1 C re d i t R e p o r t s Understanding your credit report and credit score can help you manage and improve your credit situation. By knowing what affects your credit report and credit scores, you will be able to take positive actions that may lower your credit risk and increase your credit score. There are three major credit bureaus: Equifax, TransUnion, and Experian. Together, these three bureaus compile and maintain credit files on nearly 90 percent of adults in the United States. A common public misperception is that these bureaus are government agencies or extensions of the federal government. In fact, the bureaus are private, for-profit companies that gather your credit history information and sell it to businesses that are legally permitted to see your report. The businesses allowed to request your credit report include creditors such as banks and credit unions, credit card companies, mortgage lenders, and retail stores, in addition to employers, landlords, and insurance companies. A consumer credit report is a document prepared by the credit bureaus that provides the following: Personal Information, Credit History, Public Records (bankruptcy, judgments, etc.), and Inquiries. Other than inquiries, all of the above information remains on your credit report for seven to ten years. This information is documented and sold to current and/or potential lenders, employers, landlords, and insurance agents for the purpose of providing the consumer‟s payment history and credit worthiness. Based upon the Fair Credit Reporting Act, credit grantors are permitted to review your credit report to objectively determine your credit worthiness. There are 190 million credit active people in the United States who have a credit file, meaning they have applied for credit in some form since they were eighteen. As consumers pay their bills, most lenders report the payment and account information to at least one of the three credit bureaus. However, a recent study shows that up to 79% of all credit reports contain inaccuracies. While a bankruptcy, judgment, or late payments can lower your credit score pretty quickly, improving your score takes time. It is best if you check your credit scores and credit reports at least every 6-12 months, especially prior to applying for a loan. This way, you have no surprises when a potential lender views your report. You‟ll have time to work on improving any inaccuracies on your credit report and work to increase your credit score, if needed. __________________________________________________________________________________ 1 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. 2 Information Contained in C re d i t R e p o r t s Credit reports were originally designed for professional accountants, creditors and finance experts to read – and the reports haven‟t changed much since their inception. The credit bureaus have taken small steps towards making them more „user friendly‟, but consumers still find the reports confusing and difficult to understand. Credit bureaus compile the majority of your credit information from creditors. The bureaus also search county and court records to find recorded liens (legal claims), lawsuits, judgments, and bankruptcy filings. To create a file for an individual, a credit bureau searches its database and finds entries that match the person‟s name, Social Security number or other identifying information. The subsequent matches are compiled to complete the report. Se c tio n s of Cre dit Re p or ts There are several different styles of credit reports, but they are all based on the information provided by the three major credit bureaus, and instructions for reading your credit report should be included with the report itself. All credit reports contain the following information (each are detailed below): 1. Personal Information Name Address Previous Address(es) Date of Birth Social Security Number 2. Account Information Account Number Name of Creditor (Type of Credit) Account Status Date of Opening Payment Habits __________________________________________________________________________________ 2 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. 3. Public Records Tax Liens, Bankruptcy, Judgments 4. Inquiries This lists a record of those who have requested your credit report (i.e., potential lenders and creditors). Inquiries should stay on your report for only two years, so make sure that you request all inquiries that are two years old or more be removed. Personal Information The Personal Information section of your credit report includes your name, Social Security number, date of birth, current and previous address, employment history, and more. Different sources report this information to the credit bureaus, so it is not uncommon to discover variations of your name or discrepancies in your address, Social Security number, or other pieces of information. Personal Information is not used in scoring, but it is important to check this information closely to discover credit fraud or identity theft as well as avoid confusion with others who have similar names. Account History This section contains the overall number of credit accounts and loans that you have held over the last seven years, such as: Mortgage Accounts Installment Accounts – (Accounts with fixed terms and regular payments) Revolving Accounts – (Accounts with no time limit, such as credit cards) Open Accounts Closed Accounts Accounts in Good Standing Accounts Currently Past