3 major credit bureaus

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					                                         CREDIT 101
Credit 101 is a seminar presented by your Credit Union. It is an hour-long meeting that will
provide you with tools to learn basic concepts about your credit score and techniques to improve
your credit score. The Credit Union encourages you to attend the seminar in person so that you
can experience the atmosphere where Members ask questions about their specific situation and
everyone learns from others’ questions. Credit 101 answers some basic questions like: What is
in my credit report? What is a credit score? How does my credit score affect me? How do my
financial activities affect my credit score?

Let’s start from the beginning. There are three major credit bureaus which gather and disclose
information about you: Experian, Equifax and TransUnion.

These credit bureaus gather information on you in two different ways: First, financial
institutions gather up all of their clients’ loan information once a month, and send a file to the
credit bureau which contains information about loan balances, minimum payment information,
credit limit information (if the loan as a credit limit), and a loan status (like “current”, “30 days
past due” or “paid off”, etc.). Please note that not all creditors report to all three credit bureaus,
as it is not required by law. For example, credit union reports credit information to Experian and
Equifax, but it doesn’t report information to TransUnion. The second way that credit bureaus
gather information about you is through inquiries. When you apply for a loan with a financial
institution, most of the time you have to fill out a loan application. The loan application might
ask you for information like your name, your social security number, your address, your
employer and your home telephone number. When the institution makes an inquiry with the
credit bureau to get a copy of your credit report, your updated demographic information
(mentioned before) is transmitted to the credit bureau in exchange for your credit report. That is
how the credit bureau is able to keep track of where you work and where you live.

Your loan and payment information is not shared between the credit bureaus. Meaning, if a
creditor reports your loan information to Equifax, Equifax does not share that information with
TransUnion or Experian. The law doesn’t require the credit bureaus to share this type of
information. However, there is a law that was passed several years ago that does require the
three credit bureaus to share certain information: information related to credit fraud and identity
theft. The FACT Act, formally known as the Fair and Accurate Credit Transactions Act of
2003, benefits all of us because it protects us in the case that we are victims of identity theft or of
any type of credit fraud. This Act allows consumers to report fraud to only one credit bureau,
and by law, the credit bureau must share that information with the other two bureaus. The FACT
Act reduces the amount of time and work that a fraud victim must spend to alert credit bureaus.
More information about the FACT Act will follow.

Your credit report contains a lot of personal information about you. This includes your name,
your last three addresses, your current telephone number, your date of birth, and your
employment information. Note that your address, telephone and employer information is not
actually verified information, because this information is gathered during inquiries.




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Public information will be on your credit report. This includes bankruptcies, judgments, liens
and tax liens, etc. Anything that went through a court regarding a debt that you owe may be
included on your credit report.

Inquiries (when a lender get a copy of your credit report) are also recorded on your credit report.
In general, inquiries from the last 2 years will be included on your credit report.

All of your tradelines, open and closed for the last 7-10 years will be included on your credit
report. A “tradeline” is a loan account. These include any installment loans (like a car loan),
any revolving accounts (like a credit card), mortgage accounts, home equity loans, and collection
accounts, etc. These tradelines will be on your report for 7 years if it has any negative remarks
about your payment history. However, positive reports and accounts can stay on your credit
report for up to 10 years. After a 7 or 10 year period from the date of last activity, all records of
that particular loan will drop off of your credit report.

Because negative items can stay on your report for up to 7 years, your credit score can be
impacted for up to 7 years for a late payment that you made. Please note, that the impact of that
negative report will lessen as time goes by.

What is a credit score? It is a three-digit number that measures the risk of you becoming
delinquent on a loan over the next two years. When we talk about credit scores, the general
concept is the following: the higher the credit score, the lower the risk of you becoming
delinquent on your credit payments. And conversely, the lower your credit score, the higher the
risk of you becoming late on your payments.

Your credit score can change daily based on information updates from creditors. Let me explain
this a little further: there are thousands of financial institutions in the nation, and each of them
makes loans to consumers. Each month, the institutions take a snapshot of each consumer’s
loan, and send that information to the credit bureau(s). Because there are thousands of financial
institutions, the institutions stagger their reportings to the credit bureaus. If all institutions
reported to the credit bureaus on the first day of the month, then the information would all bottle-
neck at the credit bureaus, and clog the system. So, some financial institutions report on the 1st
of the month to the credit bureaus; some report on the 5th of the month; some report on the 15th,
and so on. It takes several days for the information to be updated on that consumer’s credit
bureau, so your credit report today might look different from your credit report tomorrow,
because information is constantly being updated in your credit bureau from all of your lenders.

There are about 30 different credit score models in the credit score market. A “credit score
model” is a specific way that your credit score is calculated. There are specialty models for
lenders who grant car loans, models for real estate loans, models for insurance companies to use,
etc. The credit score model that we are going to talk about in depth is the Fair Isaac model. The
Fair Isaac model is the most widely used and accepted credit score in the financial industry, and
it’s the model that the Credit Union uses. More information will follow regarding credit scores.

