Credit Management:

1
Credit Management Getting Credit and Keeping It
Healthy Vanderbilt University School of Medicine
November 30, 2006
2
Welcome

• Gina Lucente-Cole
• Manager of Professional Services
• American Student Assistance
• 100 Cambridge St., Suite 1600
• Boston, MA 02135
• 800-999-9080 ext. 4655
• gcole_at_amsa.com

3
Session Objectives

• Identity the five sections of a credit report,
  how to obtain one, and how to resolve mistakes
  reported on your report
  
• Identify the five components of your credit
  score, how your credit score impacts future
  borrowing, and how to improve your credit score
  

4
True or False?

• Paying your credit card bills on time each month
  is both necessary and sufficient condition for
  having good credit.
  
• False. You should also try not to carry a high
  balance or at least pay more than the minimum
  amount.

5
Credit Report
6
Credit Report Facts

• Record of your credit payment history
• Illustrates the amount you have borrowed in
  credit cards and loans and your timeliness of
  payment
  
• Contains identifying information
• Used to determine creditworthiness

7
Anatomy of Credit Report

• Section 1 Personal Identification Information
• Section 2 Public Record Information
• Section 3 Collection Agency Account
  Information
  
• Section 4 Credit Account Information
• Section 5 Companies Requesting your Credit
  File
  

8
How to Obtain Credit Report

• Credit Agencies
• Equifax www.equifax.com
• Experian www.experian.com
• Trans Union www.transunion.com
• One free report from each agency every 12
  months
  
• www.annualcreditreport.com

9
Resolving Mistakes on Your Credit Report

• Fully understand each listing in your credit
  report and be certain that you understand whats
  an error and what is not
  
• Create a list of the errors in your credit
  report
  
• Notify each credit reporting agency of all the
  errors in writing
  
• Notify the lender that has reported the erroneous
  information and ask them to correct their entry
  on your credit report
  
• Keep a copy of your correspondence

10
Credit Score
11
Credit Score

• Reflection of the information on your credit
  report
  
• Formula developed by Fair and Isaac Corporation
  (FICO)
  
• Scores range from 300-850
• Average score is 720
• The lower the score, the greater the risk it is
  to lend you money
  

12
National Distribution of FICO Scores
13
Requirements of the Perfect Score

• Having paid all bills on time during the past
  seven years
  
• Having a minimum of 30 years of credit use
• Having between four and six revolving credit
  accounts

14
Impact on Interest Rates

• How much can your FICO score impact the interest
  you pay on a loan?
  
• A LOT!!

15
Interest Rate Example

• Type of Loan 30-Year Fixed
• State Tennessee
• Principle Amount 200,000

Interest Rates as of 01/19/2006
16
Interest Rate Example

• Current FICO Score Range 620 674
• If your score changes to 720 850, you could
  SAVE an extra 87,204
  
• If your score changes to 700 719, you could
  SAVE an extra 81,402
  
• If your score changes to 675 699, you could
  SAVE an extra 56,055
  
• If your score changes to 560 619, you could PAY
  an extra 46,069
  
• If your score changes to 500 559, you could PAY
  an extra 78,054

17
Other Names for FICO Scores

• FICO scores have different names at each of the
  credit reporting agencies
  
• Credit Reporting Agency FICO Score
• Equifax BEACON
• Experian Experian/Fair Isaac Risk Model
• TransUnion EMPIRICA

18
Credit Score Factors

• 35 Payment History
• 30 Amount Owed vs. Available Credit
• 15 Length of Credit History
• 10 Amount of New Credit
• 10 Types of Credit
• 0 Number of Inquiries

19
Payment History

• Account payment information on specific types of
  accounts
  
• Presence of adverse public records, collection
  items, and/or delinquency (and their recency)
  
• Severity of delinquency (how long past due)
• Amount past due on delinquent accounts or
  collection items
  
• Number of past due items on file
• Number of accounts paid as agreed

20
Amount Owed vs. Available Credit

• Amount owing on accounts
• Amount owing on specific types of accounts
• Lack of a specific type of balance, in some
  cases
  
• Number of accounts with balances
• Proportion of credit lines used
• Proportions of installment loan amounts still
  owing

21
Length of Credit History

• Time since accounts opened
• Time since accounts opened, by specific type of
  account
  
• Time since account activity

22
New Credit

• Number of recently opened accounts, and
  proportion of accounts that are recently opened,
  by type of account
  
• Number of recent credit inquiries
• Time since recent account opening(s), by type of
  account
  
• Time since credit inquiry(s)
• Re-establishment of positive credit history
  following past payment problems
  

23
Types of Credit

• Number of (presence, prevalence, and recent
  information on) various types of accounts (credit
  cards, retail accounts, installment loans,
  mortgage, consumer finance accounts, etc.)

24
Non-Factors

• Your race, color, religion, national origin, sex
  and marital status
  
• Your age
• Your salary, occupation, title, employer, date
  employed or employment history
  
• Where you live
• Any interest rate being charged on a particular
  credit card or other account
  
• Any items reported as child/family support
  obligations or rental agreements
  
• Certain types of inquiries (requests for your
  credit report)
  
• Any information not found in your credit report
• Whether or not you are participating in credit
  counseling of any kind

25
Improving Your Credit Score

• Payment History Tips
• Pay your bills on time
• If you have missed payments, get current and stay
  current
  
• Amount Owed Tips
• Keep balances low on credit cards and other
  revolving credit
  
• Pay off debt rather than moving it around
• Dont close unused credit cards as a short-term
  strategy to raise your score
  
• Dont open a number of new credit cards that you
  dont need, just to increase your available credit

26
Improving Your Credit Score

• Length of Credit Tips
• If you have been managing credit for a short
  time, dont open a lot of new accounts
  
• New Credit Tips
• Do your rate shopping for a given loan within a
  focused period of time
  
• Re-establish your credit history if you have had
  problems
  
• Types of Credit Tips
• Apply for and open new credit accounts only as
  needed
  
• Have credit cards but manage them responsibly

27
Other Resources

• Opt out of pre-approved credit offers by calling
  the Credit Reporting Industry Pre-Screening
  Opt-Out Number at
  
• 1- 888-567-8688 or https//www.optoutprescreen.com
  /
  
• Check out the credit score estimator at
• www.bankrate.com/brm/fico/calc.asp
• Answer 10 questions about credit use and payment
  behavior.
  
• Federal Trade Commission
• www.ftc.gov
• Identity Theft Resource Center
• www.idtheftcenter.org