Presented by: Lynne A. Coverdale, MBA 05/16/2017 Credit Scores How They Impact Your Financial Success Presented by: Lynne A. Coverdale, MBA Salin Bank & Trust Company l.coverdale@salin.com

Outline Background Components of a Credit Report Users of Credit Data 05/16/2017 Background Components of a Credit Report Users of Credit Data Uses Credit Score Factors Credit Score Impact Fact or Myth Tips to Avoid Identity Incorporate Credit Information in Annual Review FAQs Helpful Websites Q & A and Thank you!

Background What is a credit score? 05/16/2017 What is a credit score? A mathematical analysis of the components that make up ones credit represented by a number

Background 05/16/2017 The FICO stands for Fair Isaac and Co., a company founded in 1956 by Bill Fair, an engineer, and Earl Isaac, a mathematician In 1981 – FICO introduced the first credit bureau risk score By 1991 all three credit bureaus were using the FICO credit bureau scores as their standard procedure The three bureaus: Experian, TransUnion and Equifax Experian score: FICO® (Experian) Transunion score: Classic Score formerly called Emperica Equifax score: Beacon

Background 05/16/2017 In 1993 – the first insurance bureau score is introduced for the insurance industry Early 90s – mortgage lenders and banks are using credit scores for lending decisions in some cases In 1995 – Fannie Mae and Freddie Mac recommend use of “FICO” scores for evaluating US mortgage loans

Background 05/16/2017 2001 to today – credit score usage expands into a variety of industries, credit score education is prevalent The range of scores for each of the bureaus is roughly 300 – 850 Equifax: 334 – 818 Experian: 320 – 844 Transunion: 309 - 839 The higher the score - the better Examples: better rate, lower insurance cost, obtain a job offer

Background 05/16/2017 Need to include tools for them to share the info with their clients Perhaps bring a cross shredder in with me for an example for identity theft and trash bag and solicitation of credit card from mail

Components of a Credit Report 05/16/2017 Identifying information Your name, and previous names Address history Social security number Date of birth Employment information Requestor’s identifying information Name Address Contact Tradelines Current accounts open with or without a balance Closed accounts Paid-off accounts History of tradelines

Components of a Credit Report 05/16/2017 Public records Judgments Bankruptcies Foreclosures Liens such as tax liens Satisfactions Inquiries Typically reported for the last 90 – 120 days Credit Scores Score from each bureau ordered Key 3 -5 factors that adversely affected the score

Components of a Credit Report 05/16/2017 Specific to Mortgage Credit Reports ID Cross Check Compares social security number provided to social security number on record for each bureau, also compares to SSA issuance date and SSA death master Compares current address provided to address history for each bureau Checks birthdate of record Identity index provided The higher the index, the better – the more the consumer’s identity was verified

Components of a Credit Report 05/16/2017 Sample Credit Report

Components of a Credit Report 05/16/2017 Sample Credit Report

Components of a Credit Report 05/16/2017 Sample Credit Report

Components of a Credit Report 05/16/2017 Sample Credit Report

Components of a Credit Report 05/16/2017 Sample Credit Report

Components of a Credit Report 05/16/2017 Sample Credit Report

Users of Credit Data Consumer Lenders 05/16/2017 Consumer Lenders Banks Credit unions Auto finance companies Mortgage Bankers, Mortgage Brokers Commercial and Business Lenders Other Companies Insurance companies Prospective employers Landlords US Government

Users of Credit Data Insurance Example from Consumer Reports 05/16/2017 Insurance Example from Consumer Reports

Users of Credit Data Insurance Example from Consumer Reports 05/16/2017 Insurance Example from Consumer Reports

Uses 05/16/2017 Credit reports and credit scores are accessed and evaluated to aid in decisions such as: Consumer Loans Auto loans RV loans Personal loans Lines of credit Credit cards Mortgage Loans First mortgages Second mortgages (fixed) Home equity lines of credit (revolving)

Uses 05/16/2017 Credit reports and credit scores are accessed and evaluated to aid in decisions such as: Commercial Loans Small business loans Large business loans Business lines of credit Other uses Insurance companies Insurance for autos, homes, businesses, personal property Prospective employers Possible employment opportunities Background checks Landlords Apartment or home rentals US Government Special projects Employment

Credit Score Factors The number and types of accounts you have 05/16/2017 The number and types of accounts you have Credit cards, auto loans, mortgages, other installment loans Credit payment history Paid on time? Paid late? Not paid? Percentage of available credit you are using versus available credit Age of accounts Derogatory accounts/ history