We’ve talked about the things that are in your credit report. Now let’s talk about things that you
won’t find in your credit report; therefore, they would never affect your credit score. Here are



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the items that aren’t gathered by the credit bureaus: your race, religion, national origin, gender
and marital status. You will never find these items in your credit report, because the law
prohibits a lender from making a loan decision on any of these characteristics. Your salary is not
included in your credit report; neither is your occupation (even though your employer might be
listed in your credit report), your title, or how long you’ve been with your employer. Interest
rates on your current or past loans are not in your credit report. Cell phone payment details and
rent paid to your landlord will not be reflected. Your checking or savings account information is
excluded from your credit report. Also, certain types of inquiries are not included in your report.
An example of these exclusions is promotional inquiries. A promotional inquiry is made when a
lender wants to send you a pre-approved loan offer, so they purchase your name and address
from the credit bureau. Yes, credit bureaus sell your information! (We’ll talk about how you
can prevent this from happening a little later.) If you request a copy of your own credit report,
that type of inquiry is also not listed on your credit report. Lastly, if an employer pulls your
credit for employment purposes, that inquiry does not get recorded on your credit report. You’ve
probably figured out by now that there are two different types of credit inquiries: I’ll call them
“hard inquiries” and “soft inquiries”. A hard inquiry results when you initiate a loan application
with a lender, and the lender pulls your credit report. This type of inquiry can negatively impact
your credit score. We’ll talk more about that in a minute. A soft inquiry results when you do not
initiate a third party to pull your credit report. Again, this might be a situation where a lender
purchases your name or an insurance company pulls your credit in order to quote you a car
insurance premium, or you apply for a job and your prospective employer wants a little insight
into your character. These soft inquiries, since they are not retained on your credit report, do not
negatively impact your credit score.

Let’s talk more about what types of activities or behaviors affect your credit score. I think it’s
important to focus on the things that can negatively impact your score. First, there are “minor
derogatory items”. As the title implies, these don’t materially impact your score, but they will
affect your score to some degree. 30 and 60-day delinquencies on loans are examples of minor
derogatories. Even though these don’t materially pull down your credit score, a lending
institution might still deny your loan request if you have any of these items in your credit report,
because it could be a sign of credit problems just starting. 90 to 180-day delinquencies are
known as “major derogatories”. As the name implies, these materially impact your credit score.
Major derogatories also include repossessions, charge offs, and collection accounts. As
mentioned before, inquiries can impact your credit score if you have too many inquiries in a
short period of time, as this can be a sign that you are loading up on credit. People who load up
on credit during a short period of time tend to get themselves in budget trouble. That’s why
more than 3 or 4 inquiries in a 12-month period can hurt your credit score. There are exceptions
to this: There are industries that the credit bureau labels a “shopping industry”. A good
example of this is the car buying industry. Consumers tend to shop around when they are buying
a car; they may visit 4 or 5 dealers in order to make a buying decision. Most likely, each dealer
is pulling that shopper’s credit, even though the shopper is only looking at vehicles that day.
Because of this habit that the car dealers have, all of those inquiries at the different car dealers
during a 30-day period will only count as 1 inquiry, and it will impact the consumer/shoppers
credit score once. There are different types of credit inquiries. A regular “credit inquiry” is
processed by a financial institution as a result of you applying for a loan. Another type of
inquiry is initiated by a collection agency or a collection department of a bank. If a collection



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agency or department pulls your credit, it is typically a bad sign, meaning you have defaulted on
one of your bills, and are not returning phone calls to your lender. Because your credit report
contains information regarding your address and phone number, collectors will pull your credit
in order to get updated information about you, which will help locate you. Again, because this is
a negative situation, if a collection agency pulls your credit, your credit score will be impacted
more seriously than if a bank pulls your credit in order to lend you money. Bottom line: don’t
default on your loan payments, and if you do, you need to talk to the lender about the situation
and arrange an alternate payment plan.

Public records will impact your credit score negatively. Remember that public records include
bankruptcies, judgments and liens. These are all negative situations, so your credit score will be
hurt by any of them.

If you have corrected a negative situation, like you have paid a tax lien or you have gotten
yourself current on a previously delinquent loan, your credit score will still be impacted by that
negative remark. Your credit score won’t be impacted as negatively as it was, now that you have
fixed the situation. That bad remark on your credit bureau will impact your score less and less as
time goes by.

A comment about those pre-approved offers that we all receive in the mail: the pre-approved
offer doesn’t impact your score, but as soon as you respond to the offer, the lender will pull your
credit, and that inquiry might cause your credit score to drop slightly.

We’ve talked about how your behavior and activities can impact your score. Now let’s talk
about how your credit score can impact you: A person or an institution must have a “permissible
purpose” to pull your credit report. It can’t just be a nosey person at your financial institution
who wants to see your credit report. You must have initiated a loan transaction for the lender to
pull your credit report, or the institution can purchase your credit score from the bureau if it has
the intention to offer you a pre-approved loan. More examples of a permissible purpose: you
want to buy a car or a home and you need a loan to purchase the item. Your credit score may
determine your loan rate. Remember, the higher your credit score, the less risk in you becoming
delinquent on a loan, so the lower the interest rate on your new loan. You might be moving to a
new home and you need to turn on the electricity. Your local power company (Florida Power &
Light, Georgia Power, etc.) will probably pull your credit score in order to determine if they
want to charge you a deposit on your new electricity account or not. If your credit score is low,
(because you have blemished credit), the power company might ask you to pay a deposit because
the power company has reason to believe that you might not pay your electric bill on a timely
basis in the near future. Prospective landlords can also pull your credit to determine your rental
deposit. A landlord is always concerned about being paid rent on a timely basis, so your credit
score might determine the amount of security deposit you might be required to pay for your new
rental. Employers may pull credit reports, especially if you are going to be working with money
or working around highly sensitive information. The Credit Union screens all of their
prospective employees; it’s the prudent thing to do. By the way, these employment credit
inquiries do not affect a consumer’s credit score because the consumer did not initiate the credit
review. Insurance companies review credit scores in order to assign premiums for home, auto