Due Negative Accounts Negative Account Information Some credit reports contain a separate section listing negative account information, which includes information of accounts in which you deviated from your original payment plan. When negative information in your report is accurate, only the passage of time can assure its removal. Accurate negative information can generally stay on your report for 7 years. There are certain exceptions: __________________________________________________________________________________ 3 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. Information about a lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. Bankruptcy information may be reported for up to 10 years. Credit information reported in response to an application for a job with a salary of more than $75,000 has no time limit. Credit information reported because of an application for more than $150,000 worth of credit or life insurance has no time limit. Inquiries The Inquiries section lists the name of a creditor or authorized user who has accessed your credit report. Each inquiry is listed on your credit file so you know who has received a copy. There are two types of inquiries – hard and soft, as defined below: Hard Inquiries Hard inquiries, also known as voluntary inquiries, are generated when you give permission for a company to request a copy of your credit report. These inquiries remain on your credit reports for up to 2 years and can negatively affect your credit score. Soft Inquiries Soft (involuntary) inquiries are generated for several different reasons. These inquiries include your own request for your credit report or when a lender considers you for an offer of credit and requests to view your report. Soft inquiries do not appear on the credit report that potential lenders see, and are only shown on the following sample for informational purposes only. The different types of soft inquiries are: PRM PRM represents promotional inquiries, where a third party provides your name to a creditor who then extends a firm offer of credit (i.e. direct mail offering of pre-approved a credit card). Promotional inquiries remain on your file for 12 months. AM or AR Occasionally your creditors may perform Account Monitoring or Account Review inquiries to periodically review your account. These typically remain on your file for 12 months. Public Records In addition to matters of public record, such as tax liens, bankruptcies, and other similar items, this section also includes different information such as accounts that have been turned over to collection agencies. This information adversely affects your credit score. Examples of public records contained in your credit reports include: __________________________________________________________________________________ 4 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. Bankruptcy Bankruptcy is a legal proceeding that is provided to give a person (or business) who is in severe financial distress a means to be declared fully or partially unable to repay the debts and gain some relief. In return for full or partial release from those debts, the consumer may sacrifice some property or agree to a payment plan. (Bankruptcy provides for court administered liquidation of the assets of a financially troubled individual or business.) There are several different types of bankruptcy for consumers. Garnishments A legal proceeding in which money that would normally be paid to you (such as your paycheck) is applied directly to the payment of a debt instead. Foreclosures The legal process by which a creditor may sell mortgaged property to pay a defaulted mortgage. Tax Liens The government may place a lien on your real or personal property until they receive payment for unpaid taxes. It is the government's claim (or collateral) for unpaid taxes. Lawsuits or Judgments A verdict, reached in court requiring a person to fulfill an obligation, such as paying debt. Upon payment of the debt (meeting the obligation in full), the judgment has been satisfied and the consumer is no longer liable. Information about judgments is recorded in the public records section of a credit report. Miscellaneous Items Miscellaneous items include a variety of types of items on your credit report. These items do not necessarily affect your credit score. Consumer Statement You are allowed to submit statements regarding items on your credit report, explaining the circumstances surrounding an unresolved dispute. Financial Statements Public records regarding personal property that has been repossessed or seized in connection with an unpaid loan. Marital Items This section contains legal information regarding divorces and annulments. Non-responsibility Statement This is a statement that you sent to the bureau (or creditor), claiming that you are not responsible for a particular debt. SSN or Address Verification Request __________________________________________________________________________________ 5 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. This appears if your address or Social Security number is in question. The item may specify that your reported address or SSN is too new and has not been verified. W h a t ’s N o t o n y o u r C r e d i t R e p o r t ? So now you know what types of information can show up on your credit report. The information that does not appear is also important. While your credit reports include a wide range of information about you, they do not include: Your race, color, religion, national origin, sex and marital status. US law prohibits credit scoring from considering these facts, as well as any receipt of public assistance, or the exercise of any consumer right under the Consumer Credit Protection Act. Any information not reported by a creditor. __________________________________________________________________________________ 6 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. 