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Understanding Your Credit Report and Score
- 1. UNDERSTANDING Your CREDITREPORT & SCORE www.credit.org Promoting Financial Literacy Presented by: Lori Lamb - Credit Education Supervisor
- 2. About Springboard Springboardis a non-profit organization founded in 1974. We offer personal financial education and assistance with money, credit, and debt management through educational programs and confidential counseling.
- 3. About Springboard Accreditedby the Council on Accreditation (COA) Member of the Association of Independent Consumer Credit Counseling Agencies (AICCCA) Member of the National Foundation for Credit Counseling (NFCC) Certified by the Department of Housing and Urban Development (HUD) Member of the Better Business Bureau (BBB)
- 4. Our Services IncludeCredit and Debt Counseling Financial Education Programs – Seminars and Materials Debt Management Plans Homeowner Assistance (Foreclosure Prevention) 1-888-995-HOPE or 1-888-995-4673 First Time Home Buyer Education Seminars Reverse Mortgage Counseling Pre-Bankruptcy Budget and Credit Counseling Pre-Discharge Financial Management Instructional Course
- 5. Introduction It iswell established that credit scores are now a cornerstone of the U.S. credit system. Credit scores determine access to housing, unsecured credit lines, insurance, cable, utility and cell phone services, and employment. It is imperative that the underlying data be correct for the score to have any meaning and consumers to accept the validity of credit scoring .
- 6. Credit History isYour Financial DNA According to study conducted by the Public Interest Research Group PIRG “Mistakes Do Happen: A Look at Errors in Consumer Credit Reports” www.pirg.org , in which it was found that one in four credit reports contains error serious enough to cause consumers to be denied credit, a loan, an apartment or home loan or even a job.
- 7. Credit History isYour Financial DNA The importance of good credit More employers are reviewing credit reports of prospective employees Insurance companies review your credit report when you apply to insure you home and/or car. Without good credit, it is very difficult to obtain a credit card, which is helpful if an emergency arises. Many businesses prefer the use of credit cards. Many employment fields, such as financial services, gaming, military and law enforcement, continually monitor their employees’ credit reports.
- 8. Make sure youget credit when credit is due An estimated 50 million Americans have little or no credit history and therefore can’t access mainstream credit. There are many businesses such as child care, private mortgages, payday lenders, gas, electric, water, telephone, utilities and cable TV that create regular monthly payment flows that are not aggregated to a credit history. Fair Isaac “Expansion Score” - Fair Isaac's FICO® Expansion® Score predicts credit risk for consumers without FICO® scores by bringing together data in real time from alternative credit data sources - www.myfico.com Payment Reporting Builds Credit (PRBC) - http://prbc.com/ Rent Reporters - RentReporters is a service that verifies your monthly rent payments with your landlord and provides that data to the credit bureaus to be added to your credit report. www.rentreporters.com First American CREDCO's Anthem Score represents a comprehensive and reliable underwriting score for consumers. who have little or no credit history. Anthem Report and Anthem Score http://www.credco.com
- 9. Credit Reports Whatinformation is contained in my credit report? Identifying Information Public Record Credit Information Inquiries
- 10. Identifying Information IdentifyingInformation: Your name and AKA’s Current and previous addresses Telephone number Social Security Number Date of birth as well as current and previous employers. This information is not used in the scoring, but to verify your information with the information on an application. Also the first place you may spot identity theft!
- 11. Public Records PublicRecord Information: Bankruptcy records, tax liens, monetary judgments, debts referred to collection agencies and, in some states, overdue child support is noted on the credit report. Chapter 7 Bankruptcy Information can remain on a consumer’s credit report for up to 10 years from date filed. Unpaid tax liens can be reported indefinitely , and paid tax liens remain for 7 years from the date paid . Unpaid judgments report for 7 years from date filed , once paid 7 years from date paid . Other public record information (late payments, collections) can remain for up 7 years.
- 12. Credit Information orTrades Credit Information: Specific information about each account, such as: The date the account was opened The credit limit or loan amount The balance due Monthly payment Payment history during the past several years (FICO focuses primarily on the most recent 12-24 months). Status of the account (open, closed, past due, charged off, included in BK etc…) For open accounts, positive credit information remains on the report indefinitely. Information on closed accounts with negative payment notations remain up to seven years from the last 30 day late. Information on closed accounts with no late payment history remain for 10 years. The report also states whether a spouse or co-signer is responsible for paying the account.
