Credit Scores: What's New?
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Credit Scores: What's New Tuesday, May 3, 11 a.m.-12:30 p.m. ET This 90-minute webinar will present findings from Experian Public Education Director Rod Griffin and Dr. Barbara O'Neill. This webinar will cover the fundamentals of credit reporting and credit scoring and what you must do to get the credit you want and need. Speakers: Dr. Barbara O'Neill and Rod Griffin Register, join & find supporting resources: https://learn.extension.org/events/2488
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Credit Scores: What's New?
- 1. Credit Scores: What’s New? https://learn.extension.org/events/2488
- 2. Connecting military family service providers to research and to each other through innovative online programming www.extension.org/militaryfamilies MFLN Intro Sign up for webinar email notifications at www.extension.org/62831
- 3. Connecting military family service providers to research and to each other through innovative online programming MFLN Intro Join the Conversation Online! 3
- 4. Join the Conversation Online! MFLN Personal Finance MFLN Personal Finance @MFLNPF MFLN Group https://www.linkedin.com/groups/8409844 PF SMS iconsPF SMS icons Military Families Learning Network 4
- 5. Dr. Barbara O’Neill •Financial Resource Management Specialist for Rutgers Cooperative Extension •Has been a professional financial educator and author for more than 35 years. •Has written more than 1,500 articles for academic journals, conference proceedings & other professional publications. Today’s Presenters Rod Griffin •Director of Public Education for Experian •Leads Experian’s national consumer education program and supports the company’s community involvement and corporate responsibility efforts. •Works with consumer advocates, financial educators and others to increase consumers’ ability to understand and manage personal finances, credit reporting and credit scoring to protect themselves from fraud and identity theft. 5
- 6. Part 1 Credit Score Basics 6
- 7. Question #1: How often do you check your credit report and how? 7
- 8. Credit Reports are Like a “Financial Report Card” • It’s just like you are back in school • You are still being evaluated with written comments • The results are still critical for your future 8
- 9. What is a Credit Report? • A summary of someone’s history of paying debts and other bills • Prepared by credit reporting agencies (a.k.a. CRAs or credit bureaus) • Used by those who have a legitimate need for the information – Lenders – Insurance companies – Potential employers – Potential landlords 9
- 10. The Better Your Credit History, the Better Your Chances of... • Obtaining a loan or credit card • Obtaining lower-cost credit terms and saving hundreds/thousands of dollars of interest • Obtaining a low-cost insurance policy • Renting an apartment • Being hired for a job 10
- 11. Three Major Credit Bureaus Equifax: www.equifax.com Experian: www.experian.com TransUnion: www.transunion.com •Different pieces of data about borrowers in their databases •Social Security number acts as a “magnet” to assemble data and create a credit report 11
- 12. Four Key Credit Report Sections • Identifying Information: Name, SS number, current/previous addresses, birthdate, employer • Public Record Information from Local Courthouse: Liens, foreclosures, bankruptcy, etc. • Other Credit History Information: List of loans and credit cards, timeliness of payments, highest and current balance, negative information (7 years) • Inquiries: Self-initiated, promotional (for marketing purposes), and periodic creditor reviews 12
- 13. Free Credit Reports by Federal Law 13
- 14. Credit Scores Are Like a “Financial GPA” • Three-digit number calculated by statistical analysis • An important barometer of financial health • Based on credit report data at a point in time 14
- 15. More About Credit Scores • Predictive tool that measures the risk of a borrower’s delinquency or default • Determines who qualifies for credit, at what interest rate, and at what credit limits • Generally, higher credit scores indicate lower risk 15
- 16. How to Get a Credit Score • Request score from a prospective lender, landlord, or insurance company • Use a credit card that provides a free credit score (online or on billing statement) • Via the FICO web site: http://www.myfico.com/ 16
- 17. Free Credit Report and Credit Score Providers • Credit.com • Credit Karma • Credit Sesame • QL Credit • Quizzle • Wise Piggy • Beware: solicitations for products, services, upgrades • Beware: free scores will likely vary from FICO scores 17
