Credit reporting bureaus

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Credit Reporting Bureau

Financial Services Industry Training

Saunders Learning Group, LLC, Andover, KS

Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry.

Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs.

Contact the founder, Floyd Saunders at 316-680-6482 or at [email protected] for more information.

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Training from Saunders Learning Group

mailto:[email protected]


1. Role of Credit Reporting Bureaus2. Your Credit Report3. How to Have the Best Credit Report4. Credit Scores 5. Improve Your Credit Score6. Glossary

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Topics


Module 1Role of Credit Report Bureaus


Credit Bureaus, Credit Reports, and Credit Scores

Credit Bureaus• Private

organizations which maintain credit information on individuals which it allows subscribers to access for a fee

Credit Reports• Information

collected by credit bureaus from subscribers, creditors, public court records, and the consumer

Credit Scoring • A numerical

evaluation of your credit based on specific criteria determined by the credit scoring company

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Major Credit Reporting Bureaus

Credit bureaus are for-profit corporations that make money by selling your personal and financial information.

Not all creditors report to all three bureaus. Each credit bureau will have different information on your credit history.

The major credit bureaus are affiliated with hundreds of smaller credit reporting agencies that gather information for them.


Flow of Credit Reporting Information


A credit report is a history of everything you are doing with your credit now and everything you have done in the past.

This report is a computerized file that contains information about you. Information such as:

Identifying InformationTrade Lines Inquiries Public Record and Collection Items

What is a Credit Report?


Module 2Your Credit Report


Information in Credit Reports

Information on your Credit Report

• Personal demographics• Age• Social Security #• Addresses

• Employment history• Credit history• Criminal convictions and

judgments• Two years of inquiries

Factors that determine Credit Worthiness

• Annual income• Time at current residence• Time at current job• Age• Employment• Number of bank accounts• Number of credit cards• Credit history

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Identifying Information: Your name, address, social security

number, date of birth, employment address and income are used to identify you.

These factors are not used in scoring. Updates to this information come from

information you supply to creditors and/or lenders.

Public Record and Collection Items:

Credit reporting agencies also collect public record information from state and county courts, and information on overdue debt from collection agencies.

Public record information includes bankruptcies, foreclosures, suits, wage attachments, liens and judgments.

Trade Lines: These are your credit accounts. Creditors

and/or lenders report on each account you have established credit with them.

They report the type of account, such as credit card, auto loan, mortgage, etc. (revolving or installment), the date you opened the account, your credit limit or loan amount, the account balance and your payment history.

Inquiries: Inquiries are a list of everyone who accessed your

credit report within the last two years. The report you see lists both "voluntary" inquiries,

spurred by your own requests for credit, and "involuntary" inquires, such as when lenders order your report to make you a pre-approved credit offer in the mail.

What’s In Your Credit Report


Your Rights With the Credit Bureau

70% of Americans have at least one negative remark on their credit report

Almost 50% of reports contain incorrect or old information, so:

• Be proactive: you can change things– Review your report and report inaccuracies for

investigation– If applicable, add a statement to protect

yourself—it is worth the time Current law entitled you to get a copy of one credit

report each year from each provider

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How to obtain Your Credit Report

The fastest way to obtain a credit report is to contact the credit bureaus directly by telephone or on-line. There usually is a cost per report.

EQUIFAX (800) 685-1111 www.equifax.com

TRANS UNION (800) 888-4213 www.transunion.com

EXPERIAN (888) 397-3742 www.experian.com

You should request a copy of your credit report from all three credit bureaus at least once a year to make sure the information in your credit report is correct especially before making a large purchase, like a house or car.


Your Free Credit Report

Getting your Credit Report

You can get 3 free credit reports each year, one from each of the three major reporting agencies

• Go to www.annualcreditreport.com• Choose your state and credit reporting

company• Fill out the forms. • Make sure the connection is secure

(https)• Answer their questions—they are very

picky!

Avoid Identity Theft

Space out your free credit reports throughout the year to be sure that your report is clean

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http://www.annualcreditreport.com/


Why Your Credit Score is Important

It may determine whether you get the credit you want.

75% of all mortgage loans are reviewed based on credit scores, the most common being FICO

The higher your credit score, the lower your interest cost

It may help you get the best deal on many types of loans: home, car, and consumer

It also may reduce the cost of your insurance products which are based on your credit score

Know your score!!!!!!!!


There is two basic types of credit reports

Consumer Reports

This report contains your personal data, creditor accounts, public records, inquiries and can be accessed by any legitimate business or person who is extending you credit.

There is a small fee paid to the credit bureau for this type of report.

Investigative Reports

Used for employment or insurance purposes.

Much more detailed than a “Consumer Report” and often will be based upon interviews with others about your lifestyle, character and reputation.

If a business or insurance company requests this type of report, you will be notified by the credit bureau.

You will also be informed of your right to ask for additional information about the report from the company you applied to.


