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  • 1. Credit Scores & Credit Reports: How The System Really Works Murphy Canyon Chapel Military Saves Campaign 2009 Financial Readiness Symposium Evan Hendricks, Editor/Publisher Privacy Times February 24, 2009

2. Basics Of The Credit Score

  • If winning isn't everything, why do they keep score? Vince Lombardi
  • All right, everyone, line up alphabetically, according to your height.
          • Casey Stengel

3. What Is A Credit Score?

  • A number that reflects your credit worthinessat a given point in time .
  • The higher the score, the better the risk( Generally)

4. $150,000 30-Year, Fixed-Rate Mortgage

  • 720-8505.63% $864
  • 700-719 5.75% $875
  • 675-699 6.29% $927
  • 620-674 7.44% $1,043
  • 560-619 8.53% $1,157
  • 500-559 9.29% $1,238

5. Mortgage vs. Auto Loans

  • ExcellentMarginal Poor
  • 720-850640-719 500-559
  • Mortgage
  • 30-yr Fixed 5.5% 7.4% 8.1%
  • Home Equity7.8% 9.3% 12.1
  • 48-Month 5.2% 11.4% 17.2%
  • New Car Loan
  • 48-Month 5.9% 12.0% 14.4%
  • Used Car Loan

6. Translation

  • $24,000 New Car (Financing)
  • Marginal 127% In Higher Interest= $3,300*
  • Bad Credit 255% In Higher Interest
  • =$6,700*
  • *More than one w/ Excellent Credit

7. Who Makes Them?

  • 75% of Lenders Use FICO Model
  • Equifaxs Beacon (Multiple Versions)
  • Trans Unions Fico Classic
  • Experian/FICO Risk Model.

8. Who Else?(Knockoffs)

  • TrueCredit (Trans Union)
  • PLUS(Experian)
  • Vantage Score

9. FICO Scoring Range

  • 780-850 Low Risk
  • 740780 Medium-Low Risk
  • 690740 Medium Risk
  • 620690 Medium High Risk
  • 620 & Below High Risk or sub-prime.
  • 500 & Below Fawgettaboutit

10. FICO Scoring Factors

  • Payment History (35%)
    • Severity, Quantity &Recencyof Delinquencies
  • Amount OwedExtent of Indebtedness (30%)
    • Ratio of Credit Balance To Credit Limit, How Much Owed?
  • Length Of Credit History (15%)
  • Type Of Credit (10%)
  • Inquiries (10%)

11. Payment History (35%)

  • Track record with lenders. (Pay on Time?)
  • Length Of Positive Credit History.
    • (The longer the better.)
  • How Long Since Most Recent Negative Item?
  • Severe Unpaid Debts (Bankruptcy, Collections, Liens, Foreclosure)
  • Severity & Quantity of Delinquencies
      • (Pages 15-16)

12. How Much Do You Owe (30%)

  • Ratio: Credit Balance vs. Credit Limit
  • Quantity of Credit Accounts
    • (Too many, Too Few? No Magic Number)
  • How Old Are Accounts?
  • How Long Since Youve Used Them
        • (Pages 16-17)

13. Length Of Credit History (15%)

  • The Longer The Better
  • Specific Accounts
  • Total of All Accounts

14. Type of Credit (10%)

  • Bank Credit Cards vs.
  • Store Charge Cards
  • Mortgages vs.
  • Finance Company Loans

15. New Credit Inquiries (10%)

  • Designed To Catch Credit Sprees
  • Not Supposed To Penalize Mortgage, or Auto Loan Shopping (Page 20)
  • How Old Are Accounts?
  • How Long Since Youve Used Them

16. The Importance Of Being Recent0-11 12-23 24-35 36-47 48-HIGH NO DELQ MONTHS SINCE MOST RECENT MAJOR DELINQUENCY RISK LOW 17. Special Tips

  • Closing Credit Cards Can Lower Score
  • Watch Out For Instant Credit (Page 29)
  • Paying Off Credit Cards Every Month Doesnt Always Mean A Higher Score