- 13. Inquiries Inquiries: Thecredit report also lists the names of those who obtained information from the credit report for the past two years. “ Hard” inquiries are those that result from an attempt to solicit credit or a loan. Other types of inquiries, such as those that result when a consumer requests a copy of his or her own report directly from the credit reporting agencies, are “Soft” inquiries that are not viewed by prospective creditors but are recorded and remain on the report from one to two years. Employers, landlords, pre-approved not responded to are all soft inquires. Consumers should be aware that when they request copies of their credit reports from third party vendors, rather than directly from the credit reporting agency, the inquiry often looks like a request for credit.
- 14. Inquiries for RateShopping The score allows for “rate shopping.” Looking for a mortgage, auto, or education loan may cause multiple lenders to request your credit report, even though you're only looking for one loan. To compensate for this, the score ignores all mortgage, auto, and education inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping! In addition, the score looks on your credit report for auto, mortgage, education inquiries older than 30 days . If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula , this shopping period is any 45 day span . Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.
- 15. Your Free CreditReport You should review your credit reports at least once a year. You are entitled to one free report from each bureau every 12 months from: www.annualcreditreport.com 877-322-8228 Scores are not free!
- 16. Experian Unfortunately,as of early 2009 Experian has stopped allowing consumers to access their FICO score. Only lenders may purchase a consumers Experian FICO score. This leaves consumers unable to know in advance what that score is in order to take steps to improve it before seeking credit. Consumers may still access their TransUnion and Equifax FICO scores directly by visiting www.myfico.com. Or you may go to www.experian to purchase their Vantage Score. (This is Not a FICO score). Once your lender has obtained your FICO scores from the credit bureaus, you are entitled to request a copy from your lender, including your Experian score and the factors that are influencing the score.
- 17. Additional Free CreditReports Anyone can request an additional free credit report for the following reasons: You have been denied credit, insurance, housing, or employment within the previous 60 days. You have been a victim of identity theft and have reason to believe that information is incorrect due to fraud. You are without employment and plan to apply for employment within the next 60 days. You are receiving public assistance. If a negative decision, in whole or in part, has been made in relation to the information that is in your credit report. If your credit report has been modified due to an investigation that you requested.
- 18. Free Specialty ConsumerReports ChexSystems is a nationwide specialty consumer reporting agency that collects and maintains information from member financial institutions such as banks and credit unions. If a bank closes Your checking account because of insufficient funds, for example, it will make a report to ChexSystems that other banks will check when you apply for new accounts. Toll-free number : (800) 428-9623. Web : www.consumerdebit.com/consumerinfo/us/en/chexsystems/report/index.htm Shared Check Authorization Network (SCAN) is owned by Deposit Payment Protection Services (DPPS). It maintains a database of returned checks and instances of fraud. It provides Check authorization and verification to its members, primarily retailers. Toll-free number : (800) 262-7771 (U.S., Guam, and Puerto Rico) Fax: (800) 358-4506 Web : www.consumerdebit.com/consumerinfo/us/en/consumerreports/index.htm To Order by Mail : Print the order form from the www.consumerdebit.com website and mail to: Deposit Payment Protection Services, Inc. Attn: Consumer Referral Services 7805 Hudson Road, Suite 100 Woodbury, MN 55125 To Order by FAX : Fax the order form to 800-358-4506
- 19. Free Specialty ConsumerReports TeleCheck also maintains a database of returned checks and instances of fraud. It provides check authorization and verification to member retailers. Toll-free number : (800) TELECHECK (800-835-3243 not necessary to dial last 2 digits). Web : www.telecheck.com . TeleCheck Services, Inc. 5251 Westheimer Houston, Texas 77056 Declined Check Information: (800) 366-2425 Some other Nationwide Specialty Consumer Reporting Companies: Medical Insurance Bureau - Medical records or payments www.mib.com/html/request_your_record.html Residential or tenant history - First Advantage SafeRent (Formerly known as Unlawful Detainer Registry (UDR) • www.fadvsaferent.com Employment history - background checks provided by Choicepoint www.choicepoint.com/ Insurance claims - CLUE • www.choicetrust.com/
- 20. Credit Score –FICO or FAKO? What is a credit score? Why are your three scores different? What affects your credit score?
- 21. What Affects YourFICO Score?
