Credit score presentation v7

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How your credit score may impact your mortgage application

Transcript of Credit score presentation v7

Page 1: Credit score presentation v7

How your credit score may impact your

mortgage application

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What is your credit score?

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Credit Score ✘  Credit scoring gives a quick, accurate method for assessing credit risk

✘  Based on data concerning your credit history and payment patterns ✘  Statistically based mathematic models are used to assign points to factors relevant to likelihood of repayment.

✘  This type of software modeling is employed by credit bureaus and/or lenders to determine someone’s credit worthiness

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Objective versus Subjective ✘  CREDIT SCORES ARE BASED UPON DATA, NOT HUMAN JUDGEMENT and hence this is an objective risk assessment tool versus a potentially subjective, discriminatory human assessment

✘  Credit scores are considered accurate…but in some cases can be artifically skewed! ✘  Many factors are weighted and measured resulting in a score in seconds

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✘  The resultant credit score is a ‘snapshot in time’ that sums up an individual’s past payment performance and current usage of credit ✘  Conveys a level of risk to a lender ✘  A credit score is a composite of all available credit information regarding the applicant so no single factor (such as a late payment or even bankruptcy) would be the cause of an unacceptable credit score

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Data used in

Credit Scoring

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✘  The fewer your late payments, collections, judgments and liens you have on your credit bureau the better your score will be. Zero negative entries here usually indicates LOW RISK. ✘  Recent late payments are weighted heavier than those that occurred more than 24 months ago ✘  A 30 day late payment today has greater impact on score than a bankruptcy five years ago with subsequent clean credit.

Past Payment Performance ~35% of score

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✘  Lower balances on several credit cards is better than a higher balance on a few cards ✘  Balances on your cards should be kept below 75% of your available credit limit

✘  Too many credit cards with high balances can be detrimental to your score

Credit Utilization ~30% of score

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✘  The longer your credit card history is in good standing the better ✘  Opening a new credit account and closing a long term account will negatively impact your credit score

Credit History ~15% of score

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✘  Established credit history is relative to your past payment performance and how high or low your credit usage may be. >> Self discipline in utilizing credit indicates lower credit risk ✘  A short credit history does not automatically indicate you are a higher credit risk… >> …as long as you are not a heavy user of credit and make payments on time and keep card balances low

More on credit history - continued

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✘  Finance company accounts will score lower than accounts you secure through banks or department stores >> If most of your accounts are with finance companies, it may indicate higher risk ✘  Deferred payments are generally funded by finance companies >> also an indication of higher risk

Types of credit in use ~ 10%

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✘  Looking for new credit can indicate high risk if several cards are applied for in a short period, especially if existing cards are maxed out ✘  Multiple inquiries, regardless of the number, for mortgages or autos only count as ONE inquiry if within 14 day period

✘  Additional mortgage or auto inquiry made to your credit file within 30 days of current lender inquiries will not impact your credit score

✘  Only inquires authorized by you for the purposes of being granted new credit will impact your score

Inquiries on your credit~ 10%

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Summary of Factors Making up your credit Score

10% - types of credit in use

35% - past payment performance

10% - Inquiries into your credit

15% - credit history

30% - credit utilization

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✘  Race ✘  Gender ✘  Marital status ✘  Religion ✘  Income ✘  Nationality ✘  Neighbourhood ✘  Employment history, position or title ✘  Sexual preference ✘  Interest rate being charged on a particular card

Irrelevant to your scoring model

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✘  NO MAGIC FORMULA! Credit scores automatically improve as your credit profile improves. This takes time. ✘  Ensure you have and maintain 2 trade lines at all times and that one is revolving credit i.e. credit card. ✘  Pay down all your credit card and lines of credit balances to below 50% of available limit.

Improving your Credit Profile and Score

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more ways to improve your credit profile and score

✘  Don’t close any accounts without the advise of a knowledgeable broker ✘  Review your credit report for accuracy at least 90 days prior to applying for a mortgage and have any inaccuracies corrected. ✘  Paid collection items will show a zero balance but will not disappear from your credit profile for SIX YEARS after paid in full.

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thanks! Any questions?

You can find me via my website: http://mortagesbelleville.com

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Credits

✘ Presentation template by: SlidesCarnival

✘ Presentation material compiled by:

StoneHouseMarketing Solutions, Inc.