©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.
Credit Builders Alliance
June 8
, 2014Maxine Sweet
Vice President, Public Education
What You've Always Wanted to Know About Credit Reports and Scores
Experian education resources
Experian services for consumers
Overview of basic consumer presentation
Scores from the consumer perspective
Vantage Score resources
Questions
©2014 Experian Information Solutions, Inc. All rights reserved. 3
Experian Public.
Credit reports and financial services
make the world go round
Educate your children to live credit smart
Trying to protect young people from credit is like trying to protect them from drowning by not
teaching them how to
swim.
©2014 Experian Information Solutions, Inc. All rights reserved. 5
Experian Public.
You need good credit references
Academic Credentials Diploma
Employment References
Credit References Financial
Success!
Credit does not equal debt
Build a positive credit history so you can get the best
terms when you invest in
debt.
©2014 Experian Information Solutions, Inc. All rights reserved. 7
Experian Public.
Are your business credit report and your personal credit report linked?
No.
But they can be related. . .
. . .if you secure business
debt with personal credit.
12 Common Questions about Consumer Credit and Direct Marketing
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English and Spanish
Credit Score Basics
Home Buying and Credit
Divorce and Credit
New Credit
Reports on Credit
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English and Spanish
Experian’s Fraud Prevention and Victim Assistance
Mini-Disk
Experian Education Resources - Documents
©2014 Experian Information Solutions, Inc. All rights reserved. 9
Experian Public.
Credit 101
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More than 30 videos currently
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http://www.experian.com/credit-education/credit-information.html
Credit Town Hall
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Answered consumer questions live for approximately 45 minutes
►
http://www.experian.com/live-credit-smart/town-hall-faqs.html
Education Resources - Videos
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
Ask Experian advice column, sample consumer report, frequently asked questions, monitoring
www.LiveCreditSmart.com
Credit trends and information to inspire consumers to use credit wisely
www.experian.com/consumer- education-content
Electronic versions of our published materials, sample credit report, videos, PowerPoint
presentations with talk notes and more
©2014 Experian Information Solutions, Inc. All rights reserved. 11
Experian Public.
ProtectMyID.com
For fee service that monitors credit report and other sources to provide early alert to identity theft and
services to aid in rapid recovery
FamilySecure.com
For fee service that monitors 2 adults and unlimited children for credit
activity
www.AutoCheck.com
For fee vehicle history reports to help consumers make good pre-owned auto purchasing decisions
Experian Consumer Resources – Credit and beyond
Renters 31%
Owners 69%
Rental payment history data
What is it?
Why is it important?
On-time as well as late payments
Bad checks and/or insufficient funds (NSF)
Unfulfilled lease terms
Outstanding balances/write-offs
Previous collections activity
96 million of 300 million U.S. residents rent
Rental payments not previously on credit report
64 million U.S. consumers insufficient/no credit history
Consumers rejected with good payment history
United States Population
©2014 Experian Information Solutions, Inc. All rights reserved. 13
Experian Public.
Build credit history
Impact to VantageScore
Study conducted by Experian. A thin-file consumer is defined as one containing insufficient tradeline information to receive a score.
87% of new consumers scoreable
RentBureau Consumers New Consumers
68%
scoreable
32%
unscoreable 10% thin-file
22% no-hit
New consumers now more likely to get a valid VantageScore
Electronic rent payment processors ClearNow
®and WilliamPaid
Easy solution for making rent payments
Rent electronically collected via various payment methods
Recurring, automatic debits encourage on-time payments
Residents opt-in for credit reporting
Renters of any size or type of property can now report to Experian RentBureau
For more information visit
www.experian.com/buildcredithistory
©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.
Give me a little credit
Credit reports and credit scores
Live Credit Smart
Credit is a privilege you earn
The choice is yours
©2014 Experian Information Solutions, Inc. All rights reserved. 17
Experian Public.
Credit reporting companies serve consumers and businesses
by making possible:
►
Instant credit
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Lower-cost credit
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Nationwide credit
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Widespread availability
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Account management
The three national credit reporting companies
The credit cycle
You pay lender
Credit reporting companies
share with new
lenders
Lender updates records
Lender shares history with
©2014 Experian Information Solutions, Inc. All rights reserved. 19
Experian Public.
The players in the credit cycle
You
Credit reporting companies
Lenders
Risk score modelers The
government
Open or manage credit accounts
Offers of credit
Employment purposes
Underwrite insurance
A business transaction initiated by the consumer
Court order or federal jury subpoena
Valuation of risk of an investor
Eligibility for government license
Disclosure to consumer
The Fair Credit Reporting Act
Permissible purposes
©2014 Experian Information Solutions, Inc. All rights reserved. 21
Experian Public.