18. Warning!

  • Paying Off Old Debts The Wrong Way Can Make Your Score Drop
  • Watch Out For:
  • * Credit Repair
  • * Credit Counselors
  • * Debt Consolidators

19. Accuracy/Reliability Study??

  • 11% had middle scores between 575-630 and a range of 30 points or more between highest, lowest scores; i.e., one CRA pegged consumer as sub-prime while other CRA did not
  • 21%, extremely consistent, (range of fewer than 20 points between the highest and lowest scores)
  • 31% had range of 50 pts or more between scores
  • 5% had range of 100 pts or greater between scores
  • Footnote: CFA/NCRA Study

20. Where Do We Stand?(FICO)

  • 800-Above11percent 750-799 28 percent
  • 700-749 19 percent
  • 650-699 16 percent
  • 600-649 12 percent
  • 550-599 8 percent
  • 500-549 5 percent
  • 499 and under 1 percent

21. Where Do We Stand?(Experian)

  • New England 699
  • West North Central 695
  • Mid-Atlantic 690
  • East North Central 684
  • East South Central 677
  • South Atlantic 675
  • Pacific 674
  • Mountain 670
  • West South Central 656

22. Re-Scoring Mortgage Applicants

  • Only Reliable Help Available: Resellers
  • Avg. 30-pt. FICO Score Increase
  • Must Be Referred By Broker Or Lender
  • (Resellers may not deal directly with Consumers!)
  • Anti-Trust Lawsuit Pending

23. Where Do I Find?

  • National Credit Reporting Assoc.(www.ncrainc.org)
  • Potential Help
  • www.peoplescreditbureau.com
  • Farmers Branch, Texas
  • www.veracity.com
  • Denver, Colorado

24. Reason Codes (For Denying Credit)

  • 05 = Too many accounts with balances
  • 24 =No recent revolving balances
  • 05 = Too many consumer finance accounts
  • 09 = Too many new accounts
  • 15 = Insufficient length of credit history
  • 17 = No recent non-mortgage balances
  • 10 =Proportion of revolving balances to revolving
  • credit limit is too high
  • = Serious delinquency, derogatory public record
  • or collection

25. Thin File Problem

  • Many People Dont Have FICO Score
  • But They Pay Their Bills
      • Rent, Utilities, Phones
  • Fair Isaac Is Working On New Model
  • Pay Rent, Build Credit
      • www.payrentbuildcredit.com

26. 05/04/10 27. Obtaining Your Reports

  • www.annualcreditreport.com1-877-322-8228
  • www.Equifax.com1-800-685-1111
  • www.Experian.com 1-888-397-3742
  • www.TransUnion.com1-800-888-4213
  • Extra Free Reports Available Under State Law
  • ( Page 78)

28. Reading Your Report(Chapter 5)

  • Header: Name, address, SSN, employment
  • Credit History: Mortgages, Credit cards, Auto & Student Loans Ever Late?
  • 3)Public Records? Tax Liens, Judgments
  • 4) Inquiries Whose Looking At Your Credit Report, and Why

29. Derogatories First

  • Bankruptcy
  • Court Judgments
  • Liens
  • Foreclosure
  • Collections
  • 9 =Charge Off
  • 8 = Repossession
  • 5 =Over 120 Days Past
  • 4 =90-119 Days Past Due
  • 3 =60-89 Days Past Due
  • 2 = 30-59 Days Past Due
  • 1 = On Time

30. Disputing Errors

  • By Mail
  • Certified Mail
  • By 800 Phone Number
    • Take Notes, Get Names, Operator Numbers
  • Through CRAs Web Sites
    • Print Out Screens
    • (Pages 94-95)

31. Types Of Inaccuracies

  • Someone Elses Data Mixed Onto Your Report
  • Creditor Mistakenly Reports Delinquency
  • Balances Incorrect
  • Capital One: Doesnt Report Credit Limit
  • Identity Theft

32. Studied History

  • 1989 James Williams
  • 1990 US PIRG
  • 1991 US PIRG
  • 1991 Consumers Union
  • 1993 US PIRG
  • 1998 US PIRG
  • 2003 Federal Reserve