Why is a good credit score important?
Better loan terms
Credit Score Mystery
"Your score" refers to a current FICO score
FICO Score - (Fair Isaac Corp) a score produced by software which is provided to lenders by credit bureaus.
Exact software model kept secret to protect financial status
Only calculated if enough recent information has been collected to produce a score.
Open six months or longer
We Have 3 FICO Scores!
"There are three different FICO score models by Fair Isaac - one at each main US credit reporting agencies.
Same basic product, different names
A Credit Bureau is...
Company that collects consumer financial info
Sells it in the form of credit reports
Assigns score based on credit behavior history
Maintains lifetime records of millions of consumers' credit history
Keys to a Good Score
How bills are paid
Amounts owed vs. available credit lines
New credit applications
Mix of credit products
Age/length of established accounts
A Credit Score Is...
"Numerical value between 300-850
Number that sums up your credit report and risk to a lender
The higher the credit score, the less risk
Less risk = best loan terms and interest rates
The US Average Credit Score Breakdown
1% 499 and below
11% 800 and above
What's on a Credit Report?
Identification: name, address, SSN, birth date, employment
Public Records: bankruptcy, tax liens, garnishments, foreclosures, lawsuits and judgments
Collection Items: unpaid bills turned for collection
Credit History: past credit accounts to most recent, with current balances, monthly payments, payment history, date opened or closed, original loan amount, credit limit
Credit Inquiries: past 24 month period, voluntary and involuntary
Credit Report Timeline
Updated every 30 days
Positive Info: Indefinitely
Bankruptcies: 7 - 10 years
Public Records: 7 years
Inquiries: 2 years
Inactive/closed: Cycle off
What is a Credit Score Based On?
35% Payment History
Payment History: how late, how much owed, and how recent. 60 days late does not have as much impact as 90 days late.
How recent and frequent count: 60 days late a month ago will have more impact than a 90 day late payment 5 years ago
Postive payment history: on most of your accounts will increase score!
30% Amounts Owed
Amounts Owed: when high percentage of a consumer's credit has been used up, this indicates a consumer may be overextended and more of a credit risk, which affects credit scoring
Revolving vs. Installment Debt: too much revolving may mean having trouble making future payments
15% Length of Credit Used
Length of Credit History: the longer established credit history will raise credit score versus history of a short period. Long established accounts show longer history of managing credit wisely
Age of Credit Accounts: score influenced by age of your oldest account, age of your newest account and average age of all your accounts
10% New Credit
New Credit: research shows opening several credit accounts in a short time frame does represent greater risk to a lender as
Several Credit Inquires: people w/6 inquiries or more can be up to 8Xs more likely to declare bankruptcy than those w/no inquiries
10%Types of Credit Used
Types of Credit: score based on mix of credit cards, retail, finance company accounts, mortgage and installment loans
What Lowers a Score?
Maxed out credit cards (low capacity)
Closing Credit Accounts
More Revolving Debt vs. Installment Debt
Several Credit Inquiries
Sub Prime Lenders
The effect of past credit challenges fades as time passes and recent positive payment history begins to show up on credit history.
Score is reevaluated: Good credit behavior vs. past credit behavior
How to Raise or Maintain a Credit Score?
# 1 - making payments on time
Removing negative info
Paying down/off credit cards (raises capacity)
Using oldest credit card
Open new accounts slowly
Correct credit report errors
Paid collection items
Mortgage, secured loans and installment loans with positive payment history
Open Credit Lines vs. Credit Card Limits
A little work goes a long way!
Keep a proactive attitude: Don't let unhealthy items go unresolved
Confidence for the future