3 A b o u t C re d i t S c o r i n g When you apply for credit – whether for a credit card, a car loan, or a mortgage – lenders want to know what risk they'd take by loaning money to you. FICO® scores are the credit scores most lenders use to determine your credit risk. You should have three FICO scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information the credit bureau keeps on file about you. As this information changes, your credit scores tend to change as well. Your three FICO scores affect both how much and what loan terms (interest rate, etc.) lenders will offer you at any given time. For your three FICO scores to be calculated, each of your three credit reports must contain at least one account which has been open for at least six months. In addition, each report must contain at least one account that has been updated in the past six months. This ensures that there is enough information – and enough recent information – in your report on which to base a FICO score on each report. Other Names for FICO Scores FICO scores have different names at each of the major credit reporting agencies. All of these scores, however, are developed using the same algorithms developed by Fair Isaac. Credit Reporting Agency FICO Score Equifax BEACON® Score Experian Experian/Fair Isaac Risk Model TransUnion EMPIRICA® More than one credit score In general, when people talk about "your score", they're talking about your current FICO score as reported by at least one of the major bureaus. However, there is no one credit score used to make decisions about you. This is true because: Credit bureau scores are not the only scores used. Some lenders may use their own credit scores, which often include the FICO score as well as other information about you. Your credit score may be different at each of the major credit reporting agencies. The FICO score from each credit reporting agency considers only the data in your credit report at that agency. If your current scores from the credit reporting agencies are different, it may be because the information those agencies have on you differs. __________________________________________________________________________________ 7 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. Your FICO score changes over time. As your data changes at the credit reporting agency, so will any new credit score based on your credit report. W h a t M a k e s U p M y C re d i t S c o re ? Your credit score comes directly from your credit report and the information in it. Your credit report and credit scores are the leading factors in determining the credit that is available to you and the interest rates that lenders can offer you. It is a snapshot of your credit risk at that point in time, and can (and often does) change frequently. A credit score is a mathematical equation that is based solely on the information found in your credit report. The credit score was designed to tell lenders how much of a credit risk you are. The higher your credit score, the lower the risk. A credit score can range from 300 – 850. If your score is above 700 then you are considered low risk and it should not be hard for you to get credit. If your credit score is 600 or less then you are considered a higher risk, meaning lenders will either deny you credit or give you high interest rates. Your credit scores will vary from bureau to bureau because your score is based on information found on each credit report. Your reports can vary from bureau to bureau, and, for a variety of reasons, usually are not the same. If the information is exactly the same on all three reports, the scores should be within a few points of each other. The agencies may also list your information differently and thus, you will have different scores from different reporting agencies. H o w a r e F. I . C . O . S c o r e s D e t e r m i n e d ? As far as calculating credit scores, Fair Isaac Corporation does not provide the complete details or formula for determining our credit scores. FICO maintains that its model is a proprietary system, and as such has the right – and need – to protect itself. However, the chart and explanation of the dominant influencing factors provides a general overview of what determines our credit scores. Your credit report is your 'financial fingerprint' and contains information that can be grouped into the categories listed below. __________________________________________________________________________________ 8 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. Payment History – 35% Lenders are looking to see if you have paid past credit accounts on time. This is one of the most important factors in the credit score. This is also why being 30 days late on a payment hurts your score so much. Any late payment in the last 12 months affects your credit scores the most. Your payment history includes the following types of specific information: 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) Amount past due on delinquent accounts or collection items