credit reports & scores original author: peggy olive richland county uw-extension with...
TRANSCRIPT
Credit Reports & Scores
Original author: Peggy Olive Richland County UW-ExtensionWith Adaptations by Bridget Mouchon from WHPE power-point and
other Extension resources.
Managing Your Credit
• Every time you pay a bill (or don’t) it contributes to your credit history– Paying ‘slow’ or not at all is seen as a
warning to other lenders– Signs of ‘Risky behavior’– May result in
• Higher interest rates and fees• More rejections of loans• Smaller loan amounts
Credit Risk (to you & to lenders)
28/36 Rule • A good credit risk when mortgage
payments are below 28% of gross monthly income, and total debt payments are below 36%.
Types of Credit• Revolving Credit Account
• Credit cards – MasterCard, Discover, Visa, JC Penney, etc.
• Charge Account• Utilities, dentist, Diners Club, etc.
• Installment Loans• Car loan, mortgage, student loan,
payday loan, etc.
Credit CardsPros:• Credit history• Emergencies• Perks• Disputes• $50 liability
Cons:• Interest
rates• Late fees• Annual fee?• Cash
advance fees
Debit CardsPros:• No interest• Quick cash• Online
purchases
Cons:• Fees
•Overlimit•Point of sale•Who’s ATM?
• Blocking• $500 liability?
• Pay Day Loans• Rent to Own• Car Title Loans• Pawn Shops
400-800%
40-700%• Rapid Tax Refund Anticipation Loans
Subprime Types of Credit
Making Minimum Payments on a Credit Card
Balance: $1000Annual Interest: 18%Minimum Payment: 3% or $30
Know How Much Today’s Credit Will Cost You
Tomorrow
$1000.00Payment #1 -- 30.00
970.00Interest + 14.55
New Balance = 984.55Payment #2 -- 29.54
New Balance = 955.01Interest +
14.33New Balance = 969.34
Late Fee + $35 =
$1004.34Overlimit Fee + $35 =
$1039.34
• It will take 69 payments to pay off the $1000 original balance.
• The finance charge will be $472.51 not including any late fees or over-limit charges.
• The original $1000 now costs $1472.51
A credit report tells…
•How you’ve paid your debts•How much debt you have•Whether you’ve made
payments on time
Credit reports DON’T contain…
• Checking or savings account balances
• Income• Medical history• Purchases made with cash or
checks• Business account information• Race, gender, religion, national
origin• Driving record
Who cares about your
credit report?• Creditors / Lenders• Insurance Companies• Landlords• Employers• Utility Companies• Government Agencies• YOU!
Getting your FREE Credit Report
Consumers are entitled to receive one free credit file disclosure every 12 months from each of
the nationwide consumer credit reporting companies.
FREE Credit Report• www.annualcreditreport.com
• 1-877-322-8228
• Annual Credit Report Request ServicePO Box 105281Atlanta GA 30348-5281
Credit Report Sections
1. Personal Information2. Public Records3. Potentially negative items4. Accounts in good standing5. Optional Consumer
Statement
Credit Report Sections
6. Special Messages7. Hard Inquiries8. Soft Inquiries9. Directions to Correct Errors
Disputing Wrong Information on Credit
Reports• You can dispute mistakes or outdated
items for free. Ask the credit-reporting agency for a dispute form or submit your dispute in writing, along with any supporting documentation. Do not send them original documents.
• If the reinvestigation does not resolve your dispute, have the credit bureau include your version of the dispute in your file and in future reports.
Credit Scores Cont…
• A credit score is referred to as a FICO score.– Based on models developed by Fair Isaac Corporation.
• The models begin with information on your report, using it to calculate your score.
• Scores range from 300-850.– The majority are between 600 and 800.– They vary from one credit bureau to another.
• Visit www.myfico.com/ScoreEstimator.html to get an estimate of your score.
What does my score mean?
• What is a good score?– The national average is 678.– This is often the minimum for receiving credit.
• A good credit score doesn’t just mean that you’ll get a loan, it also means you’ll pay less for it.
• A low FICO score may result in a credit card rate twice that of a high FICO score.
Factors That Determine Your Score
Your Payment History
– Lenders want to know how you have handled credit payments in the past.
Amount You Owe and Your Available Credit– Shows the amount
you owe on your mortgage, car loan, and all other outstanding debt, along with your total available credit.
Factors That Determine Your Score
Length of Credit History
– The longer the credit accounts have been opened, and the longer you have had accounts with the same creditor, the higher your credit score.
Types of Credit Used– The wider the
variety of credit, the higher the score.
– Using different types of credit indicates you know how to handle your money.
Factors That Determine Your Score
New Credit – New applications for credit will
lower your score. – Those moving towards
bankruptcy take all available credit to stay afloat.
To Purchase your Credit Scorewww.myfico.com
To Estimate your Credit Scorewww.bankrate.com
under “calculators”
“Power Pay” Concept• Pay your credit payments as usual.• When first loan is paid off . . .
. . . apply that payment to the next loan.
• When loan two is paid off . . .. . . add that payment to the next loan.
• Continue this process until all loans are paid off.
Utah State University Extensionwww.powerpay.org
Power Pay StrategyDiscove
rMasterCar
dDoctor
April $22 $35 $35
May $22 $35 $35
June $57 $35 $0
July $57 $35 ---
August $57 $35 ---
September $0 $92 ---
October --- $57 $35
…and so on --- $92 $0