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and other insurances. This makes sense because a person’s character can determine if they will
be an insurance risk or not.

Talking more about credit scores: credit scores are intended to be a non-discriminatory way to
measure risk. Credit score models are based on millions of historical credit files, tracked and
analyzed over the years. This historical data is used to predict the future activity of consumers’
payment patterns. Most financial institutions base the interest rate of a loan on the consumer’s
credit score. This is called “risk-based lending”. The financial institution considers the risk of
payment default in order set an interest rate on the loan. Typically, a financial institution will set
up different credit grades based on certain credit scores. Most institutions use a letter grade,
starting with “A” or “A+” being the highest credit scores, going all the way down to “D” or “E”
credit. The “D” or “E” credit grades have the lowest credit scores, the most blemished credit,
and the highest risk of payment default. As mentioned before, there are about 30 different credit
score models or ways to calculate the credit score, and the Fair Isaac credit score is the most
commonly used model. This Fair Isaac score calculation is owned by a company called the Fair
Isaac company. The Fair Isaac Company is a separate company from any of the credit bureaus.
It owns the calculation model to calculate the credit scores, and it sells this secret calculation to
each of the credit bureaus. The credit bureau must pay a royalty fee to the Fair Isaac company
each time a Fair Isaac credit score is calculated. Each of the credit bureaus calls their Fair Isaac
score a different name. Equifax credit bureau calls it the “Beacon” score; TransUnion calls it the
“Empirica” score and Experian calls it the “FICO” score. Fair Isaac scores range from 350 to
850. A credit score of 350 represents very blemished credit and a high risk of payment default;
850 represents excellent credit and a very low risk of payment default.

A quick note: when consumers (you and me) purchase our credit score from any credit bureau,
the credit bureau will give you its custom score, not the Fair Isaac score, unless you specifically
ask for the Fair Isaac score. Because the credit bureaus don’t own the Fair Isaac scoring model,
and they have to pay a royalty fee each time a Fair Isaac score is calculated, they have developed
their own score. It is cheaper for them to give you their custom score because they don’t have to
deal with the middleman, the Fair Isaac company. The credit bureau’s custom score and the Fair
Isaac score do not match and never will because they use different calculation methods. If you
want your Fair Isaac score, you need to ask for it specifically and be prepared to pay for it. It
typically costs around $15 to get your Fair Isaac credit score from any of the credit bureaus, and
it costs $8-$9 to purchase the credit bureau’s custom credit score.

Before discussing how a Fair Isaac credit score is calculated, I want to refer you to a great
website. It is www.myfico.com. This website is administered by the Fair Isaac company and it
contains a lot of educational material. As a matter of fact, this website was used as a resource to
develop a lot of this seminar.

What goes into your Fair Isaac credit score? There are five main categories of consideration for
your credit score calculation:
       35% of your credit score is impacted by your payment history. This refers to the
       timeliness of repayment on your loans. If a debt has turned into a collection account, this
       is included in your payment history. Your payment history includes payment patterns on




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       both open and closed credit items. So, even after you pay off a loan, your credit score is
       still impacted by your payment pattern on that loan.
       30% of your credit score is impacted by the amount you owe on your debts. This not
       only includes the total amount of debt outstanding, but this also considers how much of
       the credit limits you have used. A tip here: if you have used more than 50% of your
       credit line, you can start to negatively impact your credit score. So, if your credit card
       has a credit limit of $10,000, try not to carry more than $5000 in balances on that credit
       card. History has shown that consumers who spend a high percentage of their credit
       limits have a tendency to default on payments more than consumers who spend only a
       small percentage of their credit limit. So, 65% of your credit score depends on your
       payment history and the amount of your outstanding debts. That’s a lot of weight on
       your credit score.
       15% of your credit score is impacted by the tenure of your credit history. This measures
       how long you have had credit established.
       10% of your credit score is determined by the new credit payment history. If you have a
       new debt established, the payment history on that account weighs less on your credit
       score because you don’t have a track record for that loan established yet. As that loan
       ages, the payment history on that loan gets added into the 35% piece of the pie mentioned
       above.
       The last 10% of your credit score is determined by the type of credit you have
       established. This refers to high risk and low risk; mortgage credit vs. installment credit
       (like a car loan) vs. credit card unsecured credit. History has shown that consumers
       default much less on their home loans and their car loans than they do on their credit card
       loans. The first thing to go delinquent for a consumer is usually their credit cards
       because they are unsecured loans, then the car loans go delinquent, then the home loans
       last. A quick note on this subject: student loans don’t affect your credit score until they
       go into their repayment phase. While they are in their deferment stage, your credit score
       is unaffected by these loans.

