credit in today's economy
DESCRIPTION
Had trouble getting a line of credit? Has your credit line recently been reduced? You're not alone, but there may be alternatives to getting the financing you need. It starts with learning exactly what lenders look at and how your credit score works.TRANSCRIPT
Creditthe impact of today’s economy on approvability
The Problem:
Consumers are being squeezedConsumers are being squeezed
The Problem:
Consumers are being squeezedConsumers are being squeezedReduced Qualification
The Problem:
Consumers are being squeezedConsumers are being squeezedReduced Qualification
Reduced Lines
The Problem:
Consumers are being squeezedConsumers are being squeezedReduced Qualification
Reduced Lines
Tighter Guidelines
The Solution
• Do Your Homework
The Solution
• Do Your Homework
• Develop a Plan
The Solution
• Do Your Homework
• Develop a Plan
• Monitor your Results
So What are Lenders So What are Lenders really looking for?really looking for?
What DeterminesWhat Determines Perfection? Perfection?
FICO™ Score
FICO™ ScoreLenders today look at much more than just your credit.
What DeterminesWhat Determines Perfection? Perfection?
FICO™ Score
FICO™ Score
MD
S™ Score
MD
S™ Score
Lenders today look at much more than just your credit.
What DeterminesWhat Determines Perfection? Perfection?
FICO™ Score
FICO™ Score
MD
S™ Score
MD
S™ Score
Lenders today look at much more than just your credit.
Time i
n Biz
Time i
n Biz
What DeterminesWhat Determines Perfection? Perfection?
FICO™ Score
FICO™ Score
MD
S™ Score
MD
S™ Score
Lenders today look at much more than just your credit.
Time i
n Biz
Time i
n Biz
Public RecordsPublic Records
What DeterminesWhat Determines Perfection? Perfection?
FICO™ Score
FICO™ Score
MD
S™ Score
MD
S™ Score
Lenders today look at much more than just your credit.
Time i
n Biz
Time i
n Biz
Public RecordsPublic RecordsU
tilizationU
tilization
What DeterminesWhat Determines Perfection? Perfection?
FICO™ Score
FICO™ Score
MD
S™ Score
MD
S™ Score
Lenders today look at much more than just your credit.
Time i
n Biz
Time i
n Biz
Public RecordsPublic RecordsU
tilizationU
tilization
PayDex™
PayDex™
What is the What is the importance of importance of
FICO®?FICO®?
FICO™ is all about managing riskFICO™ is all about managing risk
FICO™ accurately predicts defaultsFICO™ accurately predicts defaults
FICO™ accurately predicts defaultsFICO™ accurately predicts defaults
The national average The national average FICO score is currentlyFICO score is currently
850
800
750
700
650
600
550
500
450
400
350
300
The national average The national average FICO score is currentlyFICO score is currently
850
800
750
700
650
600
550
500
450
400
350
300
678678
What about other scoring models?What about other scoring models?
What about other scoring models?What about other scoring models?
300-850The FICO™ score range is copyrightedThe FICO™ score range is copyrighted
What about other scoring models?What about other scoring models?
Only the FICO™ is currently used by
300-850The FICO™ score range is copyrightedThe FICO™ score range is copyrighted
Are Credit Bureaus all the Same?
Are Credit Bureaus all the Same?
• CRAs provide raw data, resellers package it
Are Credit Bureaus all the Same?
• CRAs provide raw data, resellers package it• Not everyone reports to every bureau
How is FICO® How is FICO® Calculated?Calculated?
FICO Calculation - WeightsFICO Calculation - Weights
10% - New Credit
FICO Calculation - WeightsFICO Calculation - WeightsFICO Calculation - WeightsFICO Calculation - Weights
15% - Age of Credit
10% - Types of Credit Used
FICO Calculation - WeightsFICO Calculation - Weights
FICO Calculation - WeightsFICO Calculation - Weights
30% - Amounts Owed30% - Amounts Owed
FICO Calculation - Weights
35% - Payment History35% - Payment History
FICO Calculation - Scorecards
A series of “Scorecards” are run through to determine a final score.
FICO Calculation - Scorecards
Scorecards start at zero and points are added, not the other way around.
FICO Calculation - Scorecards
There are scorecards for different topics, such as inquiries, delinquency, and utilization.
Here’s a Here’s a ProblemProblem
Limit Reductions
You have a net credit limit of $30,000.
You pay on time and have a total balance of $10,000.
Limit Reductions
You have a net credit limit of $30,000.
You pay on time and have a total balance of $10,000.
You have a utilization rate of33%
Limit Reductions
To minimize risk, your bank reduces your limit from $30,000 to $20,000.50%.
Limit Reductions
To minimize risk, your bank reduces your limit from $30,000 to $20,000.50%.
Your utilization rate is now50%
Because of your higher utilization rate, your FICO® score drops.
Because of your higher utilization rate, your FICO® score drops.
Because of your lower score, other lenders reduce their lines as well.
Because of your higher utilization rate, your FICO® score drops.
Because of your lower score, other lenders reduce their lines as well.
Your utilization spikes, so now you are not only maxed out on your lines, but you cannot apply for
new lines because your credit has dropped.
Here’s a Here’s a SolutionSolution
Consumers need a new STRATEGY
Home Equity has dried up, friends and family have Home Equity has dried up, friends and family have limited funds, and lines of credit are too difficult to get.limited funds, and lines of credit are too difficult to get.
• Old
Get what you Get what you WWANTANT
• Short-Term financing is the new option
Get what you Get what you WWANTANT
• Short-Term financing is the new option–Merchant Cash Advance
Get what you Get what you WWANTANT
• Short-Term financing is the new option–Merchant Cash Advance– Factoring
Get what you Get what you WWANTANT
• Short-Term financing is the new option–Merchant Cash Advance– Factoring– Showroom Financing
Get what you Get what you WWANTANT
• Short-Term financing is the new option–Merchant Cash Advance– Factoring– Showroom Financing– Short-Term Loans
Get what you Get what you WWANTANT
• Short-Term financing is the new option–Merchant Cash Advance– Factoring– Showroom Financing– Short-Term Loans– SBA/ARC Loans
Rest Easier
Regularly check your approvabilityRegularly check your approvability
Rest Easier
Regularly check your approvabilityRegularly check your approvability
Manage exposureManage exposure
Rest Easier
Regularly check your approvabilityRegularly check your approvability
Manage exposureManage exposureKnow your best time to strikeKnow your best time to strike
Rest Easier
Regularly check your approvabilityRegularly check your approvability
Manage exposureManage exposureKnow your best time to strikeKnow your best time to strike
Check your utilization trends
Rest Easier
Regularly check your approvabilityRegularly check your approvability
Manage exposureManage exposureKnow your best time to strikeKnow your best time to strike
Check your approvability
Rest Easier
Regularly check your approvabilityRegularly check your approvability
Manage exposureManage exposureKnow your best time to strikeKnow your best time to strike
Check what you may qualify for
About the AuthorScott Rowland is the Managing Partner of The Highly Trained Eye™, which specializes in providing training support services to businesses and training departments worldwide.
The Highly Trained Eye, LLPThe Highly Trained Eye, LLPwww.highlytrainedeye.com
603-418-0983 603-418-0983 [email protected]@highlytrainedeye.com