></ul></ul><ul><ul><li>Inquiries can cost 0 – 50 points </li></ul></ul><ul><ul><li>Score is only reduced for 1st 10 inquiries </li></ul></ul><ul><ul><li>Auto & mortgage inquiries </li></ul></ul><ul><ul><li>… have a 30 day buffer period </li></ul></ul><ul><ul><li>… within a 45 day period are treated as 1 </li></ul></ul><ul><ul><li>Many inquiries don’t count </li></ul></ul><ul><ul><li>… personal </li></ul></ul><ul><ul><ul><li>… promotional & job related </li></ul></ul></ul><ul><ul><ul><li>… insurance & account reviews </li></ul></ul></ul>
  48. 48. Credit Score Components <ul><li>Past Delinquencies </li></ul><ul><li>Debt Ratio </li></ul><ul><li>Average Age of File </li></ul><ul><li>Mix of Credit </li></ul><ul><li>Inquiries </li></ul>
  49. 49. CREDIT SCORE! Now you Know!

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