I’d like to give you an example of how a common activity can temporarily impact a credit score.
You’ll want to avoid doing this if you are planning on applying for a loan, such as a home loan
or a car loan within the next 30-45 days. The activity that I’m referring to is rolling balances
from one credit card to another. Here’s the scenario: you have a credit card with a $15,000
balance on it, and you receive one of those pre-approvals which advertises a zero percentage
interest rate for a certain length of time if you transfer your balance from another credit card.
First you accept the pre-approved offer, and the bank pulls your credit report. This inquiry
impacts your credit score slightly. You transfer your balance from the old credit card to the new
credit card. The new credit card reports your new loan to the credit bureau along with your
balance of $15,000, and the old card hasn’t reported the new balance of $0.00 yet to the credit
bureau. Unfortunately, it looks like you have $30,000 in credit card balances now, which affects
your credit score, because $30,000 in unsecured credit card balances is high-risk credit. The
payment history on your new credit card doesn’t weight much, which affects your credit score.
The credit on your new credit card is considered new, which affects your credit score, too. If
you are in the process of applying for a mortgage loan or a car loan, this balance transfer activity
from one credit card to the other can temporarily drop your score enough that you might be




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assigned a higher interest rate on your new mortgage or car loan than what you really deserve.
This can highly impact your payments and your financial life.

Duplications in your credit report can also impact your credit score. It is very common to find
that one loan that you have could be duplicated in your credit report for a number of reasons.
Financial institutions might have had a reporting problem, and the data downloaded inaccurately,
causing you to have an extra tradeline on your bureau. This can double report balances which
will impact your credit score. This is an unfortunate situation that is all too common. I have
found this mistake in my own credit report several times.

I want to give you some loan payment examples so that you can understand how your credit
score can impact your monthly payment on a new loan. Refer to Exhibit A.

I have three examples of payments on typical loans: a $25,000 car loan, a $60,000 second
mortgage and a $200,000 first mortgage. For these loans, your payment can change dramatically
as you compare the payment for an “A+” credit rating to a “D” credit rating. I’m going to give
you examples based upon some hypothetical interest rates and credit grades:

       For Members with the best credit rating (known as “A+” credit) getting a $25,000, 5-
       year new car loan, the interest rate starts at 6.25%. Credit scores of 740 and higher earn
       this great rate. The payment on this loan is $486 per month. For “D” grade credit,
       monthly payments on this same loan are $566. At the Credit Union, D credit means the
       score is 599 or below. This represents $960 per year in higher interest payments. That’s
       equal to a 2-day family vacation at Walt Disney World. A family vacation sounds a lot
       more fun to me than higher car payments.

       For Members with “A+” credit, (740 score or higher), getting a $60,000, 15-year second
       mortgage, the interest rate is 7.25%. Payments are $548 monthly. Payments for the same
       loan for a “D” Member are $591 per month because the interest rate is 8.50%. That’s
       $516 per year extra in finance charges. This could equate to the cost of school clothes
       and supplies for several children.

       The heavy hitter is the first mortgage payment. For a $200,000, 30-year first mortgage
       payment, the interest rate for an “A+” Member might be around 6.50%. This results in a
       monthly principal and interest payment of $1,265. Monthly payments for the same
       mortgage for a “D” Member are $1538 because the interest rate is 1.50% higher. This
       equates to extra interest payments of $3276 per year. That’s a high-end cruise for a week
       for the entire family. I’d rather enjoy the cruise, wouldn’t you?

If you have a first mortgage, a second mortgage and a car loan, which is very typical for a
family, you can now see how having the best credit score possible will save you money on your
loan payments. The higher payments for the “D” credit consumers can be crippling, financially.
Most families also have credit card debt, and your credit score will impact your payments on
your credit card debt too.




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Now that you see how important it is to have the best interest rates, let’s talk about what you can
do to improve your credit score. Improving your credit score takes time. It’s like losing weight:
there is no magic answer. To begin, let’s refer back to the five main categories that impact our
credit score.

Payment history tips: The tip is simple: pay your bills on time. Some people think that it’s okay
to be late or just skip a month’s payments and catch up next month. It’s not okay: this is a
harmful habit, financially. Get current on your bills if you aren’t already. Pay off any collection
accounts that you have outstanding. If you need help in managing your bills, contact a non-profit
or not-for-profit credit counseling organization. Later I will give you some resources if you are
in this situation and need professional credit counseling.

Tips regarding amounts owed: Try not to use more than 50% of your credit limit on your
revolving accounts. (Revolving accounts are also known as credit cards.) Don’t move around
balances. Don’t apply for new credit cards unless necessary, because even if you don’t use the
credit cards, you will have that new credit limit available for your use and the additional credit
limit availability can harm your credit score. Some people boast that they have $100,000
available to them on their credit cards: that’s not necessarily a good thing because their credit
score might be impacted because they can charge $100,000 in debt in just one good, long day of
shopping. Don’t charge over your limit on your credit cards. Even if you are planning on paying
down your balance the next month, the over-limit condition is a negative remark on your credit
report, and this negative remark can affect your credit score over the next 7 years. Create a
budget to follow. See Exhibit B for a tool to help you understand and create a budget. Beware
of impulse shopping. Don’t put yourself in a situation where you will be tempted to impulse
shop. Monitor your reasons for spending. Some people will go shopping because of boredom or
will shop when feeling blue. We need to examine our motives for spending. Consider if the
item is a need or a want. Ask yourself: why do I want this item? How would things be different
if I bought it? Does this match my life values?