- 22. Simple Ways toImprove Your Credit Score Review credit reports regularly - Dispute any inaccuracies Make your payments on time/pay off unpaid debts -collections Keep balances below 50% of line of credit or less (Lenders prefer 25% or less) Keep old credit active – use the card at least once or twice a year to keep active Demonstrate a good mixture of credit history: Revolving, installment, mortgage Limit inquiries
- 23. Credit Consumers ShouldKnow Their Rights Fair Credit Reporting Act FCRA – Purpose is to promote accuracy and fairness, and to ensure the privacy of information in your credit reports along with dispute rights. Fair Debt Collections Practices Act FDCPA – Purpose is to prevent abusive, deceptive and unfair debt collection practices by debt collectors. Fair and Accurate Credit Transactions Act FACTA – Amendment to the FCRA, intended to primarily help consumers fight the growing crime of identity theft, accuracy, privacy, limits on information sharing, and new consumer rights to disclosure and free credit reports. Any violations to the above laws – file a complaint with the Federal Trade Commission at www.ftc.gov
- 24. Disputing Errors Whatcan you dispute? Anything that is not yours (reported to the wrong credit report or id theft) Anything that is reported inaccurately Anything that is past the statute of limitations for reporting
- 25. Statute on Limitationsfor Reporting Typical retention periods (may vary by state): Chapter 7, 11 or 12 bankruptcies 10 years from the date filed Chapter 13 bankruptcy filings 7 years from date paid Chapter 13 bankruptcy that is not completed 10 years Bankruptcies voluntarily dismissed 7 years Civil judgments 7 years from the date filed Unpaid tax liens can remain indefinitrly Paid tax liens 7 years from date paid Collections paid or unpaid 7 years from date of the initial missed payment Charge off accounts 7 years from date of the initial missed payment Credit accounts 7 years from the date of initial missed payment Inquiries 2 years
- 26. Basics of sendingdispute letters Provide a copy of your photo id, social security card, and proof of address (such as a utility bill, pay stub or bank statement) Provide copies of any documentation supporting your dispute Keep originals send copies Send all letters certified mail or return receipt Keep a separate file for each of the credit reporting agencies Respond quickly Know your rights!
- 27. Opting Out Youcan remove your name from any list compiled by a credit reporting agency, whether the list is for pre-approved credit offers or direct marketing. To "opt-out," that is, to remove your name from mailing lists compiled by credit bureaus. Call the toll-free number all credit reporting agencies are required by law to maintain for this purpose: Opt out of pre-screened or pre-approved credit offers @ 1-888-5OPT-OUT or 1-888-567-8688 . www.optoutprescreen.com They can stop the selling of your personal information to creditors.
- 28. Resources www.credit.org - Springboard’s Free educational downloads and financial tools – select Resource Center. www.whatsmyscore.org - Visa’s educational interactive tutorial that explains credit, credit scores and how to build solid credit and free FICO Score Estimator that can help you approximate your score. www.myfico.com - Fair Isaac’s Educational website www.ftc.gov – Your rights, educational materials or to file a complaint
- 29. Thank You! SpringboardNonprofit Consumer Credit Management 800-WISE PLAN www.credit.org [email_address]
Editor's Notes
- #5 DMP info page 8
- #7 DNA page 4 It is well established that credit scores are now a cornerstone of the U.S. credit system. Credit scores determine or at least greatly influence access to housing, unsecured credit lines, insurance, utility and cell phone services, and employment. Since they are based on credit reports, it is imperative that the underlying data be correct for (1) the score to have any meaning and (2) for consumers to accept the validity of credit scoring. Incidence of errors page 4 The Public Interest Research Group (PIRG) published a study, " Mistakes Do Happen: A Look at Errors in Consumer Credit Reports" ( www.pirg.org ), in which it was found that "one in four credit reports contains errors serious enough to cause consumers to be denied credit, a loan, an apartment or home loan or even a job." It’s vital to see your report and score page 11 In everyone’s life, there are always instances where credit is needed. From your first credit card to the last mortgage payment and every account in between, all these make up your credit history. The companies and people that give credit, such as banks, finance companies and other creditors, report information about you. These creditors send information regularly about your accounts to credit reporting bureaus that collect and archive this information. Your credit report can then be accessed by other creditors or distributed to others that are authorized to receive such information. The importance of good credit page 11 If you are thinking of buying a house, a car or simply applying for a new credit card, your credit report represents the first step in the lender’s decision-making process. The fact of the matter is that you need to have a good credit history in order to get credit. What is good credit? Simply put, a person with “good credit” has a well-established history of having paid their accounts on time.