Time since (frequency 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 Amounts Owed (Outstanding Debt)-30% Having credit accounts and owing money does not make you a high risk. Having more than five credit accounts that you owe a lot on or that are maxed out makes you look over extended and lenders view you as a high risk. Your credit score is adversely affected if you owe amounts at or near your credit limit, so if possible, split the balance and transfer some of the debt to a second card. In many cases, a low balance on two cards is better than a high balance on one. (Credit card __________________________________________________________________________________ 9 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. companies usually charge a „transfer‟ fee, but „reward‟ you for switching your debt by offering a low interest rate. Sometimes the interest rate offered is for an introductory period only, so make sure you read the fine print before transferring your debts.) Amount owing on accounts Amount owing on specific types of accounts Lack of a specific type of balance, in some cases number of accounts with balances 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 loans) L e n g t h o f C re d i t H i s t o r y - 1 5 % For the most part, a longer credit history will increase your credit score. Having accounts for longer than five years really helps. So, if you decide to close accounts out then you may want to consider closing out the newest ones first. Closing an account that is 15 years old may actually hurt your credit score. The longer you have maintained your accounts, the better it reflects on your credit report. Time since accounts opened Time since accounts opened, by specific type of account Time since account activity Ty p e s o f C r e d i t i n U s e – 1 0 % Your credit score will look at the mix of credit card, retail accounts, installment loans, finance company accounts and mortgage accounts. Only open accounts you intend to use. Also, keep a balance of the type of credit you have. Having a mortgage, car loan, and a couple of credit cards is a very balanced profile. Loans from finance companies may generally lower your credit score. According to FICO, this is heavily relied upon when there is little other credit history upon which to base a score. Number or amount of different types of accounts (i.e. installment loans, credit cards, retail accounts, mortgage, consumer finance accounts, etc.) N e w C re d i t – 1 0 % Opening several credit accounts or requesting several credit accounts in a short period of time represents a great risk. Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account __________________________________________________________________________________ 10 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. Number of recent credit inquiries Time since recent account opening(s), by type of account Time since credit inquiry(s) Re-establishment of positive credit following past payment problems W h a t d o t h e r a t i n g s o n a c re d i t re p o r t m e a n ? R= Revolving Account- an account that can be used over and over. As the balance is paid down, it can be used again. I= Installment Loan- an account where the terms are set. There is a set payment amount and a set due date each month. The payment is to be made every month until the account is paid off. 1- Account is in good standing and was never late 2- Account with at least (1) 30 day late payment 3- Account with at least (1) 60 day late payment 4- Account with at least (1) 90 day late payment 5- Account with at least (1) 120 day late payment 6 - Account with at least (1) 150 day late payment 7- Account with at least (1) 180 day late payment - paying through credit counseling or debt management program. 8- Account with at least (1) over 180 day late payment and/or repossession. 9 – Account that is a bad debt- collections, charge off, tax lien, lien, judgment, included in bankruptcy, bankruptcy, and foreclosure. S o w h a t ’s a G o o d S c o r e ? Generally, as your risk of default decreases, your score increases. Industry experience shows a direct correlation between low scores and high default rates. This means that you may have a hard time convincing a creditor to make you an affordable loan (or any loan at all) if your score is far below average. But just as your credit history can vary from credit bureau to credit bureau, so can your credit scores. It is possible to have a high score with one credit bureau and a low credit score with another, just as you might have a clean credit history with one bureau and errors on record with another. Credit scores are on a scale from around 300 - 850, with 850 generally being the highest credit score possible. The current national average is 680. While the national average credit score is 680, only 13% of the nation's population has scores above 800. At the other extreme, roughly 15% of the population has a credit score lower than 550. In general, a good credit score is anything above 700. __________________________________________________________________________________ 11 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. Don‟t lose hope if you have a low score. If it‟s because of your payment history, start taking the steps necessary today to improve your credit score. You can build up your credit score by following the guidelines in the section 4. H o w d o e s y o u r s c o re c o m p a re ? The current national average