1 Family Life Resources presents The Credit System Revealed
1
Family Life Resourcespresents
The Credit
System Revealed
2
The TRUTH
The WHOLE TRUTH
NOTHING but the TRUTH
SO HELP ME GOD
You will know
Proverbs 3:5 “Trust in the Lord with all your heart and
lean not on your own understanding;”
Proverbs 3:5 “Trust in the Lord with all your heart and
lean not on your own understanding;”
3
4
Biblical based (Up to the 1960’s)
Mobile society (1970-1980)
World view (1990-present)
Handshake and your word (relationships)
Credit reports and lender’s policies (subjective judgement by creditors)
Credit scoring
(Controlled formula)
Evolution of the Credit System
5
6
The Credit System
FOUNDATION- public law 91-508Consumer credit protection act “Fair credit reporting act”
FOUNDATION- public law 91-508Consumer credit protection act “Fair credit reporting act”
PURPOSE- section 602 FCRA“… That consumer reporting
agencies adopt reasonable procedures FOR MEETING THE NEEDS OF COMMERCE for consumer credit, personnel, insurance, and other information….”
PURPOSE- section 602 FCRA“… That consumer reporting
agencies adopt reasonable procedures FOR MEETING THE NEEDS OF COMMERCE for consumer credit, personnel, insurance, and other information….”
7
The Credit System
To extend creditFor government useFor employment considerationFor eligibility of licenseFor underwriting of insurance For legitimate business need
To extend creditFor government useFor employment considerationFor eligibility of licenseFor underwriting of insurance For legitimate business need
USES- section 604 FERAUSES- section 604 FERA
8
A credit score is a number that indicates how likely you are to pay your credit as agreed.
Developed by the Fair-Isaac Company
•It is known as “The Beacon Score or Fair Isaac Score”•Score Range is 383-830 points
A credit score is a number that indicates how likely you are to pay your credit as agreed.
Developed by the Fair-Isaac Company
•It is known as “The Beacon Score or Fair Isaac Score”•Score Range is 383-830 points
9
Different UsesMortgageAutoCredit Cards
Different Types of Creditors
BanksCredit UnionCredit Card CompaniesFinance Companies
10
11
Key Factors to Your Credit
Score
Key Factors to Your Credit
Scoreoror
When You Think Your Doing it Right,
It’s Wrong
When You Think Your Doing it Right,
It’s Wrong
12
Late Payments Kill Your ScoreLate Payments Kill Your Score
A. Creditors may collect a late payment but report you as on -time ($24 million a month to them)
B. Black marks (late pays) made in the past six months will hurt you more than a bankruptcy 5 years ago.
C. Generally black marks more than 2 years old don’t impact your score as much.
A. Creditors may collect a late payment but report you as on -time ($24 million a month to them)
B. Black marks (late pays) made in the past six months will hurt you more than a bankruptcy 5 years ago.
C. Generally black marks more than 2 years old don’t impact your score as much.
13
Debt is Good (You deserve it)Debt is Good
(You deserve it)
If your total debt is more than 75% of your credit limit
your score is drastically reduced.
If your total debt is more than 75% of your credit limit
your score is drastically reduced.
14
Zero Balances(Proud of the fact that you have no balance on your credit cards.)
Zero Balances(Proud of the fact that you have no balance on your credit cards.)
Consumers with no balances on their cards get lower scores than those with moderate balances.
Consumers with no balances on their cards get lower scores than those with moderate balances.
WHY?
Lenders fear you will go on a buying spree and rack up new debt. Closing out unused cards will raise your score.
WHY?
Lenders fear you will go on a buying spree and rack up new debt. Closing out unused cards will raise your score.
15
Card Sharks(Charging everything and paying it off each month)
Card Sharks(Charging everything and paying it off each month)
Scoring models don’t distinguish between a $5,000 card balance and a debt charged each month and is paid off immediately.
Scoring models don’t distinguish between a $5,000 card balance and a debt charged each month and is paid off immediately.
If you do this, make sure your limit is not near your charge balance or you lose!
If you do this, make sure your limit is not near your charge balance or you lose!
16
Stuffed Wallets(Your pre-approved, Get those cards)
Stuffed Wallets(Your pre-approved, Get those cards)
No bank credit card means lower score.
No bank credit card means lower score.
More than five credit cards means lower score.
More than five credit cards means lower score.
Two to four cards will keep you in the game.
Two to four cards will keep you in the game.
If you close out some cards, be careful not to close out older accounts. Older is better
If you close out some cards, be careful not to close out older accounts. Older is better
17
Inquiring Minds(Sure, check me out, I’m ok)
Inquiring Minds(Sure, check me out, I’m ok)
To many inquires in a short period of time signals a consumer is seeking credit because of a financial problem.
To many inquires in a short period of time signals a consumer is seeking credit because of a financial problem.
The risk of default rises after four inquiries within six months or six inquiries within a year.
The risk of default rises after four inquiries within six months or six inquiries within a year.
Be very careful to whom you give permissionAuto Dealers = Avg. 8 Retailers = Avg. 4
Be very careful to whom you give permissionAuto Dealers = Avg. 8 Retailers = Avg. 4
18
Just say NO!(Balance transfers are great- lower rates, lower payments, etc.)
Just say NO!(Balance transfers are great- lower rates, lower payments, etc.)
Consumers who transfer have a risk of higher default. They use
debt beyond their means.
Consumers who transfer have a risk of higher default. They use
debt beyond their means.Four or more transfers will
lower your score in a major way.
Four or more transfers will
lower your score in a major way.
Make sure if you transfer to close your old account and plan to stay for two years.
Make sure if you transfer to close your old account and plan to stay for two years.
19
Little Things Add UpMarital Status
Married
Single
Dependents3 or less
4 or more
Dependents3 or less
4 or more
Age under 25
25-65
over 65
20
Little Things Add Up
Employment Less than 1 year
More than 6 years
Employment Less than 1 year
More than 6 years
Occupation unskilled skilled
professional
Occupation unskilled skilled
professional
21
Little Things Add UpHousing Rent
Own
Housing Rent
Own
Income Under $1000 a month
Over $3000 a month
Income Under $1000 a month
Over $3000 a month
Debt Finance Companies
Banks
Debt Finance Companies
Banks
22
23
“Trust in the Lord with all
your heart and lean not on your own
understanding;”
“Trust in the Lord with all
your heart and lean not on your own
understanding;”
Proverbs 3:5Proverbs 3:5
24
Get and Review Your Credit
Reports
70% of all credit reports have major errors.
There is no incentive by the bureaus to clean them up.
Bureaus seek negative information.
25
If There Are Problems on Your Report- Get Professional Help
Minor errors you can fix. Such as flat out wrong accounts that are not yours
More than four errors get help because the credit bureaus will pre-judge your effort as frivolous or irrelevant (section 611) and not correct these errors
26
Learn Your Credit Score Yes, your score changes based
upon your activity. But for most of us, it stays within a range.
Know your score and shop for your credit based on your type of need and type of lender.
The cost to you (interest rates and other charges) can be influenced by the knowledge you have. Know thyself!