Information comes from you
Information you
provide in an
application for credit,
housing, or insurance
is reported to credit
reporting companies
Get a copy of your Experian credit report
►
Toll-free number on report gives you access to customer service
►
Report number identifies you and your record
►
You and customer service representative will be looking at the same information in the same order
Can dispute online, by telephone or by mail
Dispute must be specific
Initiating a dispute
©2014 Experian Information Solutions, Inc. All rights reserved. 23
Experian Public.
Open accounts in good standing Indefinitely Closed accounts in good standing 10 years
Late or missed payments 7 years
Collection accounts 7 years
Civil judgments 7 years
Chapter 7 bankruptcy 10 years
Chapter 13 bankruptcy 7 years
Unpaid tax liens 10 years
Paid tax liens 7 years
Credit inquiries 2 years
How long is information kept on a report?
Credit reporting companies do not store:
►
Criminal background
►
Medical information
►
Buying habits / transaction data
►
Bank account information
►
Credit scores
What’s NOT in a credit report?
©2014 Experian Information Solutions, Inc. All rights reserved. 25
Experian Public.
Common myths about credit reporting
When paid, the bad debt will go away
The credit reporting
company denied me credit
I’m not responsible for those charges on our account
A divorce decree separates
joint accounts
Consumers must give their
permission for a report to be issued
(employment is the exception)
Requesting your own report and preapproved offers harms
your credit history
There is only one credit score and it is on every report
Three Blind Men Describe An Elephant
©2014 Experian Information Solutions, Inc. All rights reserved. 27
Experian Public.
Basics of credit scores…
A credit report DOES NOT rate your
credit
Used instead of a manual “score sheet”
Valuable risk management tool
Many different models, with many different scales available from many different sources. ALL scores are educational. None are THE real score.
Credit reporting companies often apply the model selected by the creditor when delivering the credit report; however, the credit scoring model, or formula, is proprietary to the
developer and is not known by the credit reporting company
What is a credit score?
780
513
657
824
456
©2014 Experian Information Solutions, Inc. All rights reserved. 29
Experian Public.
Risk factors are the key
Generated when a risk score is calculated
Tell the consumer what to address in their credit history to become more creditworthy
Are largely consistent from model to model
Are usually included in or described in an adverse action notice
Experian provides risk factors to consumers with the scores it provides through its
direct-to-consumer services
Which score do consumers receive?
www.AnnualCreditReport.com
►
Experian and TU – VS 3.0
►
Equifax – a FICO model
www.FreeCreditScore.com
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Experian Plus score
Third party credit report/score services
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Varies by service – most use “FICO” range
Mortgage lenders
►
A FICO model
Lenders as required by Dodd-Frank Act
©2014 Experian Information Solutions, Inc. All rights reserved. 31
Experian Public.
What influences your VantageScore credit score?
1. Establish a credit report 2. Always pay as agreed
3. Get a credit card/Don’t revolve 4. Use caution in closing accounts 5. Apply for credit judiciously
6. Time is key
7. Demonstrate stability 8. Have a plan
9. Put credit to work for you 10.Share your knowledge
Ten rules for managing credit
©2014 Experian Information Solutions, Inc. All rights reserved. 33
Experian Public.
Segmentation schematic
Total Population Previous
Bankruptcy
No Previous Bankruptcy 1 High Risk
2 Low Risk
Thin File Thick File 3 High Risk
4 Low Risk
Highest Risk
Higher Risk
Lower Risk
Lowest Risk
5 Bankruptcy Profile 6 Bad Profile
7 Bankruptcy Profile 8 Bad Profile
9 Bankruptcy Profile 10 Bad Profile
11 Bankruptcy Profile 12 Bad Profile
Improving a score and avoiding score drops
The impact on credit scores from each single credit activity appearing in your credit files varies, but there are generally things that have good or bad consequences.
Action Lender interpretation… Score impact
Pays bill on time Wisely handling debt Improvement
Low credit utilization Sufficient access to credit, unlikely to need
additional funds Improvement
Mature accounts Experienced credit user Improvement
Uses diverse range of loan products
Experience with different types of
repayment requirements Improvement
Inquiry about new loan Why the need for credit - exposure or
normal expansion? Small drop
Opens a new loan Why the need for credit - exposure or
normal expansion? Small drop
New accounts Will consumer effectively manage new
credit? Small drop
Maxes out credit card (high utilization)
Tipping point: potential for significant
exposure Drop
Pays late - first time Tipping point: potential for significant
exposure Drop
Pays multiple loans late All credit at risk Larger drop
Miss multiple payments on a loan (3 or more)
All credit at risk
Larger drop
Low risk
Action Lender interpretation… Score impact
Pays bill on time Wisely handling debt Improvement
Low credit utilization Sufficient access to credit, unlikely to need
additional funds Improvement
Mature accounts Experienced credit user Improvement
Uses diverse range of loan products
Experience with different types of
repayment requirements Improvement
Inquiry about new loan Why the need for credit - exposure or
normal expansion? Small drop
Opens a new loan Why the need for credit - exposure or
normal expansion? Small drop
New accounts Will consumer effectively manage new
credit? Small drop
Maxes out credit card (high utilization)
Tipping point: potential for significant
exposure Drop
Pays late - first time Tipping point: potential for significant
exposure Drop
Pays multiple loans late All credit at risk Larger drop
Miss multiple payments on a loan (3 or more)
All credit at risk
Larger drop
Low risk
©2014 Experian Information Solutions, Inc. All rights reserved. 35
Experian Public.