Tips on length of credit history and new credit: Limit inquiries and the number of new accounts
that you open. Remember, if you want to check your own credit and you get a copy of your
credit report directly from the credit bureau, that’s okay: it won’t hurt your credit score.

Tips on the type of credit that you hold: Apply for new credit accounts only as you need them.
Don’t accept a credit card offer just because you want to get a free gift. You are better off to just
go out and buy that free gift if you really want/need it, rather than applying for a new credit card.
Not only will it be a temptation to charge up on this new card, it will also affect your credit score
because you now have high-risk unsecured credit available for your use. The least risky type of
credit is secured debt such as mortgage debt. Credit cards have the highest risk associated with
it. Note that closed accounts can still affect your score. Negative occurrences impact your score
most in the first 2 years, and the impact lessens as time goes by.

End of tips.




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In July, 2006, a new law was enacted which allows residents of select states to freeze their credit.
Florida is a state that allows credit freezes; Georgia residents do not have this opportunity. See
Exhibit C to learn about freezing your credit.

One of the greatest benefits of the FACT Act is that it allows all consumers to get a free copy of
their credit report once a year. Take advantage of this. The website to get your free credit report
is www.annualcreditreport.com. The Credit Union has a link to this site on its website because
there are so many spoof sites on the internet. I’ve even seen commercials on television for some
of these spoof sites. These spoof sites will charge you money for the copy of your free credit
report. Other sites may be out-and-out fraudulent sites. Once you divulge your personal
information to some of these spoof (fraudulent) sites, you may have set yourself up for identity
theft. The Credit Union’s website address is www.ibmsecu.org. Click on “Services” and “Credit
Monitoring” link, and you can safely and quickly link to the real website which allows you to get
a copy of your credit report.

Remember, the FACT Act allows you to get a free copy of your credit report once a year. Since
there are 3 major credit bureaus, you can get a credit report from each bureau; so in reality, you
get 3 free credit reports per year. Take advantage of this.

If you are using the website to get your free copy of the credit report, make sure that the printer
on your computer is working. The credit bureaus have controls in place to ensure that you don’t
get more than one free copy of your credit report each year. So, if you miss your chance to print
your report because of a printer error and you forgot to write down the confirmation number for
your credit report, you will have to pay for the report if you go back to get another copy. It costs
around $8-$9 to get additional copies of your bureau after you have gotten your free copy. If
you do decide that you want to get your copy of your report over the web, you will have to go
through questions that verify your identify. There are up to 5 multiple-choice questions that you
will need to answer, and the questions are based upon information that is held in your credit
bureau, so it is very likely that only you would know the answers. Some of these authentication
questions can be very tricky because the credit bureau might ask you a question about a loan that
you had 7-10 years prior. If you don’t want to get your report over the web, you can also call or
write the credit bureaus in order to get your report mailed to you. See Exhibit D for the phone
number/address to get a free credit report.

The information on Page 11 can be used as reference tools: the “Important Phone Numbers and
Addresses” sheet lists contact phone numbers for the credit bureaus. My favorite part of the
page is the “phone solicitations and pre-approval offers” section. These web addresses and
phone numbers can help to simplify your life if you want to reduce the number of phone
solicitation calls that you get and pre-approved offers that you receive through the mail. It takes
about 30 days for your name to be removed from marketing and solicitation lists, but it is
effective for 5 years. I have used them myself. If you are looking for a trustworthy credit
counselor, there are resources on the bottom of Page 11.

Page 12 is a sample letter that you can use to close out all of those unnecessary credit cards that
you have in your wallet. Remember, closing out the paid off credit cards that you have is one
tool to increase your credit score and prevent potential fraud in the future.



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The last several pages (Pages 13-15) include facts and fallacies about credit scores and national
statistics on credit scores. This information was taken from the myfico.com website.

Good luck in increasing your credit score. The first major step to take is to obtain your free
credit report and review it. If the Credit Union can help you in obtaining your credit report or in
understanding it, please contact us. That’s why we are here.