- #8 DNA page 4 It is well established that credit scores are now a cornerstone of the U.S. credit system. Credit scores determine or at least greatly influence access to housing, unsecured credit lines, insurance, utility and cell phone services, and employment. Since they are based on credit reports, it is imperative that the underlying data be correct for (1) the score to have any meaning and (2) for consumers to accept the validity of credit scoring. Incidence of errors page 4 The Public Interest Research Group (PIRG) published a study, " Mistakes Do Happen: A Look at Errors in Consumer Credit Reports" ( www.pirg.org ), in which it was found that "one in four credit reports contains errors serious enough to cause consumers to be denied credit, a loan, an apartment or home loan or even a job." It’s vital to see your report and score page 11 In everyone’s life, there are always instances where credit is needed. From your first credit card to the last mortgage payment and every account in between, all these make up your credit history. The companies and people that give credit, such as banks, finance companies and other creditors, report information about you. These creditors send information regularly about your accounts to credit reporting bureaus that collect and archive this information. Your credit report can then be accessed by other creditors or distributed to others that are authorized to receive such information. The importance of good credit page 11 If you are thinking of buying a house, a car or simply applying for a new credit card, your credit report represents the first step in the lender’s decision-making process. The fact of the matter is that you need to have a good credit history in order to get credit. What is good credit? Simply put, a person with “good credit” has a well-established history of having paid their accounts on time.
- #9 Establishing Credit/Credit bureau reporting: page 12 The credit bureau’s business is credit reporting. What they do is collect information about consumers from banks, savings and loan institutions, credit unions, finance companies and other businesses. This information is stored in a database and when you apply for a new loan, the creditor orders information on you from the bureaus. The credit bureaus don’t keep track or record the outcome of that credit inquiry of your credit report.
- #10 What Information Is Contained In My Credit Report A Typical Credit Report Includes Four Types of Information Identifying Information Credit Information Public Record Information Inquiries Where can I get a copy: annualcreditreport.com MyFico.com
- #15 Review credit reports regularly . An accurate report will be an honest representation of a consumer’s history. Take control of yours. Pay bills on time . More recent negative remarks on a credit report are worse than problems that occurred years ago. For example, an account that has been delinquent in the past six months will do more damage to a credit score than a similar delinquency five years earlier. Reduce your overall debt . Keep your balances below 50% of your line of credit – pay off unpaid collections, judgments and tax liens. Limit revolving card usage . The goal should be not to max out your revolving or “open” lines of credit. Revolving means you can use it, pay it off, and use it again. Some experts advise no more than 50%, some say 35% as the maximum utilization level. Length of credit history Be aware that closing unused accounts may reduce your score. In choosing to close accounts, older accounts with a good history are the ones to keep because the age of an account and your length of time in the credit world also factors in the score. Easy access to credit may create the potential to get into trouble by going on a spending spree and racking up new debt, and lots of account numbers create more targets for identity theft. Limit the number of inquiries . Apply for credit only when necessary and get your credit report in advance. When shopping for a new car or a mortgage, make all applications within a 14-day period – inquiries will only count as one. Too many inquiries in a short period may be seen as an indication of financial problems or loading up on new credit. The scoring model is supposed to consolidate inquiries of the same type within a specific amount of time, which is 30 days.
- #21 There are many types of proprietary credit scores. Fair Isaac Corporation developed the most widely used scoring algorithm (model). It is a general risk score (some call it a rating) that indicates the probability of default. The higher the FICO score, the lower the risk. Creditors have different pricing tiers based on the score level. The number is the result of a complicated calculation based on the data in your credit report. The FICO score ranges from 300-850 other scoring models use different ranges. TransUnion and Experian have their own scores. TransUnion’s is called “Empirica” and Experian’s is called “PLUS Score,” but these are not true FICOs (some call them “FAKO’s”). Equifax uses the true FICO score, privately labeled as “Beacon.” Your credit score is based on five factors. These factors and their percentage impact on the score’s calculation are as follows: 35% - Payment history (bankruptcies, late payments and collections). 30% - Outstanding debt (credit card balances and number of cards, also known as utilization). 15% - Length of credit history (age of oldest credit card account, average age of accounts, time since accounts were used). 10% - Pursuit of new credit (number of inquiries from potential lenders and newly opened credit accounts). 10% - Types of credit (bank cards, department store cards, finance companies, secured, unsecured). The scoring model likes to see a balanced report, with both installment and revolving accounts.
