Transcript Understanding Credit Reports PPT.ppt

Understanding
Credit Reports
Family Economics & Financial
Education
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Credit Reports
◊ Credit report - a record of a consumer’s credit history
◊ Credit history - a record of transactions involving credit use
◊ Individuals do not have a credit report if they have not
previously used credit
◊ Affects one’s ability to acquire credit
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Information on a Credit
Report
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Name and aliases
Current and past addresses
Marital status
Date of birth
Employment history
Public records
◊ Judgments, criminal, and
bankruptcy
◊ Credit card, store card, book
clubs, music clubs, etc.
1.4.2.G1
Payment history
◊Credit card, store card,
book clubs, music clubs, etc.
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Information continued
◊ Financial records
◊ Loans, bounced checks, closed
accounts, etc.
◊ Loans/leases
◊ Rent-to-own contracts, payday
loans, lease agreements, etc.
◊ Credit inquiry-
◊ Number of credit inquiries
◊ Credit inquiry -a request
for your credit. Can be
done by businesses you
apply to for credit or whom
pre-approve you for credit
*Medical information is not on a consumer’s credit report, but
late medical payments are.
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Building Credit History
◊ Important for consumers to build a credit history to be
able to purchase items on credit
◊ For example – house, vehicle
◊ Affects a young adult’s ability to make a purchase on credit
in the immediate future including:
◊ Renting an apartment
◊ Buying a car
◊ Purchasing electronics or other merchandise
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Building Credit History
continued
◊ Store accounts (JcPenny or Sears charge accounts)
◊ Credit card accounts
◊ Even with a co-signer
◊ Loan from financial institution
◊ Acquire a small loan from a financial institution and pay the loan off
in timely payments to develop a positive credit history
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
No Credit History
While the following are all positive financial practices, a
credit history is not built if a consumer performs the
following actions:
 Having no history of credit use
 Not having any credit accounts in own
name
 Paying cash for all major purchases
 Paying phone and utility bills on time
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Positive Credit
◊ Being responsible with credit and finances can lead to good
credit
◊A consumer may develop and keep good credit by:
◊ Practice good banking techniques
◊ Keep checkbook balanced, do not
bounce checks
◊ Pay bills consistently and on time
◊ Keep public records free of
bankruptcy
◊ Have no criminal record
◊ Keep a reasonable or small amount of
debt
◊ Apply for credit sparingly, keeping
credit inquiries low
◊ Hold a low number or credit/store
cards
◊ Check credit report annually to
remove errors
◊ Maintain reasonable amount of
unused credit
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
General Rule
◊ Percentage of current debt compared to
the total credit available is reviewed by
potential lenders
◊ Keep the amount of debt currently held
at 25% of the total amount of available
credit
◊ For example - if Sue’s total amount of credit
available is $1,000, her current amount of
debt should not exceed $250
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Negative Credit
◊ Being irresponsible with credit and finances can lead to poor
credit
◊ A consumer may develop or keep poor credit by:
Bouncing checks
Routinely paying bills late
Obtaining a high number of credit
inquiries
Having a criminal record
Carrying many credit/store cards
Holding a large amount of debt
Having a public record of
bankruptcy
Holding an unreasonable amount of
unused credit
Defaulting on a loan
Not paying utility or cell phone
Having cards over the limit
accounts consistently and on time
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
Credit Reporting Agency
(CRA)
1.4.2.G1
◊ Keeps a record of a consumer’s credit transactions and
compiles credit reports
◊ Acquires information from several different types of
lending companies
◊ Information on credit reports differ between each
individual agency
◊ Lenders may only report to one credit agency
◊ Consumers should contact all agencies when checking their credit
report
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
CRA’s continued
The three main credit reporting agencies are:
◊ Equifax
 www.equifax.com
 (800) 685-1111
◊ Trans Union
 www.transunion.com
 (800) 888-4213
◊ Experian
 www.experian.com
 (800) 397-3742
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Who Reports to CRA’s?
