Your Credit Score - Benefits · Your Credit Score. You need to know the facts about credit scores...
Transcript of Your Credit Score - Benefits · Your Credit Score. You need to know the facts about credit scores...
You need to know the facts about credit
scores in order to use them to achieve
your financial goals. This workshop
reviews the types of scoring models
being used today and give you the game
plan for using them to your advantage.
Your Credit Score
• Numerical measure ofcredit worthiness
• Based on information incredit report
• Credit report tracks credit activity
- Compiled by three bureaus: Equifax, Experian, TransUnion
• Many creditors just look atscore, not report
What is a Credit Score?
• Most widely usedscoring model
• 300–850- The higher, the better
• Score from each bureau- Creditor may check all threeor only one
FICO Score
How FICO Score Is Calculated
35%
30%
15%
10%
10% Payment History - 35%
Amounts Owed - 30%
Length of Credit History - 15%
New Credit - 10%
Type of Credit Used - 10%
• Payment history: 35%
- On-time payments help, late payments hurt
- Collection accounts and legal actions especially harmful
• Amounts Owed: 30%
- Hurts to have balance close to credit limit
FICO Score Components
• Length of credit history: 15%
- Longer history improves score
• New credit: 10%
- Number of new accounts
- Inquiries
• Types of credit used: 10%
- Variety good
FICO Score Components (continued)
• Score determines approval
and interest rate
• For loans, higher interest rate
= higher monthly payment
and higher total cost
Having a Low Score Can Cost You
• Always pay on time
• Pay down existing debt
• Diversify your credit
• Check your reportsfor errors
How to Improve Your FICO Score
• Keep your old accounts
• Limit balance transfers
• Avoid excess credit applications
• Be patient
• Companies claim to repair credit for high fee
• At best, charging youfor something you cando for free
• At worst, using dishonestor illegal tactics
- Flooding credit bureauswith disputes
- Issuing new identity
Beware Credit Repair
Rapid Rescoring
Offered by some mortgage lendersand brokers
Offered by some mortgage lendersand brokers
Not used to disputed accurate negative information
• Score (300 – 850) and grade
• Able to rate newer credit
• May ignore paid collections
VantageScore
How VantageScore Is Calculated
30%
28%
23%
9%
9%
1%
Recent Credit - 30%
Payment History - 28%
Utilization - 23%
Balances - 9%
Depth of Credit - 9%
Available Credit - 1%
Other Scores
Bankruptcy risk scores
Risk will file for bankruptcy
Internal scores
Created by creditors
Non-traditional scores
Look at non-credit information
May be better to establish traditional score
• Can get score for free if adverse action taken against you
• Must pay in most circumstances
• Pay attention to what score you are purchasing
Obtaining Your Score
• Your score isalready excellent
• You will not be using it
• You have more important financial issues to deal with
When to IgnoreYour Score