Detailed Impact of Actions in Two Scenarios
Missed payments and defaults have a significant negative impact
810 680
Starting Score
Scenario Score DROP Ranges
Missed payments
Bankcard 30 days 70-90 60-80
60 days 85-105 70-90
Auto 30 days 80-100 60-80
60 days 100-120 70-90
Mortgage 30 days 80-100 60-80
60 days 100-120 70-90
Charge-off or foreclosure 130-170 80-110
Unpaid Charge-off, placed at
collections agency 165-185 105-125
Filing bankruptcy 350+ 200+
VantageScore Solutions, LLC © 2014
Detailed Impact of Actions in Two Scenarios
Opening new accounts will have a minor temporary impact on a score while poor credit card management results in a deeper drop to a credit score
Scenario Score DROP Ranges
Obtaining credit
Making an inquiry 10-20 10-20
Opening a new credit card (additional) 0 - 5 0 - 5
Opening a new mortgage (addition) 0-15 0-15
Opening a new auto loan (addition) 0-15 0-15
Using credit cards
Using all available credit on one credit card 90 - 110 55-75 Spreading credit usage over multiple credit cards 60 - 80 30 - 50
810 680
Starting Score
©2014 Experian Information Solutions, Inc. All rights reserved. 37
Experian Public.
Detailed Impact of Actions in Two Scenarios
Proper credit management will improve a credit score
Scenario Score INCREASE Ranges
Score improvements
Paying down the mortgage by $25,000 10-20 15-25
Accounts age by one year 1-3 1-3
Reducing the percentage of credit card limit
used by 50 – 30 % 30-50 20-40
810 680
Starting Score
VantageScore Solutions, LLC © 2014
Impact from a negative event in a credit file diminishes with time
Max Impact +1 month +3 months +6 months +1 year +2 years 7-10 years
-10%
-30%
-50%
Im p a ct t o c re d it s co re
-70%Score recovery time
Obtaining new credit Closing an account Maxing out credit card
©2014 Experian Information Solutions, Inc. All rights reserved. 39
Experian Public.
Credit Reports
Credit Reports
►
When someone is sued and the item becomes a public record, why does it
sometimes still show as a collection item? Disputing items like this does not
remove the collection and it appears to inflate the individual’s credit report
debt.
Reporting and Repairing Credit
Reporting
►
Why aren’t all creditors/data furnishers required, by law, to report to all three credit bureaus?
Disputes
►
If an entity that reported an account has gone out of business, how does a client dispute it?
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How does the credit bureau dispute process work exactly?
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If I disputed a credit charge and the company filed me as delinquent on
payments, can I get my credit improved retroactively after winning the dispute?
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How do I fix an error with my credit scores?
Debt Management
►
What information can a client ask to be provided in regards to debt verification
for an account showing in collection on his credit report?
©2014 Experian Information Solutions, Inc. All rights reserved. 41
Experian Public.
Credit Scores
Credit Scores
►
What is the time frame in which one should make a major purchase so that hard pulls do not affect credit scores?
►
When a collection item(s) falls off the credit report, by how much does a credit score improve/increase?
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Does checking my credit score too often affect my rating?
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Instead of describing the ambiguous ways to improve a credit score, is there a formula or rule of thumb to get a definable increase in score (ie to improve a score by 50 pts, make regular payments on x amount of debt for x time)? Even though the degree of improvement possible is relative to your current rating?
►
How does an individual account, joint account and authorized user account weigh on your credit scores
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Do the credit bureaus weigh secured cards, unsecured cards and retail cards differently
►
At what length of time is a loan actually worse for your credit scores. Does a
loan really help you if it's amortized out to 3-6 months?
Other questions?
©2014 Experian Information Solutions, Inc. All rights reserved. 43
Experian Public.
What if I don’t want to have a credit report?
Why do I have to pay for a score when I can get a free report?
Isn’t a “short sale” the best way to get out of a mortgage without negatively impacting your scores?
Isn’t it better for your scores to carry a balance versus paying in full each month?
Why are inquiries important? Don’t all those preapproved offers ruin my credit? Doesn’t shopping for the best rate ruin my credit?
Does adding a consumer statement explaining a bad debt effectively off-set the negative impact?
If I am in a Debt Management Program (DMP) does that negatively impact my scores?
If you have missed payments or had collection accounts, isn’t it best to cut up all your cards and cancel the accounts?
Is it wise to close unused accounts to help scores? Shouldn’t you always say no to store cards?