Understanding your credit score What is a credit score? Why is it important?

Target What determines credit character? Identify the components of a credit score. Recognize the importance of having good credit. What number range indicates EXCELLENT credit?

What is a credit score?

What is a credit score? 3-digit number used to determine an individuals credit worthiness

What factors determine your credit score? Payment History-35% Amount of money owed- 30% Length of credit history- 15% Credit Mix- 10% New Credit-10%

What are the scores? Everyone starts out with no credit score. Average-687 3 agencies report credit scores: Experian, Transunion, & Equifax

Activity: Categorize the statements given by determining what is “true” and “false” regarding your credit score. TRUE FALSE

Why are scores important? Determines whether or not you qualify for a loan Upon qualifying it determines how much you will pay for the loan via interest. http://www.myfico.com/crediteducation/calculators/loanrates.aspx Insurance companies may use the information to decide whether you can get insurance and to set the rates you will pay. Employers may use your credit report, if you give them permission to do so, to decide whether to hire you. Telephone and utility companies may use information in your credit report to decide whether to provide services to you. Landlords may use the information to determine whether to rent an apartment to you.

Terms to Know Credit Reports- Summary of the factors that affect your credit; 3 Major Reports (TransUnion, Equifax, Experian) The Fair Credit Reporting Act (FCRA) requires each credit reporting agency to provide you with a free credit report once a year. Delinquency- failure to pay an outstanding debt Collections- long term outstanding debts are sold to separate agencies in order to collect Bankruptcy- a legal status in which a person can not repay the debts it owes to creditors Inquiries- legitimate businesses check your credit

How do they effect your credit? Delinquency: Each time you are 30-60-90 days behind on a payment it is reported to the credit agency and a deduction occurs. Collections: Once a delinquent debt is sent to collections it takes 7 years to fall off your report. (These REALLY hurt you!) Bankruptcy: Wipes away debt (+), remains on credit report for 7-10 years, difficult to obtain any form of loan, can lead to a 100 pt or more deduction in score Inquiries: “Soft” inquiries have a minimal effect; “Hard” inquiries (applying for lots of credit cards) has a strong effect.

5 C’s of Credit http://www.investopedia.com/terms/f/five-c-credit.asp Watch video and define with detail the following: Character- Capacity- Collateral- Conditions- Capital-

5 C’s of Credit Character- Primarily determined by your credit score, includes past foreclosures, evictions, repossessions Capacity- Ability to repay a debt Collateral- Property used to secure the loan Conditions- Employment history; current market conditions; interest rates Capital- How much risk is the borrower willing to take?

Article Review Read the article titled, “5 Reasons Your Credit Score Is More Important Than Your GPA” 1. 2. 5. 4. 3.

Exit Ticket (True/False) If you make a late payment, it could have a negative affect on your score. (True/False) Landlords may use your credit score to determine rental eligibility. (True/False) For your class credit score project- a tardy, excused or unexcused, results in a negative mark. Once a debt is sent to collections how many years does it take to fall off your credit report? What is the average credit score in the United States?