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Store accounts
Credit card companies
Mortgage and other loan lenders
Financial institutions
Landlords
Courts
Utility accounts
Cellular phone companies
Delinquent accounts
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Requesting Credit Reports
◊ Consumers can request his/her credit report any time
◊ Can obtain one free credit report annually from all three credit
agencies www.annualcreditreport.com
◊ Additional copies can be purchased for no more than $9.50
◊ Consumers should check credit report
once a year for accuracy
◊ Mistakes are common
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Requesting continued
◊ Any time a consumer requests credit from
a business, they are able to review his/her
credit report. This may include:
◊ Insurance agencies
◊ Financial institutions inquiring
for lines of credit
◊ Current and potential credit
companies
◊ Landlords
◊ State/local child support agencies ◊ Potential employers
◊ Only with applicant’s written
◊ Government agencies
request
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Mistakes in Credit Reports
◊ More than 50% of the credit reports checked in a study
contained errors
◊ Consumer Reports (July 2000)
◊ The two main errors commonly appearing in a
consumer’s credit report are:
1) Mistaken identity – occurs when a lender reports a credit
transaction and information is recorded on the wrong person’s
credit report, usually of a similar name
2) Fraud
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Fair Credit Reporting Act
◊ Enacted to protect the consumer in 1971
◊ Designed to promote accuracy and ensure privacy of
information in credit reports
◊ Consumers have the right:
◊ To know the information in their credit report
◊ To have errors corrected in their credit report
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Correcting Errors on Credit
Reports
Steps include:
◊ Contact the particular credit bureau that has the error
◊ CRA must report to the consumer within 30 days
◊ If the CRA can’t verify the information, then it must be
removed from the file or if in error it must be corrected
◊ If a consumer disagrees with result of CRA investigation, they
have the right to submit a 100 word explanation which stays in
the consumer’s file
◊ Negative information is usually removed from credit file after
seven years, except bankruptcy which is removed after 10 years
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Correcting Errors on Credit
Report Cont.
◊ According to the Better Business Bureau (BBB)
and the Federal Trade Commission (FTC):
◊ Consumers can do just as good of a job repairing
their credit report errors as a fee based debt repair
agency
◊ Be cautious of debt repair agencies promising instant
help because there is no immediate fix for poor credit
◊ Be proactive and correspond to CRA’s if an
error is found
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Credit Scores
◊ A mathematical tool created
to help lender evaluate the risk
associated with lending a
customer money
◊ Scores range from 150-950, with 950 being the best
score
◊ Not listed on a credit report
◊ Each CRA has an independent scoring system based
upon a standard percentage of five different categories
◊ Consumer’s scores can differ between each CRA
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Five Standard Categories of
Scores
1. 35%-Payment history
- Timely manner in which a consumer pays debt
2. 30%-Outstanding debt
-Amount of debt currently held
3. 15%-Credit history
-How long the consumer has held credit accounts and how often they are used
4. 10%-Pursuit of new credit
-How much credit is acquired over the length of the consumer’s credit history
5. 10%-Types of credit in use
-May include credit cards, gas cards, store cards or accounts, loans, etc.
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Credit Scores continued
Other factors calculated into a credit score may include:
◊ Length of time at current address
◊ Current income
◊ Financial information
◊ Late payments
◊ Amount of outstanding credit
◊ Amount of credit in use
◊ Length of time credit has been established
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Financial Effect of Credit
Scores
◊ Interest rate of loans
◊ High score – can insure a lower interest rate on credit
◊ Low score– can cause a higher interest rate on credit
◊ Ability to receive future loans/credit
◊ Financial lending institutions have guidelines of
what score will qualify for a loan
◊ Reflection of risk of borrower to the lender
◊ The lower the score, the higher the possibility the consumer pays bills late
◊ Financial security for lifetime
◊ Takes time to improve credit, which could take time from building financial
security
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.4.2.G1
Conclusion
Build and maintain positive credit!
Check credit reports annually for errors!
Act financially responsible!
© Family Economics & Financial Education – Revised October 2004 – Credit Unit –Understanding Credit Reports
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona