credit scores: what's new?

Credit Scores: What’s New?

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Dr. Barbara O’Neill•Financial Resource Management Specialist for Rutgers Cooperative Extension•Has been a professional financial educator and author for more than 35 years. •Has written more than 1,500 articles for academic journals, conference proceedings & other professional publications.

Today’s Presenters

Rod Griffin•Director of Public Education for Experian•Leads Experian’s national consumer education program and supports the company’s community involvement and corporate responsibility efforts.•Works with consumer advocates, financial educators and others to increase consumers’ ability to understand and manage personal finances, credit reporting and credit scoring to protect themselves from fraud and identity theft.

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Part 1

Credit Score Basics

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Question #1: How often do you check

your credit report and how?

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Credit Reports are Like a “Financial Report Card”

• It’s just like you are back in school

• You are still being evaluated with written comments

• The results are still critical for your future

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What is a Credit Report?• A summary of someone’s history of paying debts

and other bills

• Prepared by credit reporting agencies (a.k.a. CRAs or credit bureaus)

• Used by those who have a legitimate need for the information

– Lenders

– Insurance companies

– Potential employers

– Potential landlords 9

The Better Your Credit History, the Better Your Chances of...

• Obtaining a loan or credit card

• Obtaining lower-cost credit terms and saving hundreds/thousands of dollars of interest

• Obtaining a low-cost insurance policy

• Renting an apartment

• Being hired for a job10

Three Major Credit BureausEquifax: www.equifax.com

Experian: www.experian.com

TransUnion: www.transunion.com

•Different pieces of data about borrowers in their databases

•Social Security number acts as a “magnet” to assemble data and create a credit report

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http://www.equifax.com/

http://www.experian.com/

Four Key Credit Report Sections• Identifying Information: Name, SS number, current/previous

addresses, birthdate, employer

• Public Record Information from Local Courthouse: Liens, foreclosures, bankruptcy, etc.

• Other Credit History Information: List of loans and credit cards, timeliness of payments, highest and current balance, negative information (7 years)

• Inquiries: Self-initiated, promotional (for marketing purposes), and periodic creditor reviews

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Free Credit Reports by Federal Law

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Credit Scores Are Like a “Financial GPA”

• Three-digit number calculated by statistical analysis

• An important barometer of financial health

• Based on credit report data at a point in time

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More About Credit Scores• Predictive tool that measures the risk of a borrower’s

delinquency or default

• Determines who qualifies for credit, at what interest rate, and at what credit limits

• Generally, higher credit scores indicate lower risk

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How to Get a Credit Score• Request score from a prospective lender, landlord,

or insurance company

• Use a credit card that provides a free credit score (online or on billing statement)

• Via the FICO web site: http://www.myfico.com/

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http://www.myfico.com/

Free Credit Report and Credit Score Providers

• Credit.com• Credit Karma• Credit Sesame• QL Credit• Quizzle• Wise Piggy

• Beware: solicitations for products, services, upgrades• Beware: free scores will likely vary from FICO scores

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About Credit Scoring• Classic FICO score range: 300 (worst) to 850 (best)

• Speeds up loan approvals

• Objective focus on credit risk factors

• 1989: Fair, Isaac Corp. introduced FICO score

• 2002: FICO scores became available to consumers at www.myfico.com

• 2016: Not required for free upon request by federal law (like credit reports are) BUT many creditors are providing for free (marketing and retention tool)

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http://www.myfico.com/

Sample Credit Score Data for Consumers by a Creditor

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What a Credit Score Means

Source: http://www.myfico.com/fico-score-high-achievers-infographic.aspx#.Vsyj8cv2aM8

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http://www.myfico.com/fico-score-high-achievers-infographic.aspx#.Vsyj8cv2aM8

Question #2: How often do you check

your credit report and how?

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Credit Scoring Factors• Bill payment history, weighted for recent months (35%)

• Proportion of outstanding debt to available credit limits (30%)

• Length of credit history (15%)

• Number of recent credit inquiries (10%)

• Mix of types of credit used (10%)

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Credit Scores Can Vary• Information in your credit report may vary across the

“Big Three” credit reporting agencies (CRAs)– Reporting to CRAs by creditors is voluntary

– Data that each CRA compiles about you may be different

• Implication: To get a complete picture of what lenders see, check credit reports from all 3 bureaus– If credit report information is very similar, so, too, will be credit scores