- #23 Review credit reports regularly . An accurate report will be an honest representation of a consumer’s history. Take control of yours. Pay bills on time . More recent negative remarks on a credit report are worse than problems that occurred years ago. For example, an account that has been delinquent in the past six months will do more damage to a credit score than a similar delinquency five years earlier. Reduce your overall debt . Keep your balances below 50% of your line of credit – pay off unpaid collections, judgments and tax liens. Limit revolving card usage . The goal should be not to max out your revolving or “open” lines of credit. Revolving means you can use it, pay it off, and use it again. Some experts advise no more than 50%, some say 35% as the maximum utilization level. Length of credit history Be aware that closing unused accounts may reduce your score. In choosing to close accounts, older accounts with a good history are the ones to keep because the age of an account and your length of time in the credit world also factors in the score. Easy access to credit may create the potential to get into trouble by going on a spending spree and racking up new debt, and lots of account numbers create more targets for identity theft. Limit the number of inquiries . Apply for credit only when necessary and get your credit report in advance. When shopping for a new car or a mortgage, make all applications within a 14-day period – inquiries will only count as one. Too many inquiries in a short period may be seen as an indication of financial problems or loading up on new credit. The scoring model is supposed to consolidate inquiries of the same type within a specific amount of time, which is 30 days.
- #24 In 1970 the Fair Debt Collection Practices Act (FDCPA) became law. Its purpose is to prevent abusive, deceptive and unfair debt collection practices by debt collectors. Congress enacted the Fair Credit Reporting Act (FCRA) in April 1971. This established guidelines for credit bureaus, credit reporting agencies, and creditors/collectors to follow in reporting our individual credit history. The Fair and Accurate Credit Transactions Act (FACTA), is the name of the new law, which amended FCRA in late 2003. It establishes uniform national standards and preempts state laws in most instances, although some states were able to maintain their own laws regulating credit reporting and consumer access. The law provides significant new consumer protections regarding resolution of disputes and identity theft, among others.
- #25 All incorrect, incomplete, or outdated information can be disputed Be succinct in stating what your desired result is and provide documentation. If the information is outdated, it should be promptly removed. For information that the consumer believes is inaccurate or incomplete, the credit bureau has 30 days to verify the information with the creditor to ensure that it is correct. If the creditor cannot document the truthfulness of the disputed information, it must be deleted from the credit report. It is often necessary to dispute the same item with all credit reporting agencies that have recorded the negative notation. Credit bureaus do not communicate or share information and making a correction on one report does not mean the correction will appear on the report of a different bureau. Mail everything certified mail, return receipt requested. Disputes can be filed easily over the Internet; however, the conventional wisdom is that mailed disputes are the most effective and that certified mail should be used. You may use the sample dispute letters found at the back of the Consumer Guide to Good Credit.
- #26 All incorrect, incomplete, or outdated information can be disputed Be succinct in stating what your desired result is and provide documentation. If the information is outdated, it should be promptly removed. For information that the consumer believes is inaccurate or incomplete, the credit bureau has 30 days to verify the information with the creditor to ensure that it is correct. If the creditor cannot document the truthfulness of the disputed information, it must be deleted from the credit report. It is often necessary to dispute the same item with all credit reporting agencies that have recorded the negative notation. Credit bureaus do not communicate or share information and making a correction on one report does not mean the correction will appear on the report of a different bureau. Mail everything certified mail, return receipt requested. Disputes can be filed easily over the Internet; however, the conventional wisdom is that mailed disputes are the most effective and that certified mail should be used. You may use the sample dispute letters found at the back of the Consumer Guide to Good Credit.
- #27 All incorrect, incomplete, or outdated information can be disputed Be succinct in stating what your desired result is and provide documentation. If the information is outdated, it should be promptly removed. For information that the consumer believes is inaccurate or incomplete, the credit bureau has 30 days to verify the information with the creditor to ensure that it is correct. If the creditor cannot document the truthfulness of the disputed information, it must be deleted from the credit report. It is often necessary to dispute the same item with all credit reporting agencies that have recorded the negative notation. Credit bureaus do not communicate or share information and making a correction on one report does not mean the correction will appear on the report of a different bureau. Mail everything certified mail, return receipt requested. Disputes can be filed easily over the Internet; however, the conventional wisdom is that mailed disputes are the most effective and that certified mail should be used. You may use the sample dispute letters found at the back of the Consumer Guide to Good Credit.
- #29 In 1970 the Fair Debt Collection Practices Act (FDCPA) became law. Its purpose is to prevent abusive, deceptive and unfair debt collection practices by debt collectors. Congress enacted the Fair Credit Reporting Act (FCRA) in April 1971. This established guidelines for credit bureaus, credit reporting agencies, and creditors/collectors to follow in reporting our individual credit history. The Fair and Accurate Credit Transactions Act (FACTA), is the name of the new law, which amended FCRA in late 2003. It establishes uniform national standards and preempts state laws in most instances, although some states were able to maintain their own laws regulating credit reporting and consumer access. The law provides significant new consumer protections regarding resolution of disputes and identity theft, among others.