Credit Score Factors Payment history (35%) Amounts owed (30%) 05/16/2017 Payment history (35%) Paid on time? Paid late? Not paid? Amounts owed (30%) Amount owed versus amount available Length of credit history (15%) The number and types of accounts (10%) Credit cards, auto loans, mortgages, other installment loans Inquiries/new credit (10%) Source My Fico

Credit Score Factors 05/16/2017 Source: myFICO

Credit Score Factors 05/16/2017 Source NerdWallet, Inc

Credit Score Factors Credit score detail 05/16/2017 Credit score detail A person has a score of 700 which consists of: 35% = 245 points for Payment history 30% = 210 points for Amounts owed $4,000 balance on a $5,000 credit card 15% = 105 points for Length of credit history Had old history but just closed out the oldest accounts 10% = 70 points for Types of credit 10% = 70 points for New credit/ inquiries

Credit Score Factors Credit score detail 05/16/2017 Credit score detail A person has a score of 740which consists of: 35% = 259 points for Payment history 30% = 222 points for Amounts owed $450 balance on a $5,000 credit card 15% = 111 points for Length of credit history Did not close out any old accounts 10% = 74 points for Types of credit 10% = 74 points for New credit/ inquiries

Credit Score Impact Loan Level Price Adjustment Chart Fannie Mae 05/16/2017 Loan Level Price Adjustment Chart Fannie Mae

Credit Score Impact Loan Level Price Adjustment Chart Freddie Mac 05/16/2017 Loan Level Price Adjustment Chart Freddie Mac

Credit Score impact Mortgage example 95% LTV (5% down) purchase: 05/16/2017 Mortgage example 95% LTV (5% down) purchase: Credit score 680 $200,000.00 loan on 30 year fixed Loan Level Pricing Adjustment (LLPA) 1.0% Rate: 4.25% (983.88 PI) PMI: 1.08% ($180.00 private mortgage insurance - PMI) Principal and interest and PMI: $1,163.88 Credit score 700 $200,000 loan on 30 year fixed Loan Level Pricing Adjustment (LLPA) 1.00% Rate: 4.25% ($983.88) offers .25% x loan amount credit PMI: .70% ($116.67) Principal and interest and PMI: $1,100.55 Credit score 740 Loan Level Pricing Adjustment (LLPA) .25% Rate: 4.125% ($969.30) offers .25% x loan amount credit PMI: .35% ($58.33) Principal and interest and PMI: $1,027.63

Credit Score impact Mortgage example 95% LTV (5% down) purchase: 05/16/2017 Mortgage example 95% LTV (5% down) purchase: Credit score 680 $200,000.00 loan on 30 year fixed Principal and interest and private mortgage insurance(PMI): $1,163.88 PMI of $180 per month drops off at the 107th payment (78% of original price/value) PMI total for 107 months = $19,260 This is $121.67 more in PMI than the payment with 740 credit score $121.67 x 107 = $13,018.69 more than the 740 PMI total for 107 months Credit score 700 $200,000 loan on 30 year fixed PMI is $116.67 per month x 107 months = $12,483.69 This is $6,242 more over 107 months than the 740 score PMI Credit score 740 PMI is $58.33 per month x 107 months = $6,241.31

Credit Score impact 05/16/2017 Mortgage example 95% LTV (5% down) purchase with 740 score versus 20% down – which is better?: Credit score 740 $200,000 loan on 30 year fixed Loan Level Pricing Adjustment (LLPA) .25% Rate: 4.125% ($969.30) offers .25% x loan amount credit PMI: .35% ($58.33) Principal and interest and PMI: $1,027.63 PMI is $58.33 per month x 107 months = $6,241.31 IF this client had 20% to put down, the PI payment would have been: $816.54 and of course no PMI Assuming your client could make the $1,027.63 payment ($211.09 higher per month) and had the 20% down Question – is it better to put the 20% down or put 5% down and have PMI? Let’s explore the possibilities

Credit Score impact 05/16/2017 Mortgage example 95% LTV (5% down) purchase versus 20% down – which is better: They save $31,590 that you can invest for them Are they better off putting down just 5% and earning/saving more between the earnings (savings growth) on the money you invest for them and the additional interest write off with the higher loan amount and potential mortgage insurance write off?