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IMPORTANT PHONE NUMBERS AND ADDRESSES

If you have been denied insurance, credit or employment in the past 60 days due to information
in your credit report, you can request a free copy of your credit report from the following 3
national credit agencies:

EXPERIAN                             EQUIFAX                       TRANSUNION
Experian                             Equifax                       Transunion
P.O. Box 2002                        P.O. Box 740241               P O Box 2000
Allen, TX 75013                      Atlanta, GA 30374-0241        Chester, PA 33602
888-397-3742                         800-685-1111                  800-226-6188
www.experian.com                     www.equifax.com               www.transunion.com




FRAUD ASSISTANCE
Credit fraud is a serious problem affecting innocent consumers and damaging the credit industry
as well. If you have been affected and need assistance, you can contact the 3 credit bureau
agencies at the following addresses and telephone numbers:

EXPERIAN                             EQUIFAX                       TRANSUNION
Consumer Fraud                       Fraud Assistance              Fraud Victim
Assistance Dept.                     P.O. Box 740256               Assistance Dept.
P.O. Box 2002                        Atlanta, GA 30374             P.O. Box 6790
Allen TX 75002                       800-525-6285                  Fullerton, CA 92634
888-397-3742                         or 888-766-0008               800-680-7289
www.experian.com                     www.equifax.com               www.transunion.com


PHONE SOLICITATIONS AND PRE-APPROVAL OFFERS
Do Not Call Registry for home phones and cell phones:
888-382-1222
www.donotcall.gov                  5 year removal

To have your name removed from a prescreen list for pre-approval offers:
8885OPTOUT or 888-567-8688
www.optoutprescreen.com           5 year removal or permanent removal


CREDIT COUNSELING
For additional assistance in resolving credit problems, call your local United Way Chapter or call
the National Foundation for Consumer Credit Counseling: 800-388-2227, www.nfcc.org or call
the Association of Independent Credit Counseling Agencies: 800-450-1794, www.aiccca.org.



                                                                                               11
SAMPLE LETTER TO SEND TO CREDITORS TO
  CLOSE OUT A CHARGE/CREDIT ACCOUNT


Date




Creditor Name
Address


Dear Customer Service Department:

My name is _________________ and I have a (credit card/revolving charge, etc) account with
(Creditor’s name). My account number is ______________________. I do not plan to use the
account; therefore, I would like the credit line to be closed out.

Please report the account as paid, and please update the status of the closed credit line to all three
credit reporting agencies. Please code the closure as “per consumer request.”

If you have any questions, my daytime telephone number is _______________________.

Thank you,




Your Name
Your Address




                                                                                                   12
Credit Scoring Facts & Fallacies

Fallacy: My score determines whether or not I get credit.
Fact: Lenders use a number of facts to make credit decisions, including your credit score.
Lenders look at information such as the amount of debt you can reasonably handle given your
income, your employment history and your credit history. Based on their perception of this
information, as well as their specific underwriting policies, lenders may extend credit to you
although your score is low, or decline your request for credit although your score is high.

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 information is added to your 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 report and credit score when you submit a credit
application, so that they have the most recent information available. Therefore, by taking the
time to improve your score, you can qualify for more favorable interest rates.

Fallacy: Credit scoring is unfair to minorities.
Fact: Scoring considers only credit-related information. Factors like gender, race, nationality
and marital status are not included. In fact, the Equal Credit Opportunity Act (ECOA) prohibits
lenders from considering this type of information when issuing credit. Independent research has
been done to make sure that credit scoring is not unfair to minorities or people with little credit
history. Scoring has proven to be an accurate and consistent measure of repayment for all people
who have some credit history. In other words, at a given score, non-minority and minority
applicants are equally likely to pay as agreed.

Fallacy: Credit scoring infringes on my privacy.
Fact: Credit scoring evaluates the same information lenders already look at – the credit bureau
report and credit application. A score is simply a numeric summary of that information. Lenders
using scoring sometimes ask for less information – fewer questions on the application form, for
example.

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.




Source of information: www.myfico.com, Credit Education section



                                                                                                   13
Average Credit Statistics

As a company that helps the nation’s largest banks and financial institutions assess credit risk, Fair Isaac
is often asked to describe the credit use of a typical consumer. In researching the answer, we discovered
that consumers vary immensely in what types of credit they use and how they use it.

By analyzing a representative national sample of millions of consumer credit profiles, Fair Isaac was able
to survey the panorama of credit activity across the U.S. The following statistics reflect the average use
of credit by today’s consumers.

Number of Credit Obligations
On average, today’s consumer has a total of 13 credit obligations on record at a credit bureau. These
include credit cards (such as department store charge cards, gas cards, or bank cards) and installment
loans (such as auto loans, mortgage loans, student loans, etc.). Not included are savings and checking
accounts (typically not reported to the credit bureau). Of these 13 credit obligations, 9 are likely to be
credit cards and 4 are likely to be installment loans.

Past Payment Performance
On average, today’s consumers are paying their bills on time. Less than half of all consumers have ever
been reported as 30 or more days late on a payment. Only 3 out of 10 have ever been 60 or more days
overdue on a credit obligation. 77% of all consumers have never had a loan or account that was 90+ days
overdue, and less than 20% have ever had a loan or account 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% are far less
conservative in their use of credit cards and have total card balances in excess of $10,000. When we look
at the total of all credit obligations combined (except mortgage loans), 48% of consumers carry less than
$5,000 of debt. This includes credit cards, lines of credit, and other loans – everything but mortgages.
Nearly 37% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.

Total Available Credit
The typical consumer has access to approximately $19,000 on all credit cards combined. More than one-
half of all people with credit cards are using less than 30% of their total credit card limit. Just over 1 in 7
are using 80% or more of their credit card limit.

Length of Credit History
The average consumer’s oldest obligation is 14 years old, indicating that he or she has been managing
credit for some time. In fact, we found that 1 out of 4 consumers had credit histories of 20 years or
longer. Only 1 in 20 consumers had credit histories shorter than 2 years.

