©2004 iowa student loan credit scoring whats your score? presented by: natalee girardi college...
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©2004 Iowa Student Loan ©2004 Iowa Student Loan
Credit ScoringWhat’s Your Score?
Presented By:Natalee GirardiCollege Consulting Services
©2004 Iowa Student Loan
What is a Credit Score?
• Measurement of overall credit risk• FICO Score – Fair, Isaac &
Company– Based solely on credit report data– Higher the score, the lower the risk– Lenders will “individualize” the score– Score may vary by credit bureau– Score will change over time
©2004 Iowa Student Loan
What is a Good Credit Score?
FICO ScoreFICO Score Credit RatingCredit Rating
Above 730 Excellent Credit 700 - 729 Good Credit670 - 699 Lender will take
a closer look585 – 669 Higher RiskBelow 585 Limited Credit
Available
Where do you fall?
©2004 Iowa Student Loan
National Distribution of FICO Scores
1%5%
12%16%
19%
28%
11%
0%
5%
10%
15%
20%
25%
30%
Up to499
500-549
600-649
650-699
700-749
750-799
800+
©2004 Iowa Student Loan ©2004 Iowa Student Loan
Fact or Fallacies
©2004 Iowa Student Loan
Fallacy: My score determines whether or not I get credit.
• Lenders use a number of factors to make credit decisions
• Lenders may extend credit to low scores
• Lenders my decline credit for high scores
Fact
:
©2004 Iowa Student Loan
Fallacy: A poor score will haunt me forever.
• A score is a “snapshot”• Changes as information is added• Past credit problems impact score
less, as time passes
Fact
:
©2004 Iowa Student Loan
Fallacy: Credit scoring is unfair to minorities.
• Scoring only uses credit-related information• Not included:
– Gender– Race– Nationality– Marital Status
• Equal Credit Opportunity Act (ECOA) prohibits these factors from being used
Fact
:
©2004 Iowa Student Loan
Fallacy: Credit scoring infringes on my privacy.
• Credit scoring evaluates the same information lenders look at –– Credit bureau report– Credit application– Bank file
Fact
:
©2004 Iowa Student Loan
Fallacy: My score will drop if I apply for new credit
• If it does, it probably won’t drop much.
• It’s the “looking” that can be equated with higher risk
Fact
:
©2004 Iowa Student Loan
What’s in Your Score?
35%
15%10%
10%
30%
Payment History Length of Credit History
New Credit Types of Credit Used
Amounts Owed
©2004 Iowa Student Loan
Payment History – 35%
• Account payment information on specific types of accounts
• Presence of adverse records• Severity of delinquency• Amount past due• Time since adverse records• Number of past due items• Number of accounts paid as
agreed
Tips:
•Pay on time
•Get current
and stay
current
•When in
trouble,
contact
creditor
©2004 Iowa Student Loan
Amount Owed – 30%
• Remaining balance• Remaining balance on specific
types of accounts• Lack of specific type of balance• Number of accounts with balances• Proportion of installment loan
amount balances• Proportion of credit lines used
Tip:
•Keep balances
low on Credit
Cards
•Pay off, rather
than move
©2004 Iowa Student Loan
Length of Credit History – 15%
• Time since accounts opened
• Time since accounts opened, by specific types of accounts
• Time since account activity
Tip:
If you have been
managing credit
for a short time,
don’t open a lot
of new accounts
too rapidly.
©2004 Iowa Student Loan
New Credit – 10%
• Number of recently opened accounts – and time since
• Number of recent credit inquiries – and time since
• Re-establishment of positive history
Tips:
•Shop within a
focused time
•Re-establish your
credit history
©2004 Iowa Student Loan
Types of Credit Used – 10%
• Number and kinds of credit accounts established– Credit Cards– Retail Cards– Installment
Loans
Tips:
•Open new credit
accounts as needed
•Have credit cards –
Manage credit cards
•Closing an account
doesn’t make it go
away
©2004 Iowa Student Loan
Reasons for Low Scores
• Serious delinquency• Time since delinquency is too recent• Level of delinquency on accounts• Number of delinquent accounts• Amount owed• Debt to credit limit ratio is to high• Length of time accounts have been
established• Too many accounts with balances
©2004 Iowa Student Loan
Your Credit Report…
• Your credit report can affect all aspects of your life
• Monitor your credit report New legislation: FACTA, the Fair and
Accurate Credit Transactions Act Americans can receive a free credit report
from the three national credit bureaus once per year.
To request your free report go to www.annualcreditreport.com or call 877-322-8228.
©2004 Iowa Student Loan ©2004 Iowa Student Loan
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