fixing your credit objectives: understanding how credit scores are determined. understanding how...

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  • FIXING Your Credit Objectives:

    Understanding how credit scores are determined.

    Understanding how consumers actions impact their credit scores.

  • Do NowWhat is a FICO Score and why is it important that we have a good credit score?

  • What is a FICO scoreYour credit score is a number based on the information in your credit file that shows how likely you are to pay a loan back on time - the higher your score, the less risk you represent.When youre applying for credit Whether its a credit card, a car loan, a personal loan or a mortgage lenders want to know your credit risk level.

  • What is a FICO Score?

    A FICO score is a credit rating developed by Fair Isaac & Company.

    Method was developed in the late 1950s and is now widely accepted by lenders, insurance companies, employers, landlords, and others as a reliable means of credit evaluation.

    FICO scores are 3 digit numbers ranging from 300-850.

    A person has 3 different FICO scores from three different credit bureaus.

  • The Three Credit BureausEquifaxExperianTransUnion

    Each bureau produces a number based on scoring models and mathematical tables. These numbers are not necessarily the same due to the different methods used by each bureau.Most lenders use the middle score of the three as the recognized credit score.

  • For a $216,000 30-year

    760-850 5.96%$1,289700-7596.18%$1,320680-699 6.36%$1,345660-679 6.57%$1,376640-659 7%$1,437620-639 7.55%$1,517

  • Employment DecisionsAccording to the federal Fair Credit Reporting Act (FCRA), a company has the right to obtain credit reports and use that information when considering a candidate for a position in which the information may be applicable, such as jobs that require an employee to handle a significant amount of money or deal with sensitive information.

  • What is in your score?

  • What is in your score?1.Payment History (35%)Number of past due items on file. Severity of delinquency (how long past due) Presence of adverse public records (bankruptcy, suits, liens, delinquency)7 years for bad credit, late payments or collections. Lawsuits and judgments 10 years or until the statute of limitations runs out in the state. 3 years for inquiries.

  • What is in your score?Amounts Owed (30%)Amount owed on accounts.Number of accounts with outstanding balances.Proportion of credit lines used (How much credit is tied up in credit cards)Proportion of installment loans (How much do you have left to pay on specific loans)Length Of Credit History (15%)Time since accounts openedHow long it has been since you used certain accounts.

  • What is in your score?4. New Credit (10 %)How many new accounts you have. (how many newly opened credit cards)How long it has been since you opened a new accountLength of time since credit report inquires were made by lenders.5. Types of Credit in Use (10 %)Is it a healthy mix? Do you have a mix of credit cards, installment loans, and mortgage loans.What kinds of credit accounts you have.

  • Check for Understanding

    What is good/bad for your credit score activity.

  • Whats in Your Credit Report?Personal Information: Name, address, Social Security numberAccounts:Type of accounts: bankcard, auto loan, mortgage, the date you opened the account, your credit limit, payment historyInquiries:When you apply for a loan, you authorize your lender to ask for a copy of your credit reportNegative ItemsLenders report delinquency information when you have missed a payment. Overdue debt from collection agencies.

  • Your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from considering these facts

    Your age. Other types of scores may consider your age, but FICO Scores dont.

    Your salary, occupation, title, employer, date employed or employment history. Lenders may consider this information

    Where you live.

    Any interest rate being charged on a particular credit card or other account.

    Any items reported as child/family support obligations

    What FICO Score Ignores:

  • Whats Not Included in Your FICO ScoreCertain types of inquiries (requests for your credit report or score). Your FICO Score does not count any inquiries you initiate, any inquiries from employers, or any inquiries lenders make without your knowledge.

    Any information not found in your credit report.

    Any information that is not proven to be predictive of future credit performance.

  • Protect Your CreditProtect your credit. Order and review your credit reports looking for information you do not recognize. If you see fraudulent activity you should file a dispute with the credit bureaus. If you believe a thief is opening credit in your name, you might want to consider a fraud alert or credit freeze.

  • SummaryYour FICO Score is based on a snapshot of information in your credit report at a point in time.Your FICO Score can change whenever your credit reports change.Bankruptcy or late payments can lower your FICO Score fast, improving your score takes time.Check your credit report for free at least once a year. Dont close credit cards or open too many in a short period of time.

  • Resourceswww.annualcreditreport.com www.myfico.com

  • Videohttps://www.youtube.com/watch?v=F6b2XoeQV2I

    https://www.youtube.com/watch?v=gWQiABf3oO0

  • Scenario ActivityCarolina wants to lease a car. The dealership says no problem, let me just run your credit first.

    Should the car dealership lease the car to Carolina based on her credit report?How can you improve your FICO Score.

  • Discussion Questions/Exit Ticket1. What does a credit report tell potential creditors?

    Describe why it is important to check all three credit reports?

    What are three ways a consumer can harm his/her credit score?

    BANKRUPTCY'A legal proceeding involving a person or business that is unable to repay outstanding debts.

    Definition: a legal process in which a debtor asks the court for relief from its creditors and lenders. After the debtor has filed for bankruptcy the court will either discharge the debts, propose a payment plan, or dismiss the case. Bankruptcy remains on your credit report for up to 10 years from the date you file.

    LIen: a legal claim that someone or something has on the property of another person until a debt has been paid back*