Inquiries
When someone applies for a loan or a new credit card account – in short, any time one applies for credit
and a lender requests a copy of the credit report – this request is noted as an “inquiry” in the applicant’s
credit file. The average consumer has had only 1 inquiry on his/her accounts within the past year. Fewer
than 6% had 4+ inquiries resulting from a search for new credit.


Information reproduced from www.myfico.com, Education section




                                                                                                             14
      National distribution of FICO scores
      source: www.myfico.com

                                             SCORE       PERCENTAGE
                                             800+           13%
                                             750 - 799      27%
                                             700 - 749      18%
                                             650 - 699      15%
              less                           600 - 649      12%
              than                           550 - 599      8%
                           800+
          15%
              600              13%           500 - 549      5%
                                             499 or less    2%




27%
600 -
                                      45%
699                                  700 -
                                     799




                                                                 15
Exhibit A
     Credit Grade                 $25,000 60-mo         Monthly
                                   new car loan       car payment
                                   interest rate
A+ (740+)                              6.25%             $486
A (680-739)                            6.50%             $489
B (640-679)                            7.50%             $501
C (600-639)                            8.75%             $516
D (599 or below)                      12.75%             $566

     Credit Grade                 $60,000 15-yr        Monthly
                                second mortgage        payment
                                loan interest rate
A+   (740+)                           7.25%              $548
A    (680-739)                        7.50%              $556
B    (640-679)                        8.00%              $574
C    (600-639)                        8.25%              $582
D    (599 or below)                   8.50%              $591

     Credit Grade                 $200,000 30-yr        Monthly
                                    fixed rate       house payment
                                  mortgage loan       (P & I only)
A+   (740+)                           6.50%              $1,265
A    (680-739)                        7.00%              $1,331
B    (640-679)                        7.50%              $1,399
C    (600-639)                        8.00%              $1,468
D    (599 or below)                   8.50%              $1,538

Hypothetical rate and payment examples




                                                                     16
Exhibit B


BUDGETING
Guidelines:
This chart shows some rough guidelines on how much of your income should go toward different expenses. If you
live in an area where transportation is higher than normal or rents/mortgage are higher, you may need to make the
adjustments. Also, if you would like to add a section for gifts, or something else, then you’ll need to subtract from
another area.

                                               30%              Housing
                                               18%           Transportation
                                               16%               Food
                                               8%            Miscellaneous
                                               5%               Clothing
                                               5%               Medical
                                               5%             Recreation
                                               5%               Utilities
                                               4%               Savings
                                               4%             Other debts



STEP ONE: ADD UP YOUR INCOME
To set up a monthly budget, you need to determine how much take-home pay you get on a regular basis. If you get
paid once per month, this one is easy – it’s the amount of your check that you “take home.” If not, you’ll need to do
some math.

If your check does not come monthly, using the following calculation(s):
     • For weekly checks, multiply by 4.333
     • For every two weeks checks, multiply by 2.167
     • For twice a month checks, multiply by 2
     • For irregular annual income, divide by 12
You also want to make sure you add in other sources of income, such as interest income, alimony, child support,
rent received, or other payments received. You should add all of these sources into your plan, as well.



STEP TWO: ESTIMATE YOUR EXPENSES
Here is where you write down what you think you’ll be spending in the category areas. Here are some sample
categories. You can change these to whatever works for you.

Housing                                      Food                                 Utilities
- Rent or Mortgage                           - Groceries                          - Electric
- Property Taxes                             - Restaurant meals                   - Gas
                                             - Lunches at work                    - Telephone
                                             - School lunches                     - Long distance
                                                                                  - Water
                                                                                  - Garbage
                                                                                  - Other     cont’d on next pg




                                                                                                                   17
Personal                                    Family                             Basics
- Prescriptions                             - Medical/Dental/Vision            - Furniture
- Laundry/Dry cleaning                      - Pet food/Veterinarian            - Appliances
- Hair care                                 - Child support                    - Linens
- Clothing                                  - Alimony                          - Utensils
- Toiletries                                - Day care                         - Tools
                                            - Baby sitting                     - Home cleaning
                                            - Children’s allowance             - Repair supplies
                                            - Parent support                   - Other
                                            - Other


Transportation                              Insurance                          Recreation/Entertainment
- Car payment                               - Car                              - Hobbies
- Gasoline                                  - Life                             - Vacation
- Oil, etc.                                 - Property/Casualty                - Shows/movies
- Repairs                                   - Disability                       - Sporting events
- Tires                                     - Renter                           - Dining/Entertaining
- Registration/Inspection                   - Burial                           - Club dues
- Public transportation                     - Other                            - Alcohol/Tobacco
- Parking                                                                      - Lottery tickets
- Other                                                                        - Books/newspapers
                                                                               - Cable TV
                                                                               - Other


Gifts/Contributions                         Savings                            Miscellaneous
- Church/Synagogue                          - Regular                          - School Tuition/Dorm
- Charities                                 - Occasional                       - Union dues
- Birthdays                                 - Retirement                       - Professional fees
- Holidays                                  - Investments                      - Lessons
- Weddings                                  - Bonds                            - Legal fees
- Other                                     - Other                            - Installment/credit card
                                                                               - Checking account charges
                                                                               - Other


Taxes (this would be for income other than your check if you’re using net payroll numbers)
- Income tax
- Social Security
- Medicare
- State taxes (not sales tax)
- Other



If you’re not paying the full balance on your credit cards each month, be sure to keep track of how much you’re
charging as well as how much you’re paying and how much interest is being added to the unpaid balances on your
accounts.