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Credit Scores Can Vary• Some large lenders still build their own scoring

models

– Custom models based on data from a lender’s own account holders

– These scores are generally not disclosed to consumers

• Each of the “Big Three” CRAs sells their own generic score built internally on their own data

– Example: Experian’s score is called the Plus Score

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Credit Scores Can VaryVantageScore (introduced in 2006) is a FICO score competitor: http://your.vantagescore.com/interpret_scores

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http://your.vantagescore.com/interpret_scores

Information That is NOT Included in a Credit Score

• Your age• Your income• Your employment status

– Caveat: Lenders will consider employment status• Your marital status• Interest rates (APRs) paid on existing debts• Child support and alimony• “Soft” and “promotional” inquiries• Credit counseling participationhttps://www.experian.com/ask-experian/20080625-the-impact-of-credit-counseling-on-credit-scores.html

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https://www.experian.com/ask-experian/20080625-the-impact-of-credit-counseling-on-credit-scores.html

https://www.experian.com/ask-experian/20080625-the-impact-of-credit-counseling-on-credit-scores.html

Good Credit Scores Save Money

Source: http://www.myfico.com/crediteducation/calculators/loanrates.aspx

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http://www.myfico.com/crediteducation/calculators/loanrates.aspx

http://www.myfico.com/crediteducation/calculators/loanrates.aspx

Damage Points: How Mistakes Affect FICO Credit Scores

Action Decline from 680 Score

Decline from 780 Score

Maxed-out credit card 10-30 points 25-45 points

30-day late payment 60-80 points 90-110 points

Debt settlement(Less than full balance)

45-65 points 105-125 points

Foreclosure 85-105 points 140-160 points

Bankruptcy 130-150 points 220-240 points

Source: http://www.creditcards.com/credit-card-news/fico-credit-score-points-mistakes-1270.php 28

http://www.creditcards.com/credit-card-news/fico-credit-score-points-mistakes-1270.php

Ways to Improve Your Credit Score

• Pay your bills on time (#1 weighted factor)

• Keep debt-to-available credit ratio routinely low (< 30%)

• Keep accounts open:

– Older accounts establish length of history

• Get points for variety (mix of types of credit)

– Revolving and installment

• Avoid “hard” inquiries: supply own report to lenders

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Other Credit Score Tips• Only apply for new credit when needed

• Pay or settle old collection accounts

– Accounts with a “0” balance no longer hurt FICO score

• Check credit report for errors that affect score

• Correct errors and dispute evidence of fraud

– Focus on negative factors provided with FICO score

• Reduce balances on credit cards

• Pay off debt rather than moving it around30

FICO High Achievers

• 96% have no late payments

• Use, on average, only 7% of credit limit

• Owe < $3,500 on credit cards

• Have average credit history length of 25 years


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Question #3: Any other credit score

tips?

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Credit Score Resource: • The Credit Score Quiz: http://www.creditscorequiz.org/

• Print copy of the quiz with answer key: http://www.creditscorequiz.org/CreditScoreQuiz_AnswerKey_Eng.pdf

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http://www.creditscorequiz.org/

http://www.creditscorequiz.org/CreditScoreQuiz_AnswerKey_Eng.pdf

http://www.creditscorequiz.org/CreditScoreQuiz_AnswerKey_Eng.pdf

Credit Score Resource: Credit Score Game (University of Idaho)• Description:

http://www.extension.uidaho.edu/impacts/Pdf_13/18-13lerickson-creditscore.pdf

• Game: http://www.uidaho.edu/extension/4h/programs/nw-youth-financial-ed/credit-score-millionaire

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http://www.uidaho.edu/extension/4h/programs/nw-youth-financial-ed/credit-score-millionaire

http://www.uidaho.edu/extension/4h/programs/nw-youth-financial-ed/credit-score-millionaire

FICO Credit Score Estimator

Resource: http://whatsmyscore.org/estimator/35

http://whatsmyscore.org/estimator/

Rutgers Cooperative Extension Wise Credit Management Quiz

http://njaes.rutgers.edu/money/wise-credit/ 36

Question #4: Any other good credit

score resources?

Key Take-Aways• A credit score is a “snapshot” of your credit performance

at a point in time.

• It changes over time as your credit behavior changes

• Helpful credit score factors:

– Timely payments (“current” or “paid as agreed”)

– Old credit accounts (show lengthy history)

– Low balances (<30% of credit card limit)

– Variety (bankcards, car loans, mortgages)

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Part 2

Credit Scores:Beyond the Basics

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©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks ofExperian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners.No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian.

