© 2006 Consumer Jungle

Credit Scores & Reports

Are you Creditworthy?

Have you ever borrowed money?

Did you pay it back?

Did you pay it back quickly?

© 2006 Consumer Jungle

Creditworthiness and Credit Scores

Credit card / loan approval depends

on borrower’s perceived

creditworthiness

Creditworthiness is determined by a credit report and/or credit score

How a person uses a credit card / pays their loans affects

their creditworthiness

Credit History

Credit ReportA record of a consumer’s credit history that includes information about credit card use as well as the use of other types of credit

A number that summarizes an individual’s credit record and history; a numeric “grade” of a consumer’s financial reliability

Credit Score

NO Credit History• If an individual has not used credit or

loans, they will not have any information in their credit report

• Not having a credit report can cause an individual to be denied credit

What is a credit score?

• Most credit scores fall between 600 and 750

• A score above 700 usually suggests good credit management

• Watch this commercial • https://www.youtube.com/watch?

v=CdY4dtewURQ

© 2006 Consumer Jungle

© 2006 Consumer Jungle

Why Credit is Important• FICO or credit score used

by:– Credit Card Issuers &

Lenders• Determine APR

– Auto Insurers• Determine Premium

– Employers• Are you a worthy hire?

– Landlords• Are you a reliable tenant?

© 2006 Consumer Jungle

Credit / FICO Score

• Fair Isaac Company

• Range between 300 & 850

• U.S. Median: 723• < 620 = sub prime• > 760 = best rates

© 2006 Consumer Jungle

The Cost of Borrowing

Your Credit score:

Your interest rate:

Your monthly payment:

760 - 850 6.13% $1,313

700 - 759 6.35% $1,344

680 - 699 6.53% $1,369

660 - 679 6.74% $1,400

640 - 659 7.17% $1,462

620 - 639 7.72% $1,543

© 2006 Consumer Jungle

© 2006 Consumer Jungle

35% Payment History

• Late payments have the greatest negative impact.

© 2006 Consumer Jungle

30% Outstanding Balances

• Total balance vs. total available credit.

• Are you overextended?

• $1,000 limit – and you have a $950 balance

© 2006 Consumer Jungle

15% Length of Credit History

• Number of years you’ve used credit.

• How long since you’ve used certain accounts.

© 2006 Consumer Jungle

10% New Credit

• Number of new accounts.

• Multiple requests reduce your score.

© 2006 Consumer Jungle

10% Types of Credit

• Mix of:–Revolving Credit

• Credit cards– Installment

Credit• Car loan• Home loan

© 2006 Consumer Jungle

How to Improve Your Score

• Pay all bills on time.

• Pay any delinquent bills.

• Lower your total credit card debt.

© 2006 Consumer Jungle

How to Get Your Score

• Three Credit Scores– 1) Trans Union– 2) Experian– 3) Equifax

© 2006 Consumer Jungle

How to Get Your Credit Report

• www.annualcreditreport.com

• 1-877-322-8228• 1 Free Report each year by each credit bureau:

– TransUnion– Experian– Equifax

• Order once from all three companies (or)• Order every 4 months from a different company

© 2006 Consumer Jungle

How long Info stays on Report

• Trade: Sears, Macy’s– 7 years from last

activity

• Judgments or liens– 7 years from filing.

• Chapter 7 Bankruptcy– 10 years

• Medical: case by case

Work on #26 – “Credit 101 Worksheet”

• When done – show Me• Then complete makeup work!

© 2006 Consumer Jungle