1. Understanding Credit We Will:
Understanding how credit scores are determined.
Understanding how consumers actions impact their credit scores.
Understand what a FICO Score is and why is it important that we have a “good” credit score?
I Will:
Identify 3 important ways in which credit can affect my life

2. What is a credit score?
Your credit score is a number based on the information in your credit file that shows how likely you are to pay a loan back on time - the higher your score, the less risk you represent.

3. What is a credit score?
When you’re applying for credit– Whether it’s a credit card, a car loan, a personal loan or a mortgage – lenders want to know your credit risk level.

4. Video: How to build credit from scratch

5. Let’s Assess… What is a credit score?
What does your credit score represent to lenders?

6. What is a FICO Score?
A FICO score is a credit rating developed by Fair Isaac & Company.
Method was developed in the late 1950’s and is now widely accepted by lenders, insurance companies, employers, landlords, and others as a reliable means of credit evaluation.

7. What is a FICO Score?
FICO scores are 3 digit numbers ranging from U.S. Median: 723, < 620 = sub prime
A person has 3 different FICO scores from three different credit bureaus.

8. The Three Credit Bureaus
Equifax
Experian
TransUnion
Each bureau produces a number based on scoring models and mathematical tables.
These numbers are not necessarily the same due to the different methods used by each bureau.
Most lenders use the middle score of the three as the recognized credit score.

9. Why Credit is Important
FICO or credit score:
Credit Card Issuers & Lenders
Determine APR
Auto Insurers
Determine Premium
Employers
Are you a worthy hire?
Landlords
Are you a reliable tenant?

10. How does it affect me? … APR
% $1,289
% $1,320
% $1,345
% $1,376
% $1,437
% $1,517
The lower your credit score the more you pay for loans and auto insurance

11. How does it affect me? Employment Decisions
According to the federal Fair Credit Reporting Act (FCRA), a company has the right to obtain credit reports and use that information when considering a candidate for a position in which the information may be applicable,
such as jobs that require an employee to handle a significant amount of money or
deal with sensitive information.

12. Lets Assess…
List three ways your credit score can impact you

13. Video: Building credit and keeping your healthy

14. What is in your score?

15. What is in your score? 1. Payment History (35%)
Number of past due items on file.
Severity of delinquency (how long past due)
Presence of adverse public records (bankruptcy, suits, liens, delinquency)
7 years for bad credit, late payments or collections.
Lawsuits and judgments 10 years or until the statute of limitations runs out in the state. 3 years for inquiries.
BANKRUPTCY'
A legal proceeding involving a person or business that is unable to repay outstanding debts.
Definition: a legal process in which a debtor asks the court for relief from its creditors and lenders. After the debtor has filed for bankruptcy the court will either discharge the debts, propose a payment plan, or dismiss the case. Bankruptcy remains on your credit report for up to 10 years from the date you file.
LIen: a legal claim that someone or something has on the property of another person until a debt has been paid back

16. What is in your score? Amounts Owed (30%)
Amount owed on accounts.
Number of accounts with outstanding balances.
Proportion of credit lines used (How much credit is tied up in credit cards)
Proportion of installment loans (How much do you have left to pay on specific loans)
Length Of Credit History (15%)
Time since accounts opened
How long it has been since you used certain accounts.

17. What is in your score? 4. New Credit (10 %)
How many new accounts you have. (how many newly opened credit cards)
How long it has been since you opened a new account
Length of time since credit report inquires were made by lenders.
5. Types of Credit in Use (10 %)
Is it a healthy mix?
Do you have a mix of credit cards, installment loans, and mortgage loans.
What kinds of credit accounts you have.

18. What’s in Your Credit Report?
Personal Information:
Name, address, Social Security number
Accounts:
Type of accounts: bankcard, auto loan, mortgage, the date you opened the account, your credit limit, payment history
Inquiries:
When you apply for a loan, you authorize your lender to ask for a copy of your credit report
Negative Items
Lenders report delinquency information when you have missed a payment. Overdue debt from collection agencies.

19. What FICO Score Ignores:
Your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from considering these facts Your age. Other types of scores may consider your age, but FICO® Scores don’t. Your salary, occupation, title, employer, date employed or employment history. Lenders may consider this information Where you live. Any interest rate being charged on a particular credit card or other account. Any items reported as child/family support obligations

20. What’s Not Included in Your FICO Score
Certain types of inquiries
(requests for your credit report or score).
Your FICO® Score does not count any inquiries you initiate, any inquiries from employers, or any inquiries lenders make without your knowledge.
Any information not found in your credit report.
Any information that is not proven to be predictive of future credit performance.

21. Protect Your Credit
Order and review your credit reports looking for information you do not recognize.
If you see fraudulent activity you should file a dispute with the credit bureaus.
If you believe a thief is opening credit in your name, you might want to consider a fraud alert or credit freeze.

22. Summary
Your FICO Score is based on a snapshot of information in your credit report at a point in time.
Your FICO Score can change whenever your credit reports change.
Bankruptcy or late payments can lower your FICO Score fast, improving your score takes time.
Check your credit report for free at least once a year.
Don’t close credit cards or open too many in a short period of time.

23. Let’s Assess…
Describe why it is important to check all three credit reports?
What are three ways a consumer can harm his/her credit score?
What should you do if you find incorrect or fraudulent activity on your credit report?

24. Review Video: How FICO Credit Score is Determined

25. How to Get Your Score Three Credit Scores $15.95 each
1) TransUnion
2) Experian
3) Equifax
$15.95 each
$47.85 (all three & includes report) or
Under the Fair and Accurate Credit Transactions Act of 2003, all consumers will be entitled to free annual credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion.
Source: Consumer Reports, ““Free" credit reports for sale,” August 2005.
What's more, the credit scores being touted often aren't the same as the FICO scores used by most lenders. Mortgage brokers and lending officers complain that the "consumer education" scores often sold by two of the bureaus, Experian and TransUnion, can be 30 to 100 points higher than the consumers' actual FICO scores.
Source: Pulliam-Weston, Liz, “Demand Your FICO Score Now!,” MSN Money, October 9, 2006.
© 2006 Consumer Jungle

26. How to Get Your Credit Report
1 Free Report each year by each credit bureau:
TransUnion
Experian
Equifax
Order once from all three companies (or)
Order every 4 months from a different company
Credit Report: A document containing financial information about a person, focusing on his or her history of paying obligations, such as a mortgage, car payment, utilities, and credit cards. Also includes current balances on outstanding debts, the individual's amount of available credit, public records such as bankruptcies, and inquiries about credit from various companies.
Credit Bureau: A business that collects and sells information about how consumers repay debt.
Visit the government-mandated site at which is run by the credit bureaus.
Under the Fair and Accurate Credit Transactions Act of 2003, all consumers will be entitled to free annual credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion. The reports do not include FICO scores.
Be careful not to sign up to pay for any credit-monitoring service. The websites are not always straightforward about discerning the free credit report from other services or products that they charge for.
Source: Consumer Reports, ““Free" credit reports for sale,” August 2005.
© 2006 Consumer Jungle

27. Duration of Info on Report
Trade: Sears, Macy’s
7 years from last activity
Judgments or liens
7 years from filing.
Chapter 7 Bankruptcy
10 years
Medical: case by case
The following shows how long information stays on your credit report:
Trade (Sears, Nordstrom’s, Macy's, etc.) credit card companies or collections agencies stay on credit report for 7 years from date of last activity.
Judgments or liens stay on credit report for 7 years from date it is filed.
Chapter 7 bankruptcy stays on for 10 years.
Medical is difficult and has to be handled case by case.
© 2006 Consumer Jungle