- 18. About Credit Scoring • Classic FICO score range: 300 (worst) to 850 (best) • Speeds up loan approvals • Objective focus on credit risk factors • 1989: Fair, Isaac Corp. introduced FICO score • 2002: FICO scores became available to consumers at www.myfico.com • 2016: Not required for free upon request by federal law (like credit reports are) BUT many creditors are providing for free (marketing and retention tool) 18
- 19. Sample Credit Score Data for Consumers by a Creditor 19
- 20. What a Credit Score Means Source: http://www.myfico.com/fico-score-high-achievers-infographic.aspx#.Vsyj8cv2aM8 20
- 21. Question #2: How often do you check your credit report and how? 21
- 22. Credit Scoring Factors • Bill payment history, weighted for recent months (35%) • Proportion of outstanding debt to available credit limits (30%) • Length of credit history (15%) • Number of recent credit inquiries (10%) • Mix of types of credit used (10%) 22
- 23. Credit Scores Can Vary • Information in your credit report may vary across the “Big Three” credit reporting agencies (CRAs) – Reporting to CRAs by creditors is voluntary – Data that each CRA compiles about you may be different • Implication: To get a complete picture of what lenders see, check credit reports from all 3 bureaus – If credit report information is very similar, so, too, will be credit scores 23
- 24. Credit Scores Can Vary • Some large lenders still build their own scoring models – Custom models based on data from a lender’s own account holders – These scores are generally not disclosed to consumers • Each of the “Big Three” CRAs sells their own generic score built internally on their own data – Example: Experian’s score is called the Plus Score 24
- 25. Credit Scores Can Vary VantageScore (introduced in 2006) is a FICO score competitor: http://your.vantagescore.com/interpret_scores 25
- 26. Information That is NOT Included in a Credit Score • Your age • Your income • Your employment status – Caveat: Lenders will consider employment status • Your marital status • Interest rates (APRs) paid on existing debts • Child support and alimony • “Soft” and “promotional” inquiries • Credit counseling participation https://www.experian.com/ask-experian/20080625-the-impact-of-credit-counseling-on-cr 26
- 27. Good Credit Scores Save Money Source: http://www.myfico.com/crediteducation/calcu 27
- 28. Damage Points: How Mistakes Affect FICO Credit Scores Action Decline from 680 Score Decline from 780 Score Maxed-out credit card 10-30 points 25-45 points 30-day late payment 60-80 points 90-110 points Debt settlement (Less than full balance) 45-65 points 105-125 points Foreclosure 85-105 points 140-160 points Bankruptcy 130-150 points 220-240 points Source: http://www.creditcards.com/credit-card-news/fico-credit-score-points-mistakes-1270.php 28
- 29. Ways to Improve Your Credit Score • Pay your bills on time (#1 weighted factor) • Keep debt-to-available credit ratio routinely low (< 30%) • Keep accounts open: – Older accounts establish length of history • Get points for variety (mix of types of credit) – Revolving and installment • Avoid “hard” inquiries: supply own report to lenders 29
- 30. Other Credit Score Tips • Only apply for new credit when needed • Pay or settle old collection accounts – Accounts with a “0” balance no longer hurt FICO score • Check credit report for errors that affect score • Correct errors and dispute evidence of fraud – Focus on negative factors provided with FICO score • Reduce balances on credit cards • Pay off debt rather than moving it around 30
- 31. FICO High Achievers • 96% have no late payments • Use, on average, only 7% of credit limit • Owe < $3,500 on credit cards • Have average credit history length of 25 years http://www.myfico.com/fico-score 31
- 32. Question #3: Any other credit score tips? 32
- 33. Credit Score Resource: • The Credit Score Quiz: http://www.creditscorequiz.org/ • Print copy of the quiz with answer key: http://www.creditscorequiz.org/CreditScoreQuiz_AnswerKey_En 33
- 34. Credit Score Resource: Credit Score Game (University of Idaho) • Description: http://www.extension.uidaho.edu/impacts/Pdf_13/18-13lerickson-creditscore.p • Game: http://www.uidaho.edu/extension/4h/programs/nw-youth-financial-ed/credit-sco 34
- 35. FICO Credit Score Estimator Resource: http://whatsmyscore.org/estimator/ 35
- 36. Rutgers Cooperative Extension Wise Credit Management Quiz http://njaes.rutgers.edu/money/wise-credit/ 36
- 37. Question #4: Any other good credit score resources?
