C's and Credit Scores What is a FICO score

							                                             Keep You & Your Lender Happy

Weathering the Financial Storm:              •    Build the relationship
How to Stay in the Saddle                    •    Understand the 5 C’s of credit
                                             •    Understand your FICO score
       Keith Wills, Loan Officer             •    What can you do?
             Farm Credit




                                             5 C’s of credit
Build the Relationship
                                                 • Capital (financial condition –
• Relationship building is important               equity, working capital,
                                                   leverage)
  – not just transactional process
                                                 • Capacity (repayment)
• Don’t be afraid to approach your
  lender                                         • Conditions (loan structure,
                                                   loan purpose)
• Open communication
                                                 • Character (evaluation of
• No surprises                                     management)
  – For your lender
                                                 • Collateral
  – For you from your lender




C’s and Credit Scores                        What is a FICO score?
                                             • FICO (Fair Isaac Corporation)
• 3 of the 5 C’s could be tied directly to        – Used by most major lenders
  credit scores
                                                  – Provided by 3 major credit reporting
  – Capacity – paying the bills                     agencies: Equifax, Experian,
  – Conditions – what types of loans to             TransUnion
    qualify for                                   – Scores range from 300 – 850
  – Character – responsible person
                                             • The scores are a risk rating tool
FICO Score Break Down                                        Payment History
                       Types of Credit
                         in Use, 10%
                                                             • Bankruptcy, delinquency,
                                                               foreclosures, lawsuits, etc.
                                             Amounts Owed,
        New Credit, 10%                          30%
                                                             • 30, 60, 90
                                                             • “30 plus multiple times”
    Length of Credit
      History, 15%




                                           Payment
                                         History, 35%




Amounts owed                                                 Length of Credit History
• Amount owed overall                                        • How long you’ve had any type of
• Amount on specific types of accounts                         credit established
• A $0 balance isn’t always indicative                       • Generally, a longer good credit
  of a higher credit score                                     history will increase a FICO score




New Credit                                                   Types of Credit in Use
•   Types of new accounts                                    • What kinds of accounts & how many
•   Available credit                                           of each
•   Requests to credit (credit pulls)                          – Installment/term debts – mortgages,
                                                                 vehicle payments, education loans,
•   Promo pulls don’t impact the score                           medical, etc.
                                                               – Revolving – credit cards, retail cards,
                                                                 utilities
How Does it Impact You?                                     How Does it Impact You?
                                                            Want to save thousands on your next
• FICO scores are used for a variety of                      mortgage?
  things
                                                             Average $250,000 mortgage, amortized for 30 years.
   – Mortgages, loans, credit cards,
                                                             Interest             Monthly Payment       Total Paid
     gas/electric, telephone, wireless phone,
     vehicles, horse trailers, car/home                      5%                   $1,342                $483,000
     insurance, jobs
                                                             6.5%                 $1,580                $568,000
                                                                                                        ($85,000)
                                                             7.5%                 $1,748                $629,000
                                                                                                        ($146,000)




How Does it Impact You?                                     What Can I Do About It?
Or save on your horse trailer loan?
                                                            • Get your credit reports annually and check
 Average $15,000 trailer loan, amortized for 5 years.         for errors, duplications, inaccuracies
 Interest               Monthly Payment        Total Paid   • www.annualcreditreport.com or
                                                              877.322.8228
 6.8%                   $295                   $17,700
                                                            • Equifax: www.equifax.com or
 8.5%                   $308                   $18,464
                                                              800.685.1111
                                               ($764)       • Experian: www.experian.com or
 13%                    $341                   $20,477        888.397.3742
                                               ($2,777)
                                                            • TransUnion: www.transunion.com or
                                                              800.888.4213




What Can I Do About It?                                     In Summary
• Pay bills on time                                         • Talk to your lender, in good times and
• Don’t play the “float” game                                 bad
• Don’t take all credit card offers (not worth              • Manage your credit responsibly –
  the free T-shirt)                                           you’ll save money
• If rate shopping, do within a 14-day period
                                                            • The higher the scores and the lower
• Pay off debt – don’t just consolidate
                                                              the debt, the lower your risk to a
• Don’t expect a quick fix – no matter what                   company, the better rates or deals
  outside companies promise
                                                              you’ll receive
• Monitor for identify theft