                                                                                                              18
STEP THREE: FIGURE OUT THE DIFFERENCE
After you’ve created your budget, you need to keep records of your actual income and expenses. This information
helps you to understand any “budget variances” – the difference between the amount you budgeted and what you
actually spent for the month, or time period.



STEP FOUR: TRACK, TRIM AND TARGET
As you track your monthly expenses, you may need to trim expenses. Some expenses are more easily trimmed. For
example, you need to make the house payment and get groceries, but you may be able to go without seeing that new
movie. Cutting back is usually a better place to start than cutting out.

If your budget is realistic and if you use it to guide your expenses, you’ll be better prepared for emergencies – other
unexpected costs. You’ll also be better prepared for a financially secure future.

Use the Budget Tracking Form (next page).




Budgeting information source: www.practicalmoneyskills.com




                                                                                                                     19
BUDGET TRACKING FORM:

Use this form to set up a personal budget. After you’ve completed your planning, try to stick to
your budget for one month. At the end of the month, record your actual income and your actual
expenses. Calculate the difference between what you thought you would earn and what you
actually earned, and what you thought you would spend and what you actually spent.

INCOME                          BUDGET                   ACTUAL            DIFFERENCE
Job #1                          $                        $                 $
Job #2                          $                        $                 $
Other                           $                        $                 $
Total monthly income            $                        $                 $

EXPENSES                        BUDGET                   ACTUAL            DIFFERENCE
Fixed expenses
   Rent                         $                        $                 $
   Car insurance                $                        $                 $
   Car payment                  $                        $                 $
   Credit card                  $                        $                 $
Flexible expenses
   Savings                      $                        $                 $
   Food                         $                        $                 $
   Utilities                    $                        $                 $
Transportation
   Bus fare                     $                        $                 $
   Gas and oil                  $                        $                 $
   Parking and tolls            $                        $                 $
   Repairs                      $                        $                 $
Other
   Medical expenses             $                        $                 $
   Clothing                     $                        $                 $
   Entertainment                $                        $                 $
   Household items              $                        $                 $
   Personal items               $                        $                 $
   Tuition                      $                        $                 $
   School expenses              $                        $                 $
TOTAL MO. EXPENSES              $                        $                 $




Budgeting information source: www.practicalmoneyskills.com



                                                                                               20
Exhibit C

FREEZING YOUR CREDIT

       19 states allow all consumers to freeze their credit, preventing creditors from viewing
       credit history or getting credit score. (Florida allows consumers to freeze credit effective
       7-1-06.)
       4 states allow identity theft victims only to freeze their credit.


Pros
Prevents unauthorized credit from being granted
Prevents consumer from getting into new debt without planning for it (can prevent impulse
shopping)

Cons
Can be a hassle to temporarily lift the credit freeze to get new credit

Exemptions
Insurance companies, law enforcement agencies, landlords, employers and current creditors still
have access to your credit file.


How do I freeze my credit?
      Must write a letter to each credit bureau requesting credit freeze (up to a 5 day lag).
      $10 fee to freeze credit. Free for senior citizens and identity theft victims.
      Must use a secret PIN to temporarily lift the credit freeze (up to a 3 day lag). The PIN is
      mailed to you from each credit bureau.
      $10 fee to lift the credit freeze.
      no fee to permanently lift the credit freeze.



Experian Security Freeze       Equifax Security Freeze        TransUnion Security Freeze
P.O. Box 9554                  P.O. Box 105788                P.O. Box 6790
Allen, Texas 75013             Atlanta, GA 30348              Fullerton, CA 92834

Request letter should include full name with middle initial, date of birth, social security number,
address for previous two years, copy of driver’s license or other ID, copy of recent utility bill,
bank or insurance statement. Copies must display current address and date of issue. Send letter
and payment of $10 by certified mail.




                                                                                                 21
Exhibit D
If you would like to get a free copy of your credit report from any of the three credit bureaus,
you have access through 3 methods: online, by phone, by letter.




Online request:
      Go to www.ibmsecu.org
      Click on “Services”
      Click on “Credit Monitoring”
      Click on “Online” in order to be moved to the www.annualcreditreport.com site



Phone request:
Call 877-322-8228
You should receive your credit report through the mail within 2-3 weeks.


Written request:
You may use the form which can be downloaded at the www.annualcreditreport.com site.
Or
You may write a letter to request your free credit report. Include the following information:
      Full name (including Jr., Sr., III, etc.)
      Social Security number
      Date of birth
      Current address
      Previous address if current address is less than two years old
      Indicate which credit bureau(s) from which you would like a report

Send the written request to the following address:
  Annual Credit Report Request Service
   P.O Box 105281
  Atlanta, GA 30348-5281

You should receive your credit report through the mail within 2-3 weeks.




                                                                                                   22

				
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