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Credit Overview
Limits or expands our financial stabilityIncreases or decreases our quality of lifeOpens or closes doors to employment opportunities and promotionsAffects our income by way of interest ratesLimits or expands our purchasing power
Credit Facts
Credit Cards-Debt is a Trillion Dollar IndustryAmericans are the biggest spendersApprox83% of Divorces are due to Financial ProblemsJanuary 2006 - Min. Monthly Payments for credit cards increased from 2% to 4% causing already strapped consumers financial hardshipAll of your Creditors can increase your interest rates if you are ever late on any of your “other” accountsBankruptcy Relief is now more difficult to file due to the new “Means Test” (as of October 2005)
Fair Isaac CompanyProvides risk assessment softwareto the 3 Credit Reporting Agencies (CRAs)Experian (formerly TRW), Trans Union & EquifaxVantage ScoreNew Scoring Model developed by the Big 3To compete against FICO - Range from 501 -900
Fico Score Basics
Scores are damaged by the most recently reported derogatory informationDerogatory information reported after 2 years does not highly impact scoreFICO has 88 Negative Rating Factors and only 6 Positive Rating FactorsFICO measures whether a person is moving towards or away from BankruptcyThere are only 5 basic scoring factors that you can control
Consumer’s Right To Accuracy
The Fair Credit Reporting Act:In 1971, Congress passed the Fair Credit Reporting Act (FCRA). The FCRA was passed with the intention to regulate the credit-reporting agencies (CRA). The Act spelled out all the rules and regulations that the credit-reporting agencies have to follow before they put anything on someone’s credit report. For the past three decades, those agencies have ignored most of the law. Information about “you” has to be accurate and verified before it is entered on your credit reports. If “reasonable procedures” have not been correctly followed, then any verified inaccuracies must be removed from your credit reports as defined in the FCRA. The three credit reporting agencies are Experian (formerly TRW), Equifax and Trans Union. There are other reporting agencies also that purchase their information from the Big-3, so if you can repair your credit with the Big-3, you basically repair it with everyone.
FICOscoring factors you can control
35% Payment History30% Amounts Owed15% Length of Credit History10% New Credit10% Types of Credit in Use
Fico Advantages
Consumers obtain loans fasterCredit decisions are fairerOlder credit problems count for less- Great for BankruptciesMore available creditCredit rates are lower over allWith an understanding of the system, a person can change his or her financial standing from D credit to A credit rating
How do “Inquiries” count?
HARD INQUIRIESOnly “permissible use” credit inquiries count against you, including credit card offers you’ve applied for.SOFT INQUIRIESCredit reports you pull yourself or from a consumer site do not count. Marketing inquiries also fall in this category.For Mortgage or auto loans, FICO counts multiple inquiries during a 30-day period as just one inquiry.In the old Scoring Model, multiple inquiries were counted as one inquiry within a 14-day period.
Length of time the following items stay on Credit Reports?
Bankruptcies 7, 11 and 13 10 YearsCollections 7 YearsPublic Record 10 YearsInquiries 2 YearsChex Systems (for banks) 5 YearsTelecheck(for merchants) 5 YearsSCAN (for merchants) 5 YearsRegulated by FTC through Fair Credit Reporting Act
Collections, Judgments & Liens
Do not be too quick to pay an old collection account; depending if you’re getting a loan or just repairing credit.Judgments will reflect as “Satisfied” when paid.Collections will reflect as “Paid” when paid.Liens will reflect as “Released” when paid.
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