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Credit Scores: What’s New?
https://learn.extension.org/events/2488
Connecting military family service providers to research and to each other
through innovative online programming
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MFLN Intro
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Dr. Barbara O’Neill•Financial Resource Management Specialist for Rutgers Cooperative Extension•Has been a professional financial educator and author for more than 35 years. •Has written more than 1,500 articles for academic journals, conference proceedings & other professional publications.
Today’s Presenters
Rod Griffin•Director of Public Education for Experian•Leads Experian’s national consumer education program and supports the company’s community involvement and corporate responsibility efforts.•Works with consumer advocates, financial educators and others to increase consumers’ ability to understand and manage personal finances, credit reporting and credit scoring to protect themselves from fraud and identity theft.
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Part 1
Credit Score Basics
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Question #1: How often do you check
your credit report and how?
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Credit Reports are Like a “Financial Report Card”
• It’s just like you are back in school
• You are still being evaluated with written comments
• The results are still critical for your future
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What is a Credit Report?• A summary of someone’s history of paying debts
and other bills
• Prepared by credit reporting agencies (a.k.a. CRAs or credit bureaus)
• Used by those who have a legitimate need for the information
– Lenders
– Insurance companies
– Potential employers
– Potential landlords 9
The Better Your Credit History, the Better Your Chances of...
• Obtaining a loan or credit card
• Obtaining lower-cost credit terms and saving hundreds/thousands of dollars of interest
• Obtaining a low-cost insurance policy
• Renting an apartment
• Being hired for a job10
Three Major Credit BureausEquifax: www.equifax.com
Experian: www.experian.com
TransUnion: www.transunion.com
•Different pieces of data about borrowers in their databases
•Social Security number acts as a “magnet” to assemble data and create a credit report
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Four Key Credit Report Sections• Identifying Information: Name, SS number, current/previous
addresses, birthdate, employer
• Public Record Information from Local Courthouse: Liens, foreclosures, bankruptcy, etc.
• Other Credit History Information: List of loans and credit cards, timeliness of payments, highest and current balance, negative information (7 years)
• Inquiries: Self-initiated, promotional (for marketing purposes), and periodic creditor reviews
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Free Credit Reports by Federal Law
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Credit Scores Are Like a “Financial GPA”
• Three-digit number calculated by statistical analysis
• An important barometer of financial health
• Based on credit report data at a point in time
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More About Credit Scores• Predictive tool that measures the risk of a borrower’s
delinquency or default
• Determines who qualifies for credit, at what interest rate, and at what credit limits
• Generally, higher credit scores indicate lower risk
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How to Get a Credit Score• Request score from a prospective lender, landlord,
or insurance company
• Use a credit card that provides a free credit score (online or on billing statement)
• Via the FICO web site: http://www.myfico.com/
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Free Credit Report and Credit Score Providers
• Credit.com• Credit Karma• Credit Sesame• QL Credit• Quizzle• Wise Piggy
• Beware: solicitations for products, services, upgrades• Beware: free scores will likely vary from FICO scores
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About Credit Scoring• Classic FICO score range: 300 (worst) to 850 (best)
• Speeds up loan approvals
• Objective focus on credit risk factors
• 1989: Fair, Isaac Corp. introduced FICO score
• 2002: FICO scores became available to consumers at www.myfico.com
• 2016: Not required for free upon request by federal law (like credit reports are) BUT many creditors are providing for free (marketing and retention tool)
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Sample Credit Score Data for Consumers by a Creditor
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What a Credit Score Means
Source: http://www.myfico.com/fico-score-high-achievers-infographic.aspx#.Vsyj8cv2aM8
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Question #2: How often do you check
your credit report and how?