Experian Public.

Portrait of a credit score superstar

Traits of credit score high performers, a look at new developments in credit reporting

41©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.

Portrait of a Credit Rockstar

What do people with the best credit scores look like?• Surveyed five categories of consumers: Super Prime – Deep Subprime• VantageScore 3.0• Six key credit score components

• Age of accounts• Number of accounts• Revolving account balances• Utilization• Inquiries• Delinquency


Age is a virtue

Super Prime

781-850

Prime661-780

Nonprime601-660

Subprime500-600

Deep Subprime300-499

Account age

Oldest acct. 27 19 15 12 9Avg. acct. age 12 11 8 7 5Oldest revolving 27 18 15 12 9Avg. revolving 13 12 8 8 6Newest acct. 3 6 3 3 2


What’s in your wallet?

Super Prime

781-850

Prime661-780

Nonprime601-660

Subprime500-600


# of accounts

Currently paid as agreed

6 4 4 1 1

Carrying a balance

3 3 4 1 2


What comes around goes around

Super Prime

781-850

Prime661-780

Nonprime601-660

Subprime500-600


Revolving accounts

# open credit cards 5 3 3 1 1Balance (total in $) 2,648 4,838 6,074 1,221 588


Don’t push the limit

Super Prime

781-850

Prime661-780

Nonprime601-660

Subprime500-600


Utilization

Revolving Util. (%) 8 30 59 73 99Installment (%)* 39 30 24 19 6*Installment non-mortgage paid-down


Sometimes it hurts to ask

Super Prime

781-850

Prime661-780

Nonprime601-660

Subprime500-600


Inquiries

No inquires (%) 69 62 50 62 43


It never pays to be late

Super Prime

781-850

Prime661-780

Nonprime601-660

Subprime500-600


Delinquency

None (%) 100 97 85 62 18

60 days (%) 0 2 13 35 78

Most recent* 42 29 20 16 3*in months


What’s new?

Recent activity in credit reporting


What’s in and what’s out: changes in credit scoring

Collection accounts:

VantageScore 3.0:•Out – paid•Still in- unpaid

FICO 9:•Out – paid (less in?)•Still in- unpaid


What’s in and what’s out:Identity Theft

In in a BIG way: Data Breaches• 781 breaches in 2015• 39.9% - Business• 35.5% - Medical/Healthcare• 9.1% - Banking/Credit/Financial• 8.1% - Government/Military• 7.4% - Education*IDTRC

Most commonly reported•Government Documents fraud – 39%•Credit Card Fraud – 17%•Utilities fraud – 13%•Bank fraud – 8%•Employment related – 5%•Loan fraud – 4%*FTC Consumer Sentinel


NY AG Agreement

National Consumer Assistance Plan:

•Cooperative discussions with the New York Attorney General’s office•Industry plan building on efforts of the national CRAs to improve accuracy and enhance the consumer experience

• Expanding educational resources on www.annualcreditreport.com• Additional information will be provided to consumers who dispute

information including a description of what they can do if they are not satisfied with the outcome of the dispute

• Enhanced dispute resolution process for fraud victims those with mixed files


NY AG Agreement (cont’d)

Data accuracy and quality initiatives:

•Medical debts not reported until 180-day “waiting period to allow insurance payments to be applied•CRAs will remove previously reported medical collections that have been or are being paid by consumers•Consistent standards reinforced by CRAs to entities that submit data (data furnishers)•Data furnishers will be prohibited from reporting authorized users without date of birth. CRAs will reject data that does not comply with this requirement•CRAs will eliminate reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as tickets or fines.•A multi-company working group will be formed to regularly review and help ensure consistency and uniformity in data submitted by data furnishers.


Experian initiatives already underway

In the last two years we have:•Upgraded website to make it easier for consumers to dispute online•New system to provide documentation through online upload process•Added additional agents to enable people to speak directly with a representative•Increased bilingual support for our Spanish-speaking consumers•Simplified process to upload dispute documents electronically


Experian Education Resources – On the Web

Free annual FACT Act credit report► www.annualcreditreport.com

Access to free report from each of the three credit reporting companies

Experian► www.experian.com/crediteducation

Ask Experian advice column, sample consumer report, frequently asked questions

► www.livecreditsmart.comCredit trends and information to inspire consumers to use credit wisely

► www.experian.com/consumereducationElectronic versions of our published materials, sample

credit report, videos, PowerPoint presentations with talk notes and more

What is one significant thing you learned today?

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