score is 680. According to the credit bureaus: There are 22 states, plus the District of Columbia, that have an average credit score below the national average. There are 29 states that have an average credit score above the national average. Average Credit Score by State that are below the National Average Texas 651 California 672 Nevada 655 Florida 673 Arizona 659 Colorado 674 New Mexico 663 Alaska 674 Louisiana 663 Indiana 676 South Carolina 665 Alabama 676 Oklahoma 666 Washington DC 677 North Carolina 667 Kentucky 677 Mississippi 668 West Virginia 679 Georgia 668 Tennessee 679 Arkansas 668 Michigan 679 Average Credit Score by State that are near or above the National Average Rhode Island 692 Kansas 682 New Jersey 693 Utah 683 Connecticut 694 Missouri 683 Nebraska 695 Illinois 684 Pennsylvania 696 Delaware 684 Wisconsin 699 Ohio 685 Maine 699 Oregon 686 Iowa 700 __________________________________________________________________________________ 12 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. New York 686 Montana 701 Maryland 688 New Hampshire 703 Idaho 688 Massachusetts 703 Hawaii 688 Vermont 706 Virginia 689 North Dakota 706 Wyoming 690 Minnesota 707 Washington 691 South Dakota 710 The following statistics reflect the average use of credit by today's consumers: Number of Credit Obligations On average, consumers have a total of 13 credit obligations on record at a credit bureau. These include credit cards and installment loans. On average, 9 of the 13 are likely to be credit cards and 4 of the 13 are likely to be installment loans. Past Payment Performance Approximately half of all consumers have accounts reported as 30 or more days late on a payment. 23% have accounts reported with 90+ days overdue, and 20% have accounts closed by the lender due to default. Credit Utilization About 40% of credit card holders carry a balance of less than $1,000. About 15% have total card balances in excess of $10,000. Approximately 48% of consumers carry less than $5,000 of debt (excluding mortgages). Approximately 37% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus. Total Available Credit The average consumer has access to approximately $19,000 on all credit cards combined. Approximately 1 in 7 is using 80% or more of their credit card limit. Length of Credit History The average consumer's oldest obligation is 14 years old. About 1 in 20 consumers have credit histories shorter than 2 years. Credit Inquiries The average consumer has had only one inquiry on his or her accounts within the past year. Fewer than 6% had four or more inquiries resulting from a search for new credit. __________________________________________________________________________________ 13 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. 4 I m p ro v i n g Yo u r C re d i t S c o re . Accurate negative information generally remains listed on your credit report for up to seven years, while bankruptcies remain for 7- 10 years. However, there are things you can do to gradually improve and maintain a good credit score, such as the following: Fix any inaccurate information. This is one of the most important things you can do to maximize your credit score. Up to 79% of credit reports contain errors. Consider a competent credit repair service if you would like assistance. Update old accounts. Request that old inquiries be removed (older than 2 years). Pay your bills on time. Delinquent payments, even if only a few days late, and collections can have a major negative impact on your score. If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your credit score. Older credit problems count for less, so poor credit performance won't haunt you forever. The impact of past credit problems on your score fades as time passes and as recent good payment patterns show up on your credit report. Be aware that paying off an accurate collection account will not remove it from your credit report. It will stay on your report for seven years. Keep balances low on credit cards and other “revolving credit”. High outstanding debt can affect a credit score. Pay off debt. The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score. Don't close unused credit cards as a short-term strategy to raise your score. Maintain your accounts for a long time. The longer your credit history, the more it helps increase your credit score. Closing older accounts can actually lower your score. __________________________________________________________________________________ 14 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you. Don't open a number of new credit cards that you don't need, just to increase your available credit. Apply for and open new credit accounts only as needed. Don't open accounts for the purpose of providing a better credit picture – it probably won't raise your score and, in some instances, may even lower your score. If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user. Do your rate shopping for a loan within a focused period of time. FICO scores distinguish between a search for a mortgage or auto loan, where it is customary to shop for the best rate, and a search for many new credit cards. __________________________________________________________________________________ 15 © Ovation Credit Services, Inc. www.ovationcredit.com All Rights Reserved. Learn more about Credit Repair and if it is right for you.
Pages to are hidden for
"Information and Credit Scores and Credit Repair"Please download to view full document