Credit Score impact 05/16/2017 Mortgage example 95% LTV (5% down) purchase versus 20% down – which is better: 95% interest 95% PMI $58.33 x 12 months = $699.96 per year and is deductible IF the person makes under $100,000 per year income and partially deductible up to $110,000.00 per year income 80% interest

Credit Score impact Mortgage example 80% LTV (20% down) purchase: 05/16/2017 Mortgage example 80% LTV (20% down) purchase: Credit score 680 $320,000.00 loan on 30 year fixed Loan Level Pricing Adjustment (LLPA) 1.75% Rate: 4.375% Principal and interest: $1,597.71 Credit score 700 $320,000.00 loan on 30 year fixed Loan Level Pricing Adjustment (LLPA) 1.25% Rate: 4.250% Principal and interest: $1,574.21 Credit score 740 Loan Level Pricing Adjustment (LLPA) .50% Rate: 4.125% Principal and interest: $1,550.88

Credit Score impact Mortgage example 80% LTV (20% down) purchase: 05/16/2017 Mortgage example 80% LTV (20% down) purchase:

Credit Score impact 05/16/2017 Source : NerdWallet, Inc

Credit Score impact 05/16/2017 Source : VantageScore

Fact or Myth Fact or Myth: 05/16/2017 Fact or Myth: Not having credit is the best strategy for credit scores? Credit Scores are fixed for a year? Opening a new account does not affect your score? Using the majority of your credit line is a great strategy to build your credit? Not having revolving credit will insure your credit score is the highest? You should always close out accounts that you don’t use?

Fact or Myth Fact or Myth: 05/16/2017 Fact or Myth: Each creditor sends payment information to each of the 3 bureaus? Having no more than 30% of your credit lines outstanding is a good strategy to maximize credit scores? Opening a credit card is a good idea to establish credit? Being added on as an authorized user to a persons credit card is all one needs to do to establish credit? Inquiries into your credit make a huge impact on your credit scores? Scores are the same for each credit bureau?

Tips to Avoid Identity Theft 05/16/2017 Shred Shred Shred Opt-out of unwanted mail and solicitations Get on do not call list Don’t give passwords or personal information over the phone Protect your passwords Change them – make them complicated – use password software for storage Keep personal information secure and offline If online – make sure it is safe, secure, encrypted, password protected Vacation hold for mail, or have mail picked up by trustworthy neighbor, family member, or friend Trash receptacles back from front of house same day Use the “BLUE BOX” Don’t overshare on social media sites

Tips to Avoid Identity Theft 05/16/2017 Lock up your laptop Be careful when you use Wi-Fi in public areas Perhaps use your own personal hotspot Avoid phishing emails Example: Results “annual credit” search

Tips to Avoid Identity Theft 05/16/2017 Freeze your credit reports Place a security freeze (aka credit freeze) on your credit reports To unfreeze you need to Remember your pin # Go to each site and request report be unfrozen Specify length of time for report to be unfrozen

Incorporate Credit Information In the Annual Review 05/16/2017 Recommend that client orders his/her/their annual credit report Provide website as resource www.annualcreditreport.com Provide explanation on importance of maximizing one’s credit Provide reference tool(s) on components of one’s credit score Provide tips on ways to maximize credit scores Provide client with tips on how to protect one’s credit scores Perhaps provide them with a gift of a cross shredder Education on credit freezes Provide reference tool on contact numbers and websites

FAQs 05/16/2017 If I pay my credit card off monthly why did my credit score drop when I had a large purchase Example: $4,000 purchase on line amount of $5,000 What is the difference between a soft credit pull and a hard credit pull? How do I obtain a copy of my credit report? How can I stop the junk mail solicitations How do I dispute inaccurate information on my credit report? Why are my credit scores different?

Helpful Websites www.annualcreditreport.com www.donotcall.gov 05/16/2017 www.annualcreditreport.com www.donotcall.gov www.dmachoice.org http://www.ftc.gov/faq/consumer-protection www.experian.com www.equifax.com www.transunion.com www.myfico.com www.optoutprescreen.com  or 1-888-5-optout https://salin.mortgagewebcenter.com/Resources

Q & A and Thank you 05/16/2017 My contact information: Lynne Coverdale Salin Bank and Trust 8455 Keystone Crossing Dr. Indianapolis, IN 46240 317-452-8125 – direct 317-370-0016 – cell l.coverdale@salin.com www.Salin.mortgagewebcenter.com