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Credit Reports andScoresTake Charge

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Credit Process

Borrower• Someone who receives

something with the promise to return it or to repay what is borrowed

Lender•Person or organization who makes funds available for others to borrow

Credit History• Record of the

borrower’s past loan and credit-related transactions

Credit – goods, services, and/or money received in exchange for a promise to pay back a definite sum of money at a future date

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 3Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

How Credit Reports are Created

Credit Reports

Record, created by a CRA, of an individual’s credit history

Credit Report Agencies (CRA’s)Keep a record of a consumer’s account history (credit history)

LenderReports a consumer’s account history to CRA’s

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Credit Reporting Agencies

Three U.S. Agencies: - Equifax

- Experian - TransUnion

A person’s credit report may vary

across the three CRA’s

If credit has never been used (or reported) an

individual will not have a credit report

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© Take Charge Today – August 2013 – Credit Reports and Scores– Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Information in a Credit Report

Consumer (personal) Information

Credit Account Information

Public Record Information Inquiry Information

Four Categories

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© Take Charge Today – August 2013 – Credit Reports and Scores– Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Consumer (personal) Information

Information provided to lenders when applying for

credit

• Name• Current and previous addresses• Telephone number• Full or partial social security

number• Date of birth• Employment history

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Credit Account InformationSpecific information about each credit account

you have or have had

Types of Information

Type of Credit

Loan Amount or Credit Limit

Date Account Balance

Payment Information

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Types of CreditClosed-end credit

(installment)Open-end credit

(revolving)

Definition Borrower must repay the amount in a

specified number of equal payments

Extended as a line of credit established in

advance

Features Usually has a contract outlining repayment

terms

Borrower chooses how much to pay

Examples Automobile loans Education loans

Mortgages

Credit cards

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Public Records

Collection Agencies

• Businesses hired by lenders to pursue payments on debts not paid back according to contract terms

Bankruptcy

• When an individual or business is not able to repay outstanding debts

Tax liens

• Taxes not paid in full

Foreclosure

• Borrower fails to keep up with mortgage payments and the lender takes possession of the property

Information from federal, state and county public court records

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Inquiry InformationRequests for an individual’s credit report

• Must be a result of actions by the consumer Or

• Be a result of a permissible purpose

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Inquiry Information

Potentially Negative – hard credit check

• Seeking additional credit

Typically No Impact – soft credit check

• Impact is reduced if shopping for the same type of loan within a 14-day period

• Inquiries not initiated by you – pre-approved credit card

• Inquiries not related to credit – pre-employment check

• Checking your own report

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Types of Lenders Who Report to CRA’s

Depository institutions

Credit card companies

Retail stores that offer credit accounts

Mortgage and finance companies

Lenders usually report all

information,positive and

negative

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Types of Data Furnishers Who Report to CRA’s

Landlords Cell phone companies

Utility accountsMedical providers

(payment information only)

Typically only report when

money is owed to them

CRA’s are encouraging regular payment information to be reported to help consumers build a positive credit history.

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Information Not in a

Credit Report

Medical information about where the person was treated and for what

Race & Gender

Religion & Nationality

Non-credit depository institution accounts

Criminal background

Buying habits

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 15Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Your Present Self Impacts Your Future Self

Some items remain on your credit

report longer than others

Always Accounts in

good standing

10 yearsClosed

accounts in good

standing

7 yearsLate or missed

payments

7-10 yearsPublic record information

2 yearsInquiries

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Credit Score

Reflects information in the entire credit report

At a particular

point in time

Numeric “grade” of a consumer’s

financial reliability

Examples: Fair Isaac, Corp (FICO) and

VantageScore

Mathematical number created to

help a lender evaluate the risk associated with

lending a consumer money

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Take Charge Today – August 2013 – Credit Reports and Scores– Slide 17Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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© Take Charge Today – August 2013 – Credit Reports and Scores– Slide 18Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Credit ScoresMost common scoring systems are produced by

credit reporting agencies:

Generally, higher score = higher chance of credit repayment

How the score is calculated depends on the credit scoring model

Scoring System Score RangeFICO 300 - 850

VantageScore 501 - 990

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 19Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Credit Score Impact

EXAMPLE: $15,000 LOAN (3 YEAR FIXED AUTOMOBILE)

FICO ScoreInterest Rate Monthly

Payment3 Year Amount

$2,124 can be saved over the lifetime of this loan because of a good credit score!

Credit history helps a lender determine the terms of credit granted

730 6.16% $457 $16,452

660 8.77% $475 $17,100

590 14.43% $516 $18,576

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 20Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Credit History Affects More than Credit

Insurance Rates Employment

Public Utility Services Housing

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 21Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Positive Credit HistoryPay your bills

consistently and on time

Maintain reasonable amounts of

available credit

Apply for credit sparingly

Have a mix of different types

of credit accounts

Do not have too many of one

type of account

Check your credit report

annuallyPositive Credit History

Higher Credit Score

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Take Charge Today – August 2013 – Credit Reports and Scores– Slide 22Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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Take Charge Today – August 2013 – Credit Reports and Scores– Slide 25Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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Take Charge Today – August 2013 – Credit Reports and Scores– Slide 26Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 28Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Strategies to Build Credit

Small closed-end loan

• From a depository institution

• Set up automatic payments

Credit card with a co-

signer

• Co-signer – person who is equally responsible for paying back debt

Secured credit card

• Requires a cash security deposit

• Ensures the credit card company will be paid

Authorized user on a

credit card

• Authorized user is not legally responsible for the debt but they will build a credit history

Acquire and positively manage small lines of credit

Having no credit history may be just as challenging to a consumer as having a negative history

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 29Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Requesting a Credit ReportOne free credit report annually from each of the three credit

reporting agencies

Important to request your report even if you have not used credit

If denied credit, the applicant can request a free copy within

60 days

Only government-sponsored free website

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 30Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Accessing Your Credit Score

Must be ordered separately Usually costs a fee

The 3 CRA’s are the primary source

Scores may differ between each CRA

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 31Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

If an Error is Found

Contact the CRA &

company that provided the

incorrect information

Credit agency has 30 days

to investigate

If error found, correct

information must be

provided to all three

CRA’s

If dispute is not resolved,

consumer may add a

dispute statement to their report

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© Take Charge Today – August 2013– Credit Reports and Scores– Slide 32Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Summary

• Used to assess financial risk

Credit history

• Enables lenders to make more objective lending decisions

Credit score • To develop a positive credit history

Manage your money

responsibly

Your Present Self Impacts Your Future Self