- 38. Key Take-Aways • A credit score is a “snapshot” of your credit performance at a point in time. • It changes over time as your credit behavior changes • Helpful credit score factors: – Timely payments (“current” or “paid as agreed”) – Old credit accounts (show lengthy history) – Low balances (<30% of credit card limit) – Variety (bankcards, car loans, mortgages) 38
- 39. Part 2 Credit Scores: Beyond the Basics 39
- 40. ©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. Portrait of a credit score superstar Traits of credit score high performers, a look at new developments in credit reporting
- 41. 41©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Portrait of a Credit Rockstar What do people with the best credit scores look like? • Surveyed five categories of consumers: Super Prime – Deep Subprime • VantageScore 3.0 • Six key credit score components • Age of accounts • Number of accounts • Revolving account balances • Utilization • Inquiries • Delinquency
- 42. 42©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Age is a virtue Super Prime 781-850 Prime 661-780 Nonprime 601-660 Subprime 500-600 Deep Subprime 300-499 Account age Oldest acct. 27 19 15 12 9 Avg. acct. age 12 11 8 7 5 Oldest revolving 27 18 15 12 9 Avg. revolving 13 12 8 8 6 Newest acct. 3 6 3 3 2
- 43. 43©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. What’s in your wallet? Super Prime 781-850 Prime 661-780 Nonprime 601-660 Subprime 500-600 Deep Subprime 300-499 # of accounts Currently paid as agreed 6 4 4 1 1 Carrying a balance 3 3 4 1 2
- 44. 44©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. What comes around goes around Super Prime 781-850 Prime 661-780 Nonprime 601-660 Subprime 500-600 Deep Subprime 300-499 Revolving accounts # open credit cards 5 3 3 1 1 Balance (total in $) 2,648 4,838 6,074 1,221 588
- 45. 45©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Don’t push the limit Super Prime 781-850 Prime 661-780 Nonprime 601-660 Subprime 500-600 Deep Subprime 300-499 Utilization Revolving Util. (%) 8 30 59 73 99 Installment (%)* 39 30 24 19 6 *Installment non-mortgage paid-down
- 46. 46©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Sometimes it hurts to ask Super Prime 781-850 Prime 661-780 Nonprime 601-660 Subprime 500-600 Deep Subprime 300-499 Inquiries No inquires (%) 69 62 50 62 43
- 47. 47©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. It never pays to be late Super Prime 781-850 Prime 661-780 Nonprime 601-660 Subprime 500-600 Deep Subprime 300-499 Delinquency None (%) 100 97 85 62 18 60 days (%) 0 2 13 35 78 Most recent* 42 29 20 16 3 *in months
- 48. 48©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. What’s new? Recent activity in credit reporting
- 49. 49©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. What’s in and what’s out: changes in credit scoring Collection accounts: VantageScore 3.0: •Out – paid •Still in- unpaid FICO 9: •Out – paid (less in?) •Still in- unpaid
- 50. 50©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. What’s in and what’s out: Identity Theft In in a BIG way: Data Breaches • 781 breaches in 2015 • 39.9% - Business • 35.5% - Medical/Healthcare • 9.1% - Banking/Credit/Financial • 8.1% - Government/Military • 7.4% - Education *IDTRC Most commonly reported •Government Documents fraud – 39% •Credit Card Fraud – 17% •Utilities fraud – 13% •Bank fraud – 8% •Employment related – 5% •Loan fraud – 4% *FTC Consumer Sentinel
- 51. 51©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. NY AG Agreement National Consumer Assistance Plan: •Cooperative discussions with the New York Attorney General’s office •Industry plan building on efforts of the national CRAs to improve accuracy and enhance the consumer experience • Expanding educational resources on www.annualcreditreport.com • Additional information will be provided to consumers who dispute information including a description of what they can do if they are not satisfied with the outcome of the dispute • Enhanced dispute resolution process for fraud victims those with mixed files
- 52. 52©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. NY AG Agreement (cont’d) Data accuracy and quality initiatives: •Medical debts not reported until 180-day “waiting period to allow insurance payments to be applied •CRAs will remove previously reported medical collections that have been or are being paid by consumers •Consistent standards reinforced by CRAs to entities that submit data (data furnishers) •Data furnishers will be prohibited from reporting authorized users without date of birth. CRAs will reject data that does not comply with this requirement •CRAs will eliminate reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as tickets or fines. •A multi-company working group will be formed to regularly review and help ensure consistency and uniformity in data submitted by data furnishers.
- 53. 53©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. NY AG Agreement (cont’d) Data accuracy and quality initiatives: •Medical debts not reported until 180-day “waiting period to allow insurance payments to be applied •CRAs will remove previously reported medical collections that have been or are being paid by consumers •Consistent standards reinforced by CRAs to entities that submit data (data furnishers) •Data furnishers will be prohibited from reporting authorized users without date of birth. CRAs will reject data that does not comply with this requirement •CRAs will eliminate reporting of debts that did not arise from a contract or agreement by the consumer to pay, such as tickets or fines. •A multi-company working group will be formed to regularly review and help ensure consistency and uniformity in data submitted by data furnishers.