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Credit Scoring Factors• Bill payment history, weighted for recent months (35%)
• Proportion of outstanding debt to available credit limits (30%)
• Length of credit history (15%)
• Number of recent credit inquiries (10%)
• Mix of types of credit used (10%)
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Credit Scores Can Vary• Information in your credit report may vary across the
“Big Three” credit reporting agencies (CRAs)– Reporting to CRAs by creditors is voluntary
– Data that each CRA compiles about you may be different
• Implication: To get a complete picture of what lenders see, check credit reports from all 3 bureaus– If credit report information is very similar, so, too, will be credit scores
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Credit Scores Can Vary• Some large lenders still build their own scoring
models
– Custom models based on data from a lender’s own account holders
– These scores are generally not disclosed to consumers
• Each of the “Big Three” CRAs sells their own generic score built internally on their own data
– Example: Experian’s score is called the Plus Score
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Credit Scores Can VaryVantageScore (introduced in 2006) is a FICO score competitor: http://your.vantagescore.com/interpret_scores
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Information That is NOT Included in a Credit Score
• Your age• Your income• Your employment status
– Caveat: Lenders will consider employment status• Your marital status• Interest rates (APRs) paid on existing debts• Child support and alimony• “Soft” and “promotional” inquiries• Credit counseling participationhttps://www.experian.com/ask-experian/20080625-the-impact-of-credit-counseling-on-credit-scores.html
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Good Credit Scores Save Money
Source: http://www.myfico.com/crediteducation/calculators/loanrates.aspx
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Damage Points: How Mistakes Affect FICO Credit Scores
Action Decline from 680 Score
Decline from 780 Score
Maxed-out credit card 10-30 points 25-45 points
30-day late payment 60-80 points 90-110 points
Debt settlement(Less than full balance)
45-65 points 105-125 points
Foreclosure 85-105 points 140-160 points
Bankruptcy 130-150 points 220-240 points
Source: http://www.creditcards.com/credit-card-news/fico-credit-score-points-mistakes-1270.php 28
Ways to Improve Your Credit Score
• Pay your bills on time (#1 weighted factor)
• Keep debt-to-available credit ratio routinely low (< 30%)
• Keep accounts open:
– Older accounts establish length of history
• Get points for variety (mix of types of credit)
– Revolving and installment
• Avoid “hard” inquiries: supply own report to lenders
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Other Credit Score Tips• Only apply for new credit when needed
• Pay or settle old collection accounts
– Accounts with a “0” balance no longer hurt FICO score
• Check credit report for errors that affect score
• Correct errors and dispute evidence of fraud
– Focus on negative factors provided with FICO score
• Reduce balances on credit cards
• Pay off debt rather than moving it around30
FICO High Achievers
• 96% have no late payments
• Use, on average, only 7% of credit limit
• Owe < $3,500 on credit cards
• Have average credit history length of 25 years
http://www.myfico.com/fico-score-high-achievers-infographic.aspx#.Vsyj8cv2aM8
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Question #3: Any other credit score
tips?
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Credit Score Resource: • The Credit Score Quiz: http://www.creditscorequiz.org/
• Print copy of the quiz with answer key: http://www.creditscorequiz.org/CreditScoreQuiz_AnswerKey_Eng.pdf
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Credit Score Resource: Credit Score Game (University of Idaho)• Description:
http://www.extension.uidaho.edu/impacts/Pdf_13/18-13lerickson-creditscore.pdf
• Game: http://www.uidaho.edu/extension/4h/programs/nw-youth-financial-ed/credit-score-millionaire
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FICO Credit Score Estimator
Resource: http://whatsmyscore.org/estimator/35
Rutgers Cooperative Extension Wise Credit Management Quiz
http://njaes.rutgers.edu/money/wise-credit/ 36
Question #4: Any other good credit
score resources?
Key Take-Aways• A credit score is a “snapshot” of your credit performance
at a point in time.
• It changes over time as your credit behavior changes
• Helpful credit score factors:
– Timely payments (“current” or “paid as agreed”)
– Old credit accounts (show lengthy history)
– Low balances (<30% of credit card limit)
– Variety (bankcards, car loans, mortgages)
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Part 2
Credit Scores:Beyond the Basics
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©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks ofExperian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners.No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian.
Experian Public.
Portrait of a credit score superstar
Traits of credit score high performers, a look at new developments in credit reporting
41©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Portrait of a Credit Rockstar
What do people with the best credit scores look like?• Surveyed five categories of consumers: Super Prime – Deep Subprime• VantageScore 3.0• Six key credit score components
• Age of accounts• Number of accounts• Revolving account balances• Utilization• Inquiries• Delinquency
42©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Age is a virtue
Super Prime
781-850
Prime661-780
Nonprime601-660
Subprime500-600
Deep Subprime300-499
Account age
Oldest acct. 27 19 15 12 9Avg. acct. age 12 11 8 7 5Oldest revolving 27 18 15 12 9Avg. revolving 13 12 8 8 6Newest acct. 3 6 3 3 2
43©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
What’s in your wallet?
Super Prime
781-850
Prime661-780
Nonprime601-660
Subprime500-600
Deep Subprime300-499
# of accounts
Currently paid as agreed
6 4 4 1 1
Carrying a balance
3 3 4 1 2
44©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
What comes around goes around
Super Prime
781-850
Prime661-780
Nonprime601-660
Subprime500-600
Deep Subprime300-499
Revolving accounts
# open credit cards 5 3 3 1 1Balance (total in $) 2,648 4,838 6,074 1,221 588
45©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Don’t push the limit
Super Prime
781-850
Prime661-780
Nonprime601-660
Subprime500-600
Deep Subprime300-499
Utilization
Revolving Util. (%) 8 30 59 73 99Installment (%)* 39 30 24 19 6*Installment non-mortgage paid-down
46©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Sometimes it hurts to ask
Super Prime
781-850
Prime661-780
Nonprime601-660
Subprime500-600
Deep Subprime300-499
Inquiries
No inquires (%) 69 62 50 62 43
47©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
It never pays to be late
Super Prime
781-850
Prime661-780
Nonprime601-660
Subprime500-600
Deep Subprime300-499
Delinquency
None (%) 100 97 85 62 18
60 days (%) 0 2 13 35 78
Most recent* 42 29 20 16 3*in months
48©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
What’s new?
