Credit Reports & Scores Original author: Peggy Olive Richland County UW-Extension With Adaptations by Bridget Mouchon from WHPE power-point and other Extension resources.

All Credit is Not Equal

Good Credit vs. Bad Credit

Credit ties up future income for today’s expenses.

Managing Your Credit Every time you pay a bill (or don’t) it contributes to your credit history –Paying ‘slow’ or not at all is seen as a warning to other lenders –Signs of ‘Risky behavior’ –May result in Higher interest rates and fees More rejections of loans Smaller loan amounts

Credit Risk (to you & to lenders) 28/36 Rule A good credit risk when mortgage payments are below 28% of gross monthly income, and total debt payments are below 36%.

Types of Credit Revolving Credit Account Credit cards – MasterCard, Discover, Visa, JC Penney, etc. Charge Account Utilities, dentist, Diners Club, etc. Installment Loans Car loan, mortgage, student loan, payday loan, etc.

Secured vs. Unsecured Dischargeable vs. Non-dischargeable Types of Credit

Credit Cards vs. Debit Cards

Credit Cards Pros: Credit history Emergencies Perks Disputes $50 liability Cons: Interest rates Late fees Annual fee? Cash advance fees

Debit Cards Pros: No interest Quick cash Online purchases Cons: Fees Overlimit Point of sale Who’s ATM? Blocking $500 liability?

Pay Day Loans Rent to Own Car Title Loans Pawn Shops % % Rapid Tax Refund Anticipation Loans Subprime Types of Credit

Pay Day Loans The average loan is rolled over 4 times.

Making Minimum Payments on a Credit Card Balance: $1000 Annual Interest:18% Minimum Payment:3% or $30 Know How Much Today’s Credit Will Cost You Tomorrow

$ Payment # Interest New Balance = Payment # New Balance = Interest New Balance = Late Fee + $35 = $ Overlimit Fee + $35 = $

It will take 69 payments to pay off the $1000 original balance. The finance charge will be $ not including any late fees or over-limit charges. The original $1000 now costs $

Pop Quiz

What is a credit report?

A credit report tells… How you’ve paid your debts How much debt you have Whether you’ve made payments on time

What’s in your credit report?

Credit reports contain… Identifying information Credit history Inquiries Public record information

Credit reports DON’T contain…

Checking or savings account balances Income Medical history Purchases made with cash or checks Business account information Race, gender, religion, national origin Driving record

Who cares about your credit report? Creditors / Lenders Insurance Companies Landlords Employers Utility Companies Government Agencies YOU!

Credit Reporting Agencies Equifax Experian TransUnion

Getting your FREE Credit Report Consumers are entitled to receive one free credit file disclosure every 12 months from each of the nationwide consumer credit reporting companies.

FREE Credit Report Annual Credit Report Request Service PO Box Atlanta GA

Credit Report Sections 1.Personal Information 2.Public Records 3.Potentially negative items 4.Accounts in good standing 5.Optional Consumer Statement

Credit Report Sections 6.Special Messages 7.Hard Inquiries 8.Soft Inquiries 9.Directions to Correct Errors

Disputing Wrong Information on Credit Reports You can dispute mistakes or outdated items for free. Ask the credit-reporting agency for a dispute form or submit your dispute in writing, along with any supporting documentation. Do not send them original documents. If the reinvestigation does not resolve your dispute, have the credit bureau include your version of the dispute in your file and in future reports.

Fico Score most widely used Vantage Score – 3 Bureaus Many other “score” brands Credit Scores

Credit Scores Cont… A credit score is referred to as a FICO score. –Based on models developed by Fair Isaac Corporation. The models begin with information on your report, using it to calculate your score. Scores range from –The majority are between 600 and 800. –They vary from one credit bureau to another. Visit to get an estimate of your score.

What does my score mean? What is a good score? –The national average is 678. –This is often the minimum for receiving credit. A good credit score doesn’t just mean that you’ll get a loan, it also means you’ll pay less for it. A low FICO score may result in a credit card rate twice that of a high FICO score.

FICO Score Source: Fair Isaac Corporation

Factors That Determine Your Score Your Payment History –Lenders want to know how you have handled credit payments in the past. Amount You Owe and Your Available Credit –Shows the amount you owe on your mortgage, car loan, and all other outstanding debt, along with your total available credit.

Factors That Determine Your Score Length of Credit History –The longer the credit accounts have been opened, and the longer you have had accounts with the same creditor, the higher your credit score. Types of Credit Used –The wider the variety of credit, the higher the score. –Using different types of credit indicates you know how to handle your money.

Factors That Determine Your Score New Credit –New applications for credit will lower your score. –Those moving towards bankruptcy take all available credit to stay afloat.

To Purchase your Credit Score To Estimate your Credit Score under “calculators”

Catching up on credit payments: $ Don’t take on any new debt $ Use “PowerPay” strategy

“Power Pay” Concept Pay your credit payments as usual. When first loan is paid off apply that payment to the next loan. When loan two is paid off add that payment to the next loan. Continue this process until all loans are paid off. Utah State University Extension

Power Pay Strategy DiscoverMasterCardDoctor April$22$35 May$22$35 June$57$35$0 July$57$35--- August$57$35--- September$0$92--- October---$57$35 …and so on---$92$0

When you can’t pay bills... Act now! Financial Counseling