- 54. 54©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Experian initiatives already underway In the last two years we have: •Upgraded website to make it easier for consumers to dispute online •New system to provide documentation through online upload process •Added additional agents to enable people to speak directly with a representative •Increased bilingual support for our Spanish-speaking consumers •Simplified process to upload dispute documents electronically
- 55. 55©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Experian Education Resources – On the Web Free annual FACT Act credit report ► www.annualcreditreport.com Access to free report from each of the three credit reporting companies Experian ► www.experian.com/crediteducation Ask Experian advice column, sample consumer report, frequently asked questions ► www.livecreditsmart.com Credit trends and information to inspire consumers to use credit wisely ► www.experian.com/consumereducation Electronic versions of our published materials, sample credit report, videos, PowerPoint presentations with talk notes and more
- 56. 56©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
- 57. What is one significant thing you learned today? 57
- 58. Evaluation and Continuing Education Credits/Certificate of Completion MFLN Personal Finance is offering 1.5 credit hours via a certificate of completion for today’s webinar from AFCPE for AFC-credentialed participants and FinCert for CPFC- credentialed participants. To receive a certificate of completion, please complete the evaluation and post-test: https://vte.co1.qualtrics.com/jfe/form/SV_0dopcXdhznFOHe5 Must pass post-test with 80% or higher to receive certificate. 58
- 59. Personal Finance Virtual Learning Event Enhancing Financial Fitness • June 14: What is Financial Fitness & How is it Measured? https://learn.extension.org/events/2591 • June 15: Positive Personality Traits of Financially Fit People https://learn.extension.org/events/2592 • June 16: Wealth Building with Saving, Investing & Windfalls https://learn.extension.org/events/2593 • June 16: Wrap Up Event: Join us and share your own stories https://learn.extension.org/events/2594 For more information on the PF VLE go to: http://articles.extension.org/pages/70421/mfln-personal-finance-virtual-learning- event 59
Notas del editor
- Borrowers’ credit scores determine whether or not they are considered a subprime (less than “A” risk tier) borrower. In recent years, the number of Americans with credit “blemishes” that result in lower credit scores has been increasing. Credit scores are a three digit number that range from the 300s (worst) to the 800s (best). They are sometime called FICO scores. FICO is an abbreviation for Fair, Isaac, and Company, a California company that develops credit risk-scoring models. Most (80% to 85%) consumers score between 600 and 800 (Kiplingers Personal Finance, “Keeping a Tally”, May 2000, p.30). The exact threshold for an “A” (prime) borrower varies among lenders but is typically between 620 to 660. Many lenders also divide consumers with prime credit scores into several different tiers (e.g., A1, A2, A3) and charge each a different interest rate. Credit scores are determined by statistical “risk models.” FICO develops models that determine bill-paying behavior. Factors that are associated with how well people pay bills (e.g., previous timely payments) increase credit scores and factors associated with poor payment patterns (e.g., previous late payments) decrease credit scores. Each of these factors are given a weighting in the statistical model based on how much they influence payment behavior. Credit scores are, thus, a mathematical gauge of creditworthiness. The days are long past where lenders know most of their borrowers personally so credit scoring helps them make objective decisions and determine the amount of risk associated with lending to a particular borrower. Credit scoring systems also reduce lenders’ exposure to fair lending complaints.
- This slide lists seven factors that affect credit scoring models: Previous Payment History- On-time payments enhance a person’s credit score while late payments subtract points. The more bills that are late (e.g., 3 creditors versus 1) and the later the payments (e.g., 90 days instead of 30 days), or charged-off debts, the worse a credit score. A borrower’s previous payment history accounts for 35% of his or her credit score (Kiplinger’s Personal Finance, “The Secret Mix,” September 2000, p. 104). Amount of Money Currently Owed- Potential lenders don’t like to see high amounts of debt. In addition, scoring models take points away from people who have a lot of open credit lines with zero balances (e.g., credit cards they don’t use) because they could go out tomorrow and borrow against them. Proportion of Balances to Credit Limits- “Maxing out” credit lines (i.e., borrowing up to the credit limit) can decrease your credit score. How Long You’ve Been a Borrower- Credit scoring models give more weight to people who have successfully used credit for longer periods of time. Number of Recent Credit Inquiries- Scoring models take points away from people who have applied for a number of new credit lines within a short time period (e.g., six months to a year). Inquires made by lenders in advance of “pre-approved offers” are ignored and do not count against you. Types of Credit Used- Credit scores can increase with a mix of credit (e.g., mortgage, car loan, credit cards) instead of just one type of credit. Stability of Job and Home Address- Scoring models give more weight to “stability” as indicated by length of time at current job and current address.
- At 10 minutes before the published end time, presenter or facilitator invite participants to answer this question in text. Wait at least 60 seconds for replies. Thank participants for attending and for responding and ask a Follow up question verbally: “What will you DO with the information you learned?” Discuss responses, then ask of all participants “What else do you have questions about regarding today’s topic?” Wait a minimum of 60 seconds. Answer questions and provide additional resources as appropriate.