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Welcome 3rd of 16 Sessions

• No cost to participate. Financial Support:

• FINRA Foundation & United Way Worldwide

Solid Finances Webpage: www.msuextension.org/solidfinances

Text Your Questions Do you have a Question? Do you want to comment?

• Type in the Q & A pod:

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Send Your Questions

Click this after typing question in Q & A Pod

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Schedule

Money Management• October 20th

Saving Money by Paying Down Debt

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Schedule

Investments• November 30

Investment Risks• December 7

Personal Risk Tolerance & Asset Allocation• December 14

Mutual Funds• December 21

Mortgages (Refinancing & Reverse)

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What’s Your Credit Score? &

What Does it Mean?

Joel Schumacher

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Question A: I learned about Solid Finances from

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1. Mailed Flyer

2. Campus Email

3. Poster

4. Newspaper

5. Other

Question B: A Credit Report and a Credit Score are the same

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1. True

2. False

Question C: A Credit Score is issued by a lender

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1. True

2. False

Question D: The Maximum Credit Score is 900

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1. True

2. False

The Lending Decision

Who Lends Money?• Banks & Credit Unions• Finance Companies• Credit Card Issuers• Utility Companies

− Electricity, Gas, Phone, Cable, Internet

• Landlords?

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The Lending Decision

What does a Lender do?• Connect Savers with Borrowers

Who are the Savers?• Bank Customers, Stock Holders, Bond Holders

Savers want to be paid for using their money• Saver’s don’t want to lose their money

Borrowers have to pay to use Saver’s money

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Lender’s Role

Transactional Role• Accounting, Statements, Legal, Physical Location

Information Role• Lenders want to know:

• How risky is a potential borrower?

• Borrowers want to know:• Can I borrow money and what are the terms (rate)?

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Five “C’s” of Credit Capacity

• Income & Assets

Capital• Investment in this project

Collateral• Loan is secured by a car or home

Credit• How has a borrower managed credit in the past

Character• Borrower’s “dedication” to debt repayment

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Question E: If couldn’t pay all of your bills which bill would you not pay first?

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1. Cable TV

2. Phone Service

3. Mortgage/Rent

4. Car Loan

5. Credit Card

Credit Reports

A Credit Report is your history with credit.

The report contains: Your Name, Address, SSN, DoB, Employment

information Your loans (current & past) including credit cards

• Balance & Terms• Payment history

Court Judgments, Tax Liens, Past Bankruptcies Companies who have requested a copy of your Credit

Report

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Credit Reports

What is not in your report:• Your Income• Your net worth• Many on-time bill payments• Age

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Who views my Credit Report?

Lenders Utility companies, phone, TV, internet, etc. Your employer or potential employer

• Only with your approval

Insurance companies Government agencies reviewing your status

for benefits Anyone with “legitimate business” need

• For Example: potential landlord or court order

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Question F: Which of these provides a free credit report every 12 months (no strings attached)?

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1. FreeCreditReport.com

2. AnnualCreditReport.com

3. FreeScore.com

4. FreeScoreOnline.com

Accessing Your Credit Report

www.annualcreditreport.com Or call 1-877-322-8228

You need to provide:• Name• Address• Social Security Number• Date of Birth

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Credit Reports

What if I find an error on my report?• Contact the reporting agency

How long does negative information stay on my report?• 7 years, for most information• 10 years for a personal bankruptcy• No limit for criminal convictions

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Questions on Credit Reports

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What is a credit score?

A Credit Score is an attempt to quantify the credit report.

Credit scores are issued by the same companies that issue credit reports.• Higher scores indicate a lower risk (a good borrower)• FICO Score range from: 300 to 850• Median Fico Score is about 725

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Different Scores

Experian Plus Score: 330-830 Equifax Credit Score: 280-850 Vantage Score 2.0: 501-990 FICO Scores:

• FICO 300-850• NextGen: Max 950

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Average Credit Scores

FICO Scale (300-850)• 20% 780-850• 20% 745-780• 20% 690-745• 20% 620-690• 20% 300-620

Median Score: 725

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What is a credit score?

Exactly how there are calculated is a secret

• 35% Payment History− Late payments can lower this area

• 30% Credit Utilization− Using the full credit limit on a credit card can lower this area

• 15% Length of Credit History− No credit history or a short credit history can limit your score

• 10% Types of Credit Used− Some types of credit look better than other

• 10% Recent Searches for Credit− Applied for several loans at once can be red flag for a lender

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Question G: Which lowers your score more?

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1. A missed payment 3 months ago

2. A missed payment 5 years ago

3. Any missed payment in the last 7 years is equal

Why does your score matter?

Borrowers with low scores may…• Be required to have higher down payments • Be required to make a security deposit• Be charged higher interest rates• Be denied credit

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$200,000 Mortgage Example

Monthly Total Premium

Premium 360 Payments

5.780% 760-850 $0 $0 6.002% 700-759 $28 $10,223 6.286% 660-699 $65 $23,457 7.096% 620-659 $173 $62,123 8.583% 580-619 $379 $136,312 9.494% 500-579 $510 $183,554 Denied below 500Rates from BankRate.com (3/07)

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Where can I get my credit score?

You may purchase one from:• Equifax, Experian or TransUnion

If you apply for a loan, your lender may provide it for free.

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Key Points

Credit Reports can be obtained for free.

Credit Scores are generally not free.

Low credit scores can cost you money.

How you manage your current credit affects your score.

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Questions?

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Final Thought

Take Ownership of Your Finances!

No one else will!

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