Credit Reports and Credit Scoring

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Credit Reports and Credit Scoring,  Identity Theft

What’s in a Credit Report?

• Identifying Information
• Credit History
• Public Record Information
• Inquiries

Fair Credit Reporting Act

Credit reports can only be obtained:

• By written permission for employment
• Application for government or business licensure
• Credit or insurance transaction
• Court subpoena from a federal grand jury
• Requirement for setting child support

The Fair Credit Reporting Act prohibits scoring based on race, color, religion, national origin, sex and marital status; as well as concerning public assistance.


When your credit report is free?

• You have been recently denied for credit
• You have been recently denied employment or insurance
• You suspect someone has been fraudulently using your account
• You are unemployed and intend to apply for employment within 60 days
• You receive public welfare assistance

You are also entitled under federal law to obtain a copy of your credit report from each of the three major credit bureaus once per year. Obtain your free credit report by clicking here: www.annualcreditreport.com


3 Main Credit bureaus:

Equifax
Equifax Credit Information Services, Inc
P.O. Box 740241
Atlanta, GA 30374

Tel: 1-888-766-0008
www.equifax.com

Experian (formerly TRW)
National Consumer Assistance Center
PO Box 2002
Allen, TX 75013

Tel: 1-888-397-3742
www.experian.com

TransUnion LLC
Consumer Disclosure Center
P.O. Box 1000
Chester, PA 19022

Tel: 1-800-888-4213
www.tuc.com

What information do credit bureaus provide?:

These independent companies serve as record keepers of financial and personal data for consumers across the country. Credit Bureaus do not lend money nor do they make a single decision on who should be approved for a loan. They simply store information which creditors, employers, businesses and government agencies provide to them pertaining to your past experiences with credit. All of the data in the report is used to create a credit score.

Debt to Income Ratio

Another significant factor considered in loan approval is your Debt to Income ratio. This figure measures the percentage of gross monthly income that is used to pay monthly housing expenses, car payments, indebtedness such as installment loans and credit cards, and other fixed expenses such as alimony and child support. When applying for a mortgage, lenders generally like to see this percentage at 35% or lower.


How to Read Your Credit Report

NC State University A&T State University Cooperative Extension offers an example of how to read a credit report. This is a PDF file and you will need Adobe Acrobrat Reader to view it.
Click here: http://www.ces.ncsu.edu/depts/fcs/frm/programs/read_credit_report.pdf


For an example of how to read an Experian credit report. This is a PDF file and you will need Adobe Acrobrat Reader to view it.
Click here: http://www.experian.com/credit_report_basics/pdf/samplecreditreport1.pdf


True Statements About Credit Repair

• No one can have accurate information removed from your credit report
• If you have had credit problems in the past, it can take years to repair your credit legitimately
• No one can create a new identity for you
• You can order your credit report for yourself
• If you see errors on your report, you can also request that the credit agency make appropriate changes

Credit Scoring

• A score is a snapshot of your credit risk picture at a particular point in time
• It is a number that helps lenders and others predict how likely you are to make your credit payments on time.
• “If I give this person a loan or credit card, how likely is it that I will get paid back on time?”
• Each score is based on the information in your credit report.
• Today’s most commonly used scoring system is FICO
• Developed by Fair, Isaac Corporation (FICO)

Why Does The Score Matter?

• Credit scores affect whether you can get credit and what you pay for credit cards, auto loans, mortgages and other kinds of credit
• Higher scores mean you are more likely to be approved and pay a lower interest rate on new credit

What factors make up your credit score?

Payment History: (35%)

• Account payment history on specific types of accounts (credit cards, retail accounts, installment loans, finance companies, mortgages)
  
• Presence of adverse public records (bankruptcy, judgments, law suits, liens, wage garnishments) collection items, and past due accounts
  
• Severity of delinquency (how far past due)
  
• Amounts past due on delinquent accounts or collection items
  
• Recency of past due items, adverse public records, collection items
  
• Number of past due items on file
  
• Number of accounts paid as agreed
  

Amount Owed: (30%)

• Amount owing on accounts
  
• Amount owing on specific types of accounts
  
• Lack of a specific type of balance
  
• Number of accounts with a balance
  
• Proportion of credit lines used
  
• Proportion of installment loans still owing
  

Length of Credit History: (15%)

• Time since an account was opened
  
• Time since accounts were opened of a specific type
  
• Time since an account had activity
  

New Credit (10%)

• Number of recently opened accounts, and proportion of accounts recently opened by type of account
  
• Number of recent credit inquiries
  
• Time since recent account openings, by type of account
  
• Time since credit inquiries
  
• Re-establishment of positive credit history following past payment problems
  

Types of Credit Used (10%)

• Number of various types of accounts (credit cards, retail accounts, mortgages, installment accounts)
  

Other Credit Scoring Factors

• Credit scoring is based, partially, on the maturity of the credit lines that are on a consumer's report.
  
• Accounts that have been established for years with a good payment history and reasonable use of available credit can stabilize and improve a credit score.
  
• However, accounts that are less than a year old, do not have a mature history and may weigh against the score because the consumer's ability to maintain long term stability with their increased spending power has not been established.
  
• Derogatory information that is reported on a consumer that has a mature history may not weigh against the credit score as much as derogatory information that is reported on a consumer whose credit history is not mature.
  

Other Qualification Factors That Creditors May Use.

• A credit score takes into consideration all of these categories of information and each creditor may weigh the factors differently.
  
• If you have mostly new credit, a creditor may give more consideration to this category then others.
  
• If you have a long period of a strong payment history, it may be considered in light of a recent problem.
  
• Your credit score looks at only information on your credit report but lenders may and do take into consideration other factors when evaluating an application for credit.
  
  

Mr. Goodcredit (An example of someone with excellent credit)

• Three or four revolving credit cards with high lines of credit and very low balances
• At least one Travel and Entertainment charge card (Amex or Diners)
• Credit lines at least 6 months old, at least one more than 3 years old
• No derogatory items on his report
• Very few inquiries– no more than 1-3 in a 6 month period
• Keeps at least one installment credit line in good standing (i.e. mortgage, car loan etc.)
  

What’s NOT In Your FICO Score

• Race, color, religion, national origin, sex and marital status
• Age
• Salary, occupation, title, employer or employment history
• Where you live
• Interest rates on credit card or other accounts
• Child/family support obligations or rental agreements
• Information NOT found on your credit report
• Any information that is not proven to be predictive of future credit performance

Tips For Raising Your Score

• Time
• Managing credit responsibly
• Pay your bills on time
• Get current and stay current on your bills
• Keep balances low on credit and revolving accounts
• Pay off debt rather than moving it around

To help consumers, the Federal Citizen Information Center has a free brochure titled "Your Credit Scores." To review the publication visit:

http://www.pueblo.gsa.gov
http://www.myfico.com, and
http://www.consumerfed.org.

Get a free estimate of your credit score on the web:
http://www.bankrate.com/brm/fico/calc.asp

Purchase your FICO credit score on the web:
http://www.myfico.com

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