Understanding Credit & Credit Reports

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

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)

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:

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

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)

SAMPLE CREDIT REPORT
Credit History

Public Records

Inquiries

TIME LIMITS ON NEGATIVE CREDIT INFORMATION
REPORTING
• Indefinitely
Open Accounts in
Good Standing
• 10yrs from date of closure
Closed Accounts in
Good Standing
• 7yrs from date of 1st delinquency
Late or missed
payments
• 7yrs from date of charge offCharge Off/Collection
• Ch.7 (10yrs), Ch.13 (7yrs) from date of
stay implemented by courtBankruptcy
• 7yr from beginning of caseCivil Judgment
• 7yrsForeclosure
• 7yrs from paid date or no limit if unpaidTax Liens
• 2yrs (Hard Inquiry)Inquiries

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%

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

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

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

LOW SCORES = HIGHER INTEREST RATES

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.

DISPUTING INCORRECT INFORMATION

BUILDING CREDIT
 Installment Loan
 Secured Credit Card
 Store specific credit card
Pay on Time Pay on Time Pay on Time

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

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?

CREDIT REPORTS AND SCORES
 Three major credit reporting bureaus
 Experian
 Equifax
 TransUnion
 Retrieving your credit report
 www.annualcreditreport.com
 Call 1-877-322-8228

Thank You
Jeff Wilson II, CPA, AFC, CFE
Email: info@wiicpas.com
Web address: http://www.wiicpas.com

Understanding Credit & Credit Reports

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