Recent activity in credit reporting
49©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
What’s in and what’s out: changes in credit scoring
Collection accounts:
VantageScore 3.0:•Out – paid•Still in- unpaid
FICO 9:•Out – paid (less in?)•Still in- unpaid
50©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
What’s in and what’s out:Identity Theft
In in a BIG way: Data Breaches• 781 breaches in 2015• 39.9% - Business• 35.5% - Medical/Healthcare• 9.1% - Banking/Credit/Financial• 8.1% - Government/Military• 7.4% - Education*IDTRC
Most commonly reported•Government Documents fraud – 39%•Credit Card Fraud – 17%•Utilities fraud – 13%•Bank fraud – 8%•Employment related – 5%•Loan fraud – 4%*FTC Consumer Sentinel
51©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
NY AG Agreement
National Consumer Assistance Plan:
•Cooperative discussions with the New York Attorney General’s office•Industry plan building on efforts of the national CRAs to improve accuracy and enhance the consumer experience
• Expanding educational resources on www.annualcreditreport.com• Additional information will be provided to consumers who dispute
information including a description of what they can do if they are not satisfied with the outcome of the dispute
• Enhanced dispute resolution process for fraud victims those with mixed files
52©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
NY AG Agreement (cont’d)
Data accuracy and quality initiatives:
•Medical debts not reported until 180-day “waiting period to allow insurance payments to be applied•CRAs will remove previously reported medical collections that have been or are being paid by consumers•Consistent standards reinforced by CRAs to entities that submit data (data furnishers)•Data furnishers will be prohibited from reporting authorized users without date of birth. CRAs will reject data that does not comply with this requirement•CRAs will eliminate reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as tickets or fines.•A multi-company working group will be formed to regularly review and help ensure consistency and uniformity in data submitted by data furnishers.
53©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
NY AG Agreement (cont’d)
Data accuracy and quality initiatives:
•Medical debts not reported until 180-day “waiting period to allow insurance payments to be applied•CRAs will remove previously reported medical collections that have been or are being paid by consumers•Consistent standards reinforced by CRAs to entities that submit data (data furnishers)•Data furnishers will be prohibited from reporting authorized users without date of birth. CRAs will reject data that does not comply with this requirement•CRAs will eliminate reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as tickets or fines.•A multi-company working group will be formed to regularly review and help ensure consistency and uniformity in data submitted by data furnishers.
54©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Experian initiatives already underway
In the last two years we have:•Upgraded website to make it easier for consumers to dispute online•New system to provide documentation through online upload process•Added additional agents to enable people to speak directly with a representative•Increased bilingual support for our Spanish-speaking consumers•Simplified process to upload dispute documents electronically
55©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
Experian Education Resources – On the Web
Free annual FACT Act credit report► www.annualcreditreport.com
Access to free report from each of the three credit reporting companies
Experian► www.experian.com/crediteducation
Ask Experian advice column, sample consumer report, frequently asked questions
► www.livecreditsmart.comCredit trends and information to inspire consumers to use credit wisely
► www.experian.com/consumereducationElectronic versions of our published materials, sample
credit report, videos, PowerPoint presentations with talk notes and more
56©2014 Experian Information Solutions, Inc. All rights reserved.Experian Public.
What is one significant thing you learned today?
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Evaluation and Continuing Education Credits/Certificate of Completion
MFLN Personal Finance is offering 1.5 credit hours via a certificate of completion for today’s webinar from AFCPE for AFC-credentialed participants and FinCert for CPFC-credentialed participants.
To receive a certificate of completion, please complete the evaluation and post-test: https://vte.co1.qualtrics.com/jfe/form/SV_0dopcXdhznFOHe5
Must pass post-test with 80% or higher to receive certificate.
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Personal Finance Virtual Learning Event
Enhancing Financial Fitness• June 14: What is Financial Fitness & How is it Measured?
https://learn.extension.org/events/2591 • June 15: Positive Personality Traits of Financially Fit People
https://learn.extension.org/events/2592• June 16: Wealth Building with Saving, Investing & Windfalls
https://learn.extension.org/events/2593 • June 16: Wrap Up Event: Join us and share your own stories
https://learn.extension.org/events/2594
For more information on the PF VLE go to: http://articles.extension.org/pages/70421/mfln-personal-finance-virtual-learning-event
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www.extension.org/62581
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