understanding credit reports advanced
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Understanding Credit Reports Advanced. The University of Arizona Take Charge America Institute www.tcainstitute.org. Credit Reports. Credit report - a record of a consumer’s credit history Credit history - a record of transactions involving credit use - PowerPoint PPT PresentationTRANSCRIPT
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Understanding Credit Reports Advanced
The University of ArizonaTake Charge America Institute
www.tcainstitute.org
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Credit Reports Credit report - a record of a
consumer’s credit history Credit history - a record of transactions
involving credit use Individuals do not have a credit report
if they have not previously used credit They affect one’s ability to acquire
credit
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Information on a Credit Report Name and aliases Current and past
addresses Marital status Date of birth Employment history Public records
Judgments, criminal, and bankruptcy
Credit card, store card, book clubs, music clubs, etc.
Payment history Credit card, store
card, book clubs, music clubs, etc.
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Information continued Financial records
Loans, bounced checks, closed accounts, etc.
Loans/leases Rent-to-own
contracts, payday loans, lease agreements, etc.
Credit inquiry-
Number of credit inquiries Credit inquiry - a
request for your credit. Can be done by businesses you apply to for credit or whom pre-approve you for credit*Medical information is not on a consumer’s
credit report, but late medical payments are.
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Building Credit History Important for consumers to build a
credit history to be able to purchase items using credit For example – house, vehicle
Credit reports can influence more than just purchases made using credit. Renting an apartment Insurance rates Employment opportunities
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Building Credit History continued Store accounts (JcPenny or Sears
charge accounts) Credit card accounts Loan from financial institution
Acquire a small loan from a financial institution and pay the loan off in timely payments to develop a positive credit history
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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No Credit History While the following
are all positive financial practices, a credit history is not built if a consumer performs the following actions:
Having no history of credit use
Not having any credit accounts in own name
Paying cash for all major purchases
Paying phone and utility bills on time
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Positive Credit
Practicing good banking techniques
Keeping checkbook balanced, not bouncing checks
Paying bills consistently and on time
Keeping public records free of bankruptcy
Keeping a reasonable or small amount of debt (less than 20% of net income)
Not having a criminal record
Applying for credit sparingly, keeping credit inquiries low
Holding a low number of credit/store cards
Checking credit report annually to remove errors
Maintaining reasonable amount of unused credit
A consumer may develop and keep good credit by:
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
General Rule Percentage of current debt
compared to the total credit available is reviewed by potential lenders
Keep the amount of debt currently held at 25% of the total amount of available credit For example - if Sue’s total
amount of credit available is $1,000, her current amount of debt should not exceed $250
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Negative Credit
Bouncing checks Routinely paying bills
late Having a criminal record Holding a large amount
of debt Holding an
unreasonable amount of unused credit
Not paying utility or cell phone accounts consistently and on time
A consumer may develop or keep poor credit by:
Obtaining a high number of credit inquiries
Carrying many credit/store cards
Having a public record of bankruptcy
Defaulting on a loan Having cards over the limit
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Example of How Much a Low Score Can Cost You
Product: 30-year, fixed rate mortgage, $300,000 loan
Source: Fair Isaac Co: www.myfico.com
FICO Score Interest Rate
Monthly Payment
760 5.9% $1,787
650 7.2% $2,047
590 9.3% $2,500
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Credit Reporting Agency (CRA) Keeps a record of a consumer’s credit
transactions and compiles credit reports Acquires information from several
different types of lending companies Information on credit reports can differ
between each individual agency Lenders may only report to one credit agency Consumers should contact all agencies when
checking their credit report
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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CRA’s continued The three main credit reporting agencies
are: Equifax
www.equifax.com (800) 685-1111
Trans Union www.transunion.com (800) 888-4213
Experian www.experian.com (800) 397-3742
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Free Credit Reports www.annualcreditreport.com
is the only government sponsored agency which gives free credit reports
Other agencies do charge, even if they advertise free
Be sure to enter your state and click here. If you select the credit report agencies logos you will be sent to their site which is not free
You will have to enter personal information including your social security number
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Who Reports to CRA’s? Store accounts Credit card companies Mortgage and other loan
lenders Financial institutions Landlords Courts Utility accounts Cellular phone companies Delinquent accounts
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Mistakes in Credit Reports More than 50% of the credit reports checked
in a study contained errors Consumer Reports (July 2000)
The two main errors commonly appearing in a consumer’s credit report are:
Mistaken identity – occurs when a lender reports a credit transaction and information is recorded on the wrong person’s credit report, usually of a similar name
Fraud
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Correcting Errors on Credit Reports
Steps include: Contact the particular credit bureau that has the error CRA must report to the consumer within 30 days If the CRA can’t verify the information, then it must be
removed from the file or if in error it must be corrected If a consumer disagrees with result of CRA
investigation, they have the right to submit a 100 word explanation which stays in the consumer’s file
Negative information is usually removed from credit file after seven years, except bankruptcy which is removed after 10 years
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Fair Credit Reporting Act Enacted to protect the consumer in 1971 Designed to promote accuracy and
ensure privacy of information in credit reports
Consumers have the right: To know the information in their credit report To have errors corrected in their credit
report
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Credit Scores A mathematical tool created to help lenders
evaluate the risk associated with lending a customer money
Scores range from 150-850, with 850 being the best score
Not listed on a credit report but can be purchased separately for about $8.50
Each CRA has an independent scoring system based upon a standard percentage of five different categories
Consumer’s scores can differ between each CRA
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Categories of predictive characteristics, Classic FICO Score
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Credit Scores continued Other factors calculated into a credit score
may include: Length of time at current address Current income Financial information Late payments Amount of outstanding credit Amount of credit in use Length of time credit has been established
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Conclusion
Build and maintain positive credit!
Check credit reports annually for errors!
Act financially responsible!
© Take Charge America Institute – September 2008 – Workshop Guide – Understanding Credit Reports AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
7.4.4.G1
Materials were provided by: The Family Economics and Financial
Education Project www.fefe.arizona.edu