Your Credit Score - Benefits · Your Credit Score. You need to know the facts about credit scores in order to use them to achieve your financial goals. This workshop ... - Creditor

Your Credit Score

You need to know the facts about credit

scores in order to use them to achieve

your financial goals. This workshop

reviews the types of scoring models

being used today and give you the game

plan for using them to your advantage.

Your Credit Score

• Numerical measure ofcredit worthiness

• Based on information incredit report

• Credit report tracks credit activity

- Compiled by three bureaus: Equifax, Experian, TransUnion

• Many creditors just look atscore, not report

What is a Credit Score?

• Most widely usedscoring model

• 300–850- The higher, the better

• Score from each bureau- Creditor may check all threeor only one

FICO Score

How FICO Score Is Calculated

35%

30%

15%

10%

10% Payment History - 35%

Amounts Owed - 30%

Length of Credit History - 15%

New Credit - 10%

Type of Credit Used - 10%

• Payment history: 35%

- On-time payments help, late payments hurt

- Collection accounts and legal actions especially harmful

• Amounts Owed: 30%

- Hurts to have balance close to credit limit

FICO Score Components

• Length of credit history: 15%

- Longer history improves score

• New credit: 10%

- Number of new accounts

- Inquiries

• Types of credit used: 10%

- Variety good

FICO Score Components (continued)

• Score determines approval

and interest rate

• For loans, higher interest rate

= higher monthly payment

and higher total cost

Having a Low Score Can Cost You

• Always pay on time

• Pay down existing debt

• Diversify your credit

• Check your reportsfor errors

How to Improve Your FICO Score

• Keep your old accounts

• Limit balance transfers

• Avoid excess credit applications

• Be patient

• Companies claim to repair credit for high fee

• At best, charging youfor something you cando for free

• At worst, using dishonestor illegal tactics

- Flooding credit bureauswith disputes

- Issuing new identity

Beware Credit Repair

Rapid Rescoring

Offered by some mortgage lendersand brokers

Offered by some mortgage lendersand brokers

Not used to disputed accurate negative information

• Score (300 – 850) and grade

• Able to rate newer credit

• May ignore paid collections

VantageScore

How VantageScore Is Calculated

30%

28%

23%

9%

9%

1%

Recent Credit - 30%

Payment History - 28%

Utilization - 23%

Balances - 9%

Depth of Credit - 9%

Available Credit - 1%

Other Scores

Bankruptcy risk scores

Risk will file for bankruptcy

Internal scores

Created by creditors

Non-traditional scores

Look at non-credit information

May be better to establish traditional score

• Can get score for free if adverse action taken against you

• Must pay in most circumstances

• Pay attention to what score you are purchasing

Obtaining Your Score

• Your score isalready excellent

• You will not be using it

• You have more important financial issues to deal with

When to IgnoreYour Score

BALANCE is a financial education and counseling service. Services include money management counseling, debt repayment options, credit report review, and more.

Call toll-free 888.456.2227 or visit www.balancepro.org

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