CREDIT REPORTS AND SCORES

If you borrowed money from a friend, what would she say about your responsibility in paying her back?

If you apply for a credit card, who does the credit card company consult to find out if you are a good credit risk?

Are you a good credit risk?

Consumer Reporting Agencies

The three consumer reporting agencies are:

CRAs keep track of your financial interactions in a credit report

TransUnion accessed by lenders in the Midwest

Sample Credit Report

(click picture to get to sample credit report)

Credit Report

Information contained in the credit report: Personal information—name, address, social

security number, date of birth Credit history—payments made and balances

due to creditors Public record information—late child support,

bankruptcy filings, if pursued by collection agencies because of not paying bills

Inquiries—Names of companies requesting a copy of the report

Credit Report

Information NOT on the credit report:

Checking and savings account balances Income Medical history Purchases made with cash or check Race, gender, religion, or national

origin Driving record

manner of payment codes

status type of account codeO Open (entire balance due each

month)R Revolving (payment amount

variable)I Installment (fixed number of

payments)

status timeliness of payment0 Approved not used; too new to rate1 Paid as agreed2 30+ days past due3 60+ days past due4 90+ days past due5 Pays or paid 120+ days past the due date; or

collection account6 Making regular payments under wage earner

plan or similar arrangement7 Repossession8 Charged off to bad debt

Consumer Reporting Agencies

A person can request one free credit report each year from each reporting agency (FACT Act)

How can you get a free credit report?

Did you see the pirate hat?

Consumer Reporting Agencies

Access one of these websites to get a FREE credit report

myfico.com annualcreditreport.com

Credit Score

FICO (Fair Isaac Corporation) score is a summary of the information on a consumer’s credit file

FICO score (credit score) is a single 3-digit number ranging from 300-850 which rank orders consumers according to risk

Credit Score—Fair IsaacWhat’s My Credit Score and How Do I Raise it?

Credit Score

Who has an 850 FICO score?

Table of FICO Credit Scores

% of US Population Credit Score2% 300 - 4995% 500 - 5498% 550 - 59912% 600 - 64915% 650 - 69918% 700 - 74927% 750 - 79913% 800 - 850

Source: http://www.money-zine.com/Financial-Planning/Debt-Consolidation/FICO-Credit-Scores/

Credit Score

Statistics: The median score in the U.S: 720 Average score: 692

27 percent have a score of 649 or below

58 percent of consumers have a credit score of 700 or higher

13 percent have a score 800 or above

Who has an 850 FICO score?

Five Areas of a FICO Score

Payment His-tory35%

Outstanding Debt30%

Credit His-tory Length

15%

Pursuit of New Credit

10%

Credit Mix10%

Five Areas of a FICO Score

Payment His-tory35%

Payment History (35%)

How recent is the most recent delinquency, collection, or public record item?

How severe was the worst delinquency—30 days, 90 days?

How many credit obligations have been delinquent?

Five Areas of a FICO Score

Payment His-tory35%

Outstanding Debt30%

Outstanding Debt (30%)

What percentage of available credit card limits is the consumer using?

Installment debt—number of open loans with balances

Five Areas of a FICO Score

Payment His-tory35%

Outstanding Debt30%

Credit His-tory Length

15%

Credit History Length (15%)

How long accounts have been established—average number of months accounts have been open

New accounts—number of months since most recent account was opened

Five Areas of a FICO Score

Payment His-tory35%

Outstanding Debt30%

Credit His-tory Length

15%

Pursuit of New

Credit 10%

Pursuit of New Credit (10%)

Number of recent inquiries (last 12 months)

New accounts—number of tradelines opened during the last year

Five Areas of a FICO Score

Payment His-tory35%

Outstanding Debt30%

Credit His-tory Length

15%

Pursuit of New Credit

10%

Credit Mix10%

Credit Mix (10%)

Ability to manage different types of credit well

(bank credit cards, store credit cards, installment loans, school loans, mortgage loan)

Who Wants to Know Your Credit Score?Employers Insurance companiesCredit unions and banks Credit card companiesLoan and mortgage companies Internet service providers and cellular providers Telecommunication and cable companies Private schools and colleges

How Can You Build a Good Credit Score?Establish a steady work record.Pay all bills promptly.Open a checking account and don’t bounce checks.Open a savings account and make regular deposits.Apply for a local store credit card and make regular monthly payments.

How Can You Build a Good Credit Score?Apply for a small loan using your savings account as collateral.Get a co-signer on a loan and pay back the loan as agreed.Make sure that your internet and cell phone bills are in your name even if they are being paid for by your parents. Obtain a secured credit card. For using this card, you must first deposit an equivalent amount of money as collateral with the company.

how much can you afford? (the 20-10 rule)

never borrow more than 20% of your yearly net income

If you earn $400 a month after taxes, then your net income in one year is:

12 x $400 = $4,800Calculate 20% of your annual net income to find your safe debt load.

$4,800 x 20% = $960So, you should never have more than $960 of debt outstanding.

Note: Housing debt (i.e., mortgage payments) should not be counted as part of the 20%, but other debt should be included, such as car loans, student loans and credit cards.

how much can you afford? (the 20-10 rule)

monthly payments shouldn’t exceed 10% of your monthly net income

If your take-home pay is $400 a month:

$400 x 10% = $40Your total monthly debt payments shouldn’t total more than $40 per month.

Note: Housing payments (i.e., mortgage payments) should not be counted as part of the 10%, but other debt should be included, such as car loans, student loans and credit cards.

http://www.myfico.com/HelpCenter/FICOScores/

My FICO Standard Score Simulator

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