understanding credit & credit reports

FINANCIAL PROSPERITY:

UNDERSTANDING CREDIT AND

CREDIT REPORTS

Instructor: Jeff Wilson II, CPA, AFC Personal

Finance Counselor

The WII Group, LLC

Presented at Mt.Ennon Baptist Church

WE WILL ALL MEET JUDGMENT DAY

AGENDA /OBJECTIVES

What is a Credit Report

Understand your Credit Score

Disputing Errors on your Credit Report

Ways to build or Rebuild Credit

Credit Score Services (The Good, Bad, and Ugly)

WHAT IS A CREDIT REPORT?

The Consumer

Lenders, Banks, and

other businesses

Credit Reporting Agencies

Risk Score Modelers

The Government

Summary of a persons history of paying debts and

other bills

Prepared by the (3) credit reporting agencies

Big Three: Experian, Equifax, and TransUnion

Used by those who have a need to understand your

spending and borrowing history:

WHAT IS A CREDIT REPORT?

Information obtained from banks, stores, credit card

companies, various lenders, and public records

You are entitled to a free credit report from (each) of

the Credit Bureau.

This means you could get 3 separate copies of your

credit report for free in one year

Credit Report form on www.annualcreditreport.com

www. Freecreditreport.com is not the free website

for your credit report

WHAT’S ON YOUR CREDIT REPORT

Personal Information-name, ssn, dob, current/previous addresses, employer

Credit History -List of loans and credit cards, timelines of payments, defaults and negative information ( up to 7 to *10 years)

Public Record-Courthouse, liens, foreclosures, bankruptcy

Inquiries-Usually 2 years; self initiated and promotional

Personal Identifying

Information (PII)

• Name

• Address

• Date of Birth

• Employer

• Social Security Number

Credit History

• Open Credit Accounts

• Open Credit Accounts

• Negative Account Information (late payments, judgments, liens, collections) lines

• Active trade lines

Public Records

• Bankruptcies

• Foreclosures

• Judgments

• Liens

Inquiries

• Creditor looking to offer your credit (Soft Inquiries)

• Potential lenders that you have approved to request your credit report (Hard Inquiries)

SAMPLE CREDIT REPORT

Credit History

SAMPLE CREDIT REPORT

Credit History

SAMPLE CREDIT REPORT

Public Records

SAMPLE CREDIT REPORT

Inquiries

TIME LIMITS ON NEGATIVE CREDIT INFORMATION

REPORTING

• IndefinitelyOpen Accounts in

Good Standing

• 10yrs from date of closureClosed Accounts in

Good Standing

• 7yrs from date of 1st delinquencyLate or missed

payments

• 7yrs from date of charge offCharge Off/Collection

• Ch.7 (10yrs), Ch.13 (7yrs) from date of stay implemented by court

Bankruptcy

• 7yr from beginning of caseCivil Judgment

• 7yrsForeclosure

• 7yrs from paid date or no limit if unpaidTax Liens

• 2yrs (Hard Inquiry)Inquiries

HOW IS YOUR CREDIT WORTHINESS MEASURED?

Credit worthiness

Capacity

Collateral

Capital

Types of Credit

New Credit

Length of Credit History

Amounts Owed

Payment History

o 10%

o 10%

o 15%

o 30%

o 35%

WHAT IS A CREDIT SCORE

Credit Score: a number scale based on the analysis of an individual’s credit reports that represents the consumers likelihood to pay his/her debts

A higher score means that you are more likely to pay your debts

A lower score means that you are less likely to pay your debts

The score is typically three digits

Scores range from 300-850

Credit Score/FICO Score: FICO and Vantage provide various scoring models

Different models = Different Scores

Cannot be obtained free like Credit Report

CREDIT SCORE = FINANCIAL GPA

Rating Scale of Risk

Higher the number, the better your credit

worthiness

FICO Scale Rating: 300- 850

Vantage Scale Rating: 501-990

EFFECTS OF THE CREDIT SCORE

Range Fico Score Meaning

Subprime

(Poor/Low) Under 620 No access or unfavorable rates & terms

Prime

(Fair/Good) 620-780 Reasonable or good rates & terms

Super Prime

(Excellent) 780+ Best or best rates & terms

LOW SCORES = HIGHER INTEREST RATES

CREDIT SCORE IMPACT

DISPUTING INCORRECT INFORMATION

Inform the credit reporting

company, in writing, what

information you think is

inaccurate. Include copies of

supporting documents.

Clearly identify each item in

your report you dispute, state

the facts and explain why you

dispute the information, and

request that it be removed or

corrected.

Enclose a copy of your

report with the items in

question circled.

Send your letter by certified

mail, “return receipt

requested.”

Keep copies of your dispute

letter and enclosures.

DISPUTING INCORRECT INFORMATION

BUILDING CREDIT

Installment Loan

Secured Credit Card

Store specific credit card

Pay on Time Pay on Time Pay on Time

STEPS TO IMPROVE YOUR CREDIT SCORE…

Pay bills on time (#1 weighted factor)

Keep older accounts open

– Older accounts establish length of history

Keep debt-to-available credit ratio < 50%; 30%

better (*don’t use over 30% of available credit capacity)

Get a mix of types of credit

– Revolving and installment credit

Check credit reports and fix mistakes

Avoid simultaneous inquiries

CREDIT MONITORING SERVICES

Businesses who claim to check your credit for you-allow you access to your credit report & score at all times and alert you if there are any changes in your credit. Some companies offer help if ID Theft occurs.

Costs-$10-15 a month

Individual Consumer choice whether or not to buy—can spread out the credit reports throughout the year and monitor credit yourself?

CREDIT REPAIR SCAMS

SIGNS OF CREDIT REPAIR FRAUD

CREDIT REPORTS AND SCORES

Three major credit reporting bureaus

Experian

Equifax

TransUnion

Retrieving your credit report

www.annualcreditreport.com

Call 1-877-322-8228

Thank You

Jeff Wilson II, CPA, AFC, CFE

Email: info@wiicpas.comWeb address: http://www.wiicpas.com