© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 1
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
REVIEW….The Credit Process
• Wants to acquire an
item
• Does not have enough
money and wants to
borrow from a lender
Borrower
• Person or organization
with resources to
provide a loan
• Credit card company,
depository institution,
etc.
Lender
• If approved by the
lender, receives credit
• Pays the lender
interest for the
privilege of borrowing
Borrower
Credit – when goods, services, and/or money are received
in exchange for a promise to pay back a definite sum of
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 2
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Credit History Reporting
Lender
Report
consumer’s
credit
transactions to
CRA’s
store accounts,
credit card
companies,
utility
companies,
etc.
Credit
Reporting
Agency (CRA)
Keep a record
of consumer’s
credit
transactions
(credit history)
Agencies
include:
Equifax
TransUnion,
Experian
Credit Report
Record created
by the CRA of
an individual’s
credit history
If an individual
has not
acquired credit,
they will not
have a report
What they do
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 3
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Credit Reporting Agencies
•
Acquire information from:
Retail stores
that offer credit
accounts
Credit card
companies
Mortgage and
finance
companies
Depository
Institutions
Landlords
Utility accounts
Cell phone
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 4
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Information can be divided into 4
categories:
•
Personal Information
•
Accounts Summary
•
Public record items related to credit
•
Credit Inquiries
Information in a
Credit Report
Lenders may or may not report information to
all three credit reporting agencies.
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 5
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Personal Information
Personal Information
•
Name and aliases
•
Current and past
addresses
•
Social Security number
•
Date of birth
•
Employment history
Isabella’s Personal
Information:
•
Name – Isabella G. Langley
or Isabella Langley
•
Addresses – 101 Hopeful
Ave. & 695 Parent Street
•
Date of birth – 05/04/86
•
Telephone numbers –
555-354-2368 &
555-198-2358
•
Employers – Lucky’s
Restaurant & Jane’s
Daycare
FIND ISABELLA’S
PERSONAL
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 6
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Accounts Summary
•
Types of accounts
•
Date the account was
opened
•
Credit limit or loan
amount
•
Account balance
•
Payment history,
including missed or
late payments
Isabella’s Accounts
•
Sam’s Electronic World
•
City of Anywhere
•
U.S. Department of Education
•
Financial Institution School
Loan
•
Shop ‘Til You Drop Store
Credit Card
•
Love to Read Store Credit Card
•
The Free Money Credit Card
Accounts Summary
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 7
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Isabella’s Late or Missed
Payments
•
Sam’s Electronic World
• Past due
•
Store Credit Card
• Occasional late payments
Accounts Summary
DOES ISABELLA
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 8
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Public Record Items
•
Accounts turned over
to collection
agencies
•
Public records
• Bankruptcy
• Tax liens
• Legal suits
• Foreclosures
Isabella’s Public
Record Items
•
City of Anywhere
• In Collection
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 9
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Credit Inquiries
•
Requests for an individual’s credit
report
•
Completed by:
• Insurance agencies
• Potential credit companies
• Financial institutions
• Landlords
• Potential employers, etc.
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 10
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Equal Credit Opportunity Act
•
Prohibits credit discrimination on the
basis of:
• Race
• Religion
• Marital status
• Nationality
• Gender
• Age
Creditors may ask for
this information
(except religion) in
certain situations, but
may not use it to
discriminate when
deciding whether to
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 11
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Credit Score Impact
THIS IS BASED UPON A 30 YEAR FIXED
MORTGAGE RATE FOR A $300,000 LOAN
FICO
Score
Interest
Rate
Monthly
Payment
30 Year
Amount
760
5.9%
$1,787
$643,320
650
7.2%
$2,047
$736,920
590
9.3%
$2,500
$900,000
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 12
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
How Credit Scores are
Determined
Five categories of information from a credit
report are used:
• Payment history
• Outstanding debt
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 13
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Payment History
•
The timely manner
in which a consumer
did or did not repay
debt
•
Includes:
• Several types of
credit accounts
• Late or missed
payments
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 14
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Payment History
•
Found in status
column
•
Payment history
• Sam’s Electronic World is past
due
• City of Anywhere is in collection
• Shop ‘Til You Drop has
occasional late payments
• Love to Read was closed and
never late
• The Free Money Credit Card is
paid on time
•
Credit score impact
• Negative
• Too many late accounts
WHAT IS ISABELLA’S
PAYMENT HISTORY?
W
HAT
I
MPACT
D
OES
THIS
HAVE
ON
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 15
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Outstanding Debt
•
The total dollar
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 16
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Outstanding Debt
•
Total debt
• Found in recent balance
column
• $37,325
•
Available credit
• Found in credit limit
column
• $37,546
•
Impact
• Negative
• $37,546-$37,325 = $221
she is using almost all her
available credit
H
OW
MUCH
T
OTAL
D
EBT
DOES
I
SABELLA
H
AVE
?
H
OW
MUCH
A
VAILABLE
C
REDIT
IS
I
SABELLA
USING
?
W
HAT
I
MPACT
D
OES
T
HIS
HAVE
ON
HER
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 17
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Length of Credit History
•
Length of time a
consumer has held
credit accounts
•
Includes how long
ago credit accounts
were established
•
A longer credit
history will generally
increase a credit
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 18
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Length of Credit History
•
Credit history
• Found in date
opened column
• 08/05 U.S. Dept. of
Education
•
Free Money Credit
Card
• Score will improve
W
HEN
DID
I
SABELLA
F
IRST
BEGIN
HER
C
REDIT
HISTORY
?
I
F
I
SABELLA
KEEPS
HER
F
REE
M
ONEY
C
REDIT
C
ARD
O
PEN
FOR
A
NOTHER
10
YEARS
AND
PAYS
O
FF
THE
BALANCE
,
WHAT
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 19
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Pursuit of New Credit
•
Assesses how many
accounts have been
opened recently and the
type of account
•
Includes the number of
recently opened
accounts as well as
requests for new credit
•
Opening too many
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 20
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
New Credit
•
Additional credit
• Shop ‘Til You Drop
in August 2008
•
Impact of seeking
additional credit
• Credit score will go
down
H
AS
I
SABELLA
P
URSUED
ANY
A
DDITIONAL
CREDIT
S
INCE
J
ANUARY
2008?
I
F
I
SABELLA
ACQUIRED
A
NOTHER
CREDIT
C
ARD
AND
SHOPPED
FOR
A
N
A
UTOMOBILE
LOAN
,
WHAT
WOULD
HAPPEN
TO
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 21
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Types of Credit in Use
•
Analyzes the types
of credit in use
•
Credit cards, retail
cards, mortgages,
automobile loans,
etc.
•
Variety is generally
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 22
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Credit in Use
•
Types
• Credit card
(revolving)
• School loan
(installment)
• Private school loan
(installment)
• Store cards
(revolving)
•
Additional forms
• Mortgage
• Automobile loan
W
HAT
TYPES
OF
C
REDIT
DOES
I
SABELLA
HAVE
?
W
HAT
ARE
A
DDITIONAL
FORMS
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 23
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
Mistakes in Credit Reports
•
Important to check each credit report
annually to correct mistakes
•
Two common errors
• Fraud (identity theft)
• Mistaken identity
© Family Economics & Financial Education – Revised April 2010– Credit Unit – Understanding Credit Reports – Slide 24
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University of Arizona
