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 I mproving 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 |