Understanding_Your_Credit_Score_Nationwide1 by fanzhongqing


									Understanding Your Credit Score
  Consumer Credit of the Quad Cities

     First -- some background…
• In the old days…banks relied on their own records
  and sometimes even the loan officer’s instincts,
  (or their gut), when making lending decisions.
   • Obviously, while this worked some of the time, it
     wasn’t necessarily the most effective, or fair method of
     determining whether or not someone was qualified for a
• Bill Fair (an Engineer) & Earl Isaac (a Mathematician)
  came up w/ an idea!
   • They said that math could better predict future behavior
     than the “gut” of a loan officer…So
   • They developed the Fair Isaac Credit Scoring model.
        Credit Score defined

• A number that attempts to “measure” the
  odds that someone will pay the bank back if
  the bank gives that person money

          Some other details
• Your score is a number between 300 - 850
• A high score means a good credit rating
  which means your interest rates will likely
  be lower
• A low score means a bad rating, which
  means interest rates will likely be higher
• Your score measures activity over the past 7
  • Giving greatest weight to most recent
    information (6 months to 2 years)
Comparing your Credit Score to a
   Grading Scale in School

 School Grading Scale    Credit Grading Scale
• 100% - 93%    A       • 850 – 720      A
• 92% - 85%     B       • 719 – 680      B
• 84% - 70%     C       • 679 – 620      C
• 69% - 60%     D       • 619 – 600      D
• 60% - 0       F       • 599 – 300      F
           www.TooMuchDebt.com Score 723
                        • Median
* The above scale ranges may vary.
What factors are used to make up
          your Score?

• 35% Payment History

• 30% Amounts Owed (current balances vs.
 amount available on credit line)

             Remaining Factors
• 35% Other
   • Including: Length of time you’ve had credit (15%)
   • Types of Credit (10%)
   • New credit (10%)
      • Inquiries

• Note: The statistical formula that is used create
  your score is a secret. The above are guidelines
  that have been given to consumers to help
  “explain” the score.
           Payment History (35%)
• Account payment information on specific types of accounts (credit
    cards, retail accounts, installment loans, finance company accounts,
    mortgage, etc.)
•   Presence of adverse public records (bankruptcy, judgments, suits,
    liens, wage attachments, etc.), collection items, and/or delinquency
    (past due items)
•   Severity of delinquency (how long past due)
•   Collection items
•   Time since (recency of) past due items (delinquency), adverse public
    records (if any), or collection items (if any)
•   Number of past due items on file
•   Number of accounts paid as agreed

• Greatest weight given to the largest payment
          Amounts Owed (30%)
• Amount owing on accounts

• Number of accounts with balances

• Debt Utilization Ratios – Amounts owed/Credit Given
   • Proportion of credit lines used (proportion of balances to total
     credit limits on certain types of revolving accounts)
   • Proportion of installment loan amounts still owing (proportion of
     balance to original loan amount on certain types of installment

               Other Factors

• Length of Credit History (15%)
  – The longer you’ve had credit the better your

  • What is measured?
     • Time since accounts opened
     • Time since account activity

        Other Factors (cont’d)

• Types of Credit (10%)

• Number of (presence, prevalence, and recent
  information on) various types of accounts (credit
  cards, retail accounts, installment loans,
  mortgages, consumer finance accounts, etc.)

        Other Factors (cont’d)
• New Credit (10%)
  • Number of recently opened accounts, and proportion of
    accounts that are recently opened, by type of account
  • Number of recent credit inquiries
  • Time since recent account opening(s), by type of
  • Time since credit inquiry(s)
  • Re-establishment of positive credit history following
    past payment problems

• This is a list of who has been checking your credit.
• 2 types of inquiries –
   • Inquiries you initiate
      • Ex. You apply for a loan, or apply for insurance
      • This type of inquiry will have an impact on your score but
        generally not a significant one. If you are shopping for a loan,
        the multiple inquiries will have the impact of a single inquiry
        within a 15 day period.
   • Inquiries others initiate or self-check of credit
      • Ex. Bank wants to offer you a pre-approved offer or you
        check your credit yourself.
      • The score does not count “consumer-initiated” inquiries – requests you have
        made for your credit report, in order to check it. It also does not count
        “promotional inquiries” – requests made by lenders in order to make you a
        “pre-approved” credit offer – or “administrative inquiries” – requests made by
        lenders to review your account with them. Requests that are marked as coming
        from employers are not counted either.
   What is not in your Score?

• Income          • Age

• Gender          • Zip Code

• Race            • Credit Counseling

             Facts and Fallacies

• Fallacy: My score will drop if I apply for new credit.
  Fact: If it does, it probably won't drop much. If you apply
  for several credit cards within a short period of time,
  multiple requests for your credit report information (called
  “inquiries”) will appear on your report. Looking for new
  credit can equate with higher risk, but most credit scores
  are not affected by multiple inquiries from auto or
  mortgage lenders within a short period of time. Typically,
  these are treated as a single inquiry and will have little
  impact on the credit score. (Myfico.com)
            Facts and Fallacies
• Fallacy: A poor score will haunt me forever.
  Fact: Just the opposite is true. A score is a “snapshot” of
  your risk at a particular point in time. It changes as new
  information is added to your bank and credit bureau files.
  Scores change gradually as you change the way you handle
  credit. For example, past credit problems impact your
  score less as time passes. Lenders request a current score
  when you submit a credit application, so they have the
  most recent information available. Therefore by taking the
  time to improve your score, you can qualify for more
  favorable interest rates.
   How do I improve my score?

• Pay all bills on time
• Pay off old collection
• Get current & Stay
• Keep balances low in
  relation to credit limits
• Only use credit when
How do I get a copy of my Credit
• By Phone: 877-322-8228

• By Web: www.annualcreditreport.com

• By Mail:
    Annual Credit Report Request Service
    P.O. Box 105281
    Atlanta, GA 30348-5281
       What information is on my
            Credit Report?
• Identification          • Account History
   •   Name             • Company Name
   •   Address          • Acct Number
   •   Soc. Sec. Number • Type of account
   •   Year of Birth    • Date Opened
   •   Gender           • Date Reported
   •   Employer         • Credit Limit
   •   Address          • Highest Balance
                        • Current Balance
• Public Information
                        • Monthly Payment
   • Bankruptcies
                        • Past Due Amount
        www.TooMuchDebt.com History for last 24
   • Judgments
                        • Payment
   • Tax Liens
   Additional Questions?
    Please contact us:

Consumer Credit of the Quad Cities
           3445 Spring Street
         Davenport, Iowa 52807
      563-359-8830 * 800-838-8830



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