1. Credit Scoring Beyond the Numbers MASFAA Conference 2006

2. Presenter Sean KileyVice President of Operations for Key Education Resources

3. Goals of Presentation Improve your understanding of credit scoring  Historical perspective  Calculation  Types  Usage Demonstrate validity of credit score utilization Increase awareness for the need to manage your credit Provide resources to manage your credit

4. Facts and Myths of Credit Scoring Take the test True or False ?  Closing accounts will increase your CB score  Checking your own score will decrease your CB Score  Credit Counseling will decrease your CB score  Paying all of your debts on time will ensure your CB Score is the highest it can be.  Lenders look at more than 1 score to evaluate borrowers GROUP SCORE: ??

5. History of Credit Scoring: Subjective Lending Lenders relied on subjective factors to make decisions Intuitive measures Results were slow, inconsistent and unreliable

6. History of Credit Scoring: Point Systems ItemPts Income1 Employed1 References1 Debt Ratio < 40%1 $10K on deposit1 Total5 Standardization and point system arose to eliminate human bias, but were still tied to intuitive measures

7. History of Credit Scoring: Predictive Scoring Models Credit scoring was invented in the 1950s by Fair, Isaac Inc. In mid 1980s, credit granting took a giant leap forward when statistical models were built that considered numerous variables and combinations of variables.

8. What Is Credit Scoring ? Credit Scoring is a system used to facilitate decision making. Method of converting large amounts of difficult to compare data into a single point score that facilitates comparison Process of analyzing past performance trends to predict future performance

9. How Is a Credit Scoring Model Developed Analysis of a large set of consumers (>= 1 Million) Identification of common variables that define behavior Statistical models are then built that assign weights to each variable Adding all variables combines to make an individual score

10. Types of Credit Scoring Classic FICO Equifax Bankruptcy Navigator Index Experian: Scorex Plus NextGen FICO Industry Specific Risk Models (auto, credit card) Custom credit scoring Vantage

11. Alternative Credit Scoring MarketMax (Equifax) Crossview (Experian)

12. Scoring Model Example FICO Classic FICO Score Developed by Fair, Isaac Inc. All 3 major credit reporting agencies utilize score  BeaconEquifax  Empirca TransUnion  ExperianExperian Score range between 300 – 850 Median = 723

13. What Is Your FICO Credit Score? Forecast of how well you will repay a loan as agreed during the next 24 months – the higher the score, the better the forecast that you will repay Snapshot of your credit history at a particular point in time Only includes factors related to an individual’s credit Always changing

14. What FICO Credit Scoring is Not Race, color, religion, national origin, sex or marital status Your age Your employment information Where you live Non-credit inquiries Any information not found in your credit

15. FICO Credit Score Components CB Score History of Payments Amount Owed Types of Credit In Use Level of New Credit Length of Credit History

16. FICO Credit Score Component Weighting

17. Credit Statistics: National Averages

18. FICO Credit Scoring Top 10 Factors Serious delinquency Serious delinquency and public record Derogatory public record Time since delinquency is too recent Level of delinquency on accounts Number of accounts with delinquency Amount owed on accounts Balances to credit limits on revolving accounts too high Length of time accounts have been established Too many accounts with balances

19. National Distribution of FICO Scores

20. Why Use Credit Scoring? Speed Consistency Objectivity Cost Effectiveness Reliability Strong Analytical Support Supports increased lending > 90% of Top largest financial institutions use score to make billions of credit decisions annually

21. Reliability of FICO Scoring Validation Graph

22. Validation of Major FICO Score Ranges

23. Credit Scoring Utilization in Education Industry Credit Scoring is a system used to facilitate decision making. Lending decisionCredit Servicing decisionForbearance Collection decisionLevels Marketing decisionPre-approvals

24. Why You Want to Manage Your Credit Because it is widely used to make decisions about you: Lenders Landlords Insurance Employers Government Licensing

25. What do you get out of it? Easier access to credit Lower rates Savings A 30 point average score increase nationwide would translate into a $16 billion savings in credit card finance charges alone.

26. Managing Your Credit Fixing Errors  Obtain your credit reports)  Gather information to validate dispute  Dispute with Credit Bureaus / Dispute with Creditor  Follow-up

27. Managing Your Credit Fixing Errors – Cont. Document discrepancies in letter to the credit agency detailing: Name, address, SSN Account and account #’s disputing The information you are disputing and why Any documentation to support your claim A request for an updated credit report reflecting the correct information

28. Getting Your Credit Report 2003 Fair and Accurate Credit Transactions Act (FACT ACT) Annual Credit Report.COM (877) FACTACT Must provide free if denied credit within 60 days Review for accuracy annually Dispute incorrect information

29. Resources for Credit Bureaus and FICO Scores Experian 1(888)397-3742 www.experian.com CBI/Equifax 1(800)685-1111 www.equifax.com MYFICO.COM TransUnion Corp 1(800)888-4213 www.transunion.com ANNUALCREDIT REPORT.COM

30. Credit Bureau and Credit Score Example Equifax Credit Bureau FICO CB Score: Beacon  Major factors Negative Tradelines Public Records Debt Score

31. Credit Scores & Mortgage Rates: Massachusetts

32. Credit Scores & Mortgage Rates: Iowa

33. Credit Summary Pay bills on time Manage your debt load appropriately Review your credit Repeat

34. Questions MASFAA Conference 2006