Download - Understanding Credit & Credit Reports
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FINANCIAL PROSPERITY:
UNDERSTANDING CREDIT AND
CREDIT REPORTS
Instructor: Jeff Wilson II, CPA, AFC Personal
Finance Counselor
The WII Group, LLC
Presented at Mt.Ennon Baptist Church
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WE WILL ALL MEET JUDGMENT DAY
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AGENDA /OBJECTIVES
What is a Credit Report
Understand your Credit Score
Disputing Errors on your Credit Report
Ways to build or Rebuild Credit
Credit Score Services (The Good, Bad, and Ugly)
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WHAT IS A CREDIT REPORT?
The Consumer
Lenders, Banks, and
other businesses
Credit Reporting Agencies
Risk Score Modelers
The Government
Summary of a persons history of paying debts and
other bills
Prepared by the (3) credit reporting agencies
Big Three: Experian, Equifax, and TransUnion
Used by those who have a need to understand your
spending and borrowing history:
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WHAT IS A CREDIT REPORT?
Information obtained from banks, stores, credit card
companies, various lenders, and public records
You are entitled to a free credit report from (each) of
the Credit Bureau.
This means you could get 3 separate copies of your
credit report for free in one year
Credit Report form on www.annualcreditreport.com
www. Freecreditreport.com is not the free website
for your credit report
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WHAT’S ON YOUR CREDIT REPORT
Personal Information-name, ssn, dob, current/previous addresses, employer
Credit History -List of loans and credit cards, timelines of payments, defaults and negative information ( up to 7 to *10 years)
Public Record-Courthouse, liens, foreclosures, bankruptcy
Inquiries-Usually 2 years; self initiated and promotional
Personal Identifying
Information (PII)
• Name
• Address
• Date of Birth
• Employer
• Social Security Number
Credit History
• Open Credit Accounts
• Open Credit Accounts
• Negative Account Information (late payments, judgments, liens, collections) lines
• Active trade lines
Public Records
• Bankruptcies
• Foreclosures
• Judgments
• Liens
Inquiries
• Creditor looking to offer your credit (Soft Inquiries)
• Potential lenders that you have approved to request your credit report (Hard Inquiries)
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SAMPLE CREDIT REPORT
Credit History
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SAMPLE CREDIT REPORT
Credit History
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SAMPLE CREDIT REPORT
Public Records
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SAMPLE CREDIT REPORT
Inquiries
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TIME LIMITS ON NEGATIVE CREDIT INFORMATION
REPORTING
• IndefinitelyOpen Accounts in
Good Standing
• 10yrs from date of closureClosed Accounts in
Good Standing
• 7yrs from date of 1st delinquencyLate or missed
payments
• 7yrs from date of charge offCharge Off/Collection
• Ch.7 (10yrs), Ch.13 (7yrs) from date of stay implemented by court
Bankruptcy
• 7yr from beginning of caseCivil Judgment
• 7yrsForeclosure
• 7yrs from paid date or no limit if unpaidTax Liens
• 2yrs (Hard Inquiry)Inquiries
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HOW IS YOUR CREDIT WORTHINESS MEASURED?
Credit worthiness
Capacity
Collateral
Capital
Types of Credit
New Credit
Length of Credit History
Amounts Owed
Payment History
o 10%
o 10%
o 15%
o 30%
o 35%
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WHAT IS A CREDIT SCORE
Credit Score: a number scale based on the analysis of an individual’s credit reports that represents the consumers likelihood to pay his/her debts
A higher score means that you are more likely to pay your debts
A lower score means that you are less likely to pay your debts
The score is typically three digits
Scores range from 300-850
Credit Score/FICO Score: FICO and Vantage provide various scoring models
Different models = Different Scores
Cannot be obtained free like Credit Report
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CREDIT SCORE = FINANCIAL GPA
Rating Scale of Risk
Higher the number, the better your credit
worthiness
FICO Scale Rating: 300- 850
Vantage Scale Rating: 501-990
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EFFECTS OF THE CREDIT SCORE
Range Fico Score Meaning
Subprime
(Poor/Low) Under 620 No access or unfavorable rates & terms
Prime
(Fair/Good) 620-780 Reasonable or good rates & terms
Super Prime
(Excellent) 780+ Best or best rates & terms
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LOW SCORES = HIGHER INTEREST RATES
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CREDIT SCORE IMPACT
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DISPUTING INCORRECT INFORMATION
Inform the credit reporting
company, in writing, what
information you think is
inaccurate. Include copies of
supporting documents.
Clearly identify each item in
your report you dispute, state
the facts and explain why you
dispute the information, and
request that it be removed or
corrected.
Enclose a copy of your
report with the items in
question circled.
Send your letter by certified
mail, “return receipt
requested.”
Keep copies of your dispute
letter and enclosures.
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DISPUTING INCORRECT INFORMATION
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BUILDING CREDIT
Installment Loan
Secured Credit Card
Store specific credit card
Pay on Time Pay on Time Pay on Time
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STEPS TO IMPROVE YOUR CREDIT SCORE…
Pay bills on time (#1 weighted factor)
Keep older accounts open
– Older accounts establish length of history
Keep debt-to-available credit ratio < 50%; 30%
better (*don’t use over 30% of available credit capacity)
Get a mix of types of credit
– Revolving and installment credit
Check credit reports and fix mistakes
Avoid simultaneous inquiries
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CREDIT MONITORING SERVICES
Businesses who claim to check your credit for you-allow you access to your credit report & score at all times and alert you if there are any changes in your credit. Some companies offer help if ID Theft occurs.
Costs-$10-15 a month
Individual Consumer choice whether or not to buy—can spread out the credit reports throughout the year and monitor credit yourself?
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CREDIT REPAIR SCAMS
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SIGNS OF CREDIT REPAIR FRAUD
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CREDIT REPORTS AND SCORES
Three major credit reporting bureaus
Experian
Equifax
TransUnion
Retrieving your credit report
www.annualcreditreport.com
Call 1-877-322-8228