What Is A Credit Score?
§ A credit score is a statistical means of assessing how likely a borrower is to pay back a loan based on the data available in the borrower’s credit report at a certain point in time.
Name given credit scores at the Big 3:
o “FICO” (Fair Isaac Corporation) at Experian
o Beacon at Equifax
o Empirica at Trans Union
How is a Credit Score Derived?
§ History of credit file
§ Payment history
§ Severity, recent and frequent derogatory information
§ Outstanding debt
§ Balance relative to credit limit
§ Number of accounts with balances
So, What is the Magic Formula?
§ 35% Payment History
§ 30% Revolving Debt Ratio
§ 15% Credit History
§ 10% Credit Inquiries/New Credit
§ 10% Types of Credit (Revolving, Installment, ect..)
What Can You Do?
§ To get more specific information on what the score is and how to improve it, please visit: www.myfico.com
§ To review your own credit report for free visit: www.annaualcreditreport.com (Each person is entitled to one free copy of their credit report per year from all 3 reporting agencies; must pay for score)
Hints for Improving Your Score
Ø Do NOT borrow from HIGH RISK finance companies (don’t borrow from companies that charge extremely high interest rates or unfair terms)
Ø Do NOT close revolving accounts
Ø Do NOT payoff old collection accounts BEFORE pulling your credit
Ø Do NOT open new credit during the loan process
Ø Know your facts and rights
Ø Pay ALL your bills on time!
Ø Keep balances on credit reports under 33% of credit limit
Ø Watch credit inquiries
Ø Ask creditor(s) to remove late notices on your report if you have been paying on time for about 6 months
Ø Negotiate collection accounts (try your best to negotiate using all options)
o Ask for reduction in amount owed for full payment (I say to always start at 60% of debt)
o Negotiate payment plan
o Negotiate interest rate reduction