Module 3How to Have the Best Credit Report


Protect Your Credit

1. Pay your bills on time, don’t get into debt, your payment record is 35% of your credit score.

2. Pay the full amount each month. 3. Pay 30% more than the minimum payment each month.4. Maintain an awareness of your credit payment history. Request free copies of your credit

reports every year5. Give the appropriate information when applying for credit.6. Do not apply for more credit than you need.7. Don’t have too many of the same type of accounts, you don’t really need five department

store credit cards. The credit mix is 10% of your score.8. Keep balances low, particularly on revolving debt as a % of your available limit. The total

amount owed as a percent of your credit limit is 30% of your score.9. Don’t use more than 35% of your available credit.10. Keep your oldest accounts, your credit history is 15% of your overall score.11. Don’t apply for too many new cards! Your history of applying for credit is 10% of your credit

score.


Manage Your Credit Report

What Should You Do?Take an active role in managing your creditReview the things that go into your credit

scoreReview your credit report every year (it is free)

and purchase your credit score (I recommend a FICO score) every two years, or more often if you are planning to take out a loan for a house


Who can see my report?

Your credit report can legally be reviewed by:

Any creditor or lender to whom you have applied for credit A prospective employer

A mortgage lender, when you have applied for a home loan

A property management firm, when you have applied to rent

Any current employer on a need-to-know basis

Any person, firm, or agency to whom you have given permission

Any person, firm, or agency with a legitimate need to know

An insurance company, when you have applied for insurance

You, as a consumer


Fixing Mistakes on Your Credit Report

Contact the creditor (information is at the end

of the credit report) Many of the mistakes can be fixed over

the phone

If you cannot get the problem solved, contact the credit reporting agency’s customer service

representative Explain inaccuracies in writing with

necessary support documents using the “Investigation Form” from the website

If you cannot get the problem solve, fill out a dispute form You can put up to 100 words on your credit report explaining a

situation and what you have done to try to resolve it.


Dispute Cycle

Here is a sample dispute cycle used by TransUnion to insure they have accurate information in your credit file.

C o n su m era cce p tsre su lts

C o n su m e r d o esn o t accep t resu lt

(C u s to m e rs /C re d ito rs /M in is try con ta c te d)

S e nd no tice toC o n su m er in d ica ting

n o cha ng e m a de

In fo rm a tio n A ccu ra te(n o ch an g e m ad e)

S e nd no tice toC o n su m er in d ica ting

ch an g es m a de

N o tice sen t top re v iou s in qu ire rs

a s p er p ro vin c ia l le g isla t ion

In fo rm atio n In accura te(in fo rm atio n ve rif ie d a n d ch an g e m ad e p e r re p orting

C u s tom e rs /C re d ito rs a u th o riza tio n)

In fo rm ationIn ve s tig a ted

(C u s tom e rs /C re d ito rs co n ta c te d)

C o nta c tsT ra n sU n ion

C o nta c tsC u s to m e rs /C re d ito rs

C o n su m er in d ica tesin fo rm a tio n is in co rre ct

C o n su m e r re ce ive s aco p y o f h is /h er c re d it f ile


Module 4Credit Scores


Credit scoring is a number generated by mathematical formulas which helps lenders determine if you are a good risk for credit.

The most frequently used version of the credit score is the FICO score created by Fair Isaac & Company.

A FICO score is a snapshot of your credit risk picture at a particular point in time. The scores can range between 300 and 850. The higher your score, the lower the risk to lenders.


How does A Credit Score Work?

Lenders base your interest rate on your score

The higher the score, the lower the rate

Research by Fico showed (Fico uses a 0-850 range): $300,000 30-year fixed rate mortgage in 2008 Scores 760+ paid 4.873% Scores 700+ paid 5.095% Scores 680+ paid 5.272% Scores 660+ paid 5.486% Scores 640+ paid 5.916% Scores 620+ paid 6.462%

The above mortgage at the bottom versus the top rate paid $108,523 more in interest over the life of the loan.


FICO Scoring System Chart

The percentages in the chart below reflect how important each of the categories is in determining your FICO score.


FICO Delinquency Chart:

The chart is based on consumer’s FICO scores and what their percentage of delinquency is on a credit card or loan payment. FICO scores above 700 are considered very low credit riskbelow 700 are considered high risk.


Percent of People With High Credit Scores

The chart below is based on the percentage of consumers within a FICO scores range. 29% of U.S. population has a score of 750 and higher.


Does a credit score determine if I get credit?

Lenders look at information such as the amount of debt you can reasonably handle given your income, your employment history, and your credit history.Based on their perception of this information, as well as their specific underwriting policies, lenders may extend credit to you although your score is low, or decline your request for credit although your score is high.


Module 5 Improve Your Credit Score


Grow Your Credit Score

How is your “FICO” score determined? Your Payment Record 35%

Pay your bills on timeDon’t get into debt!

Total Amount Owed (as % of limit) 30% Keep balances low Particularly on revolving debt as a

percent of your available limit Credit History: 15%

Keep your oldest accounts Application History 10%

Don’t apply for too many new cards! Credit Mix 10%

• Don’t have too many of the same type of accounts!


Getting your Credit Score

You can request a credit score at the same time you are reviewing your credit report.

There are a number of different credit scores available

The most common is the FICO Score Most loans are scored based on FICO scores Other credit score providers include

VantageScore, PLUS Score, etc. Know what you are buying and what the industry is using You can also go to www.MyFico.com and order a credit

report and FICO score for $15.95

http://www.myfico.com/


Ways to improve your credit

Here are some ways to increase and decrease a FICO score:

If you max out your credit cards to the limit your FICO score could decrease between 20 to 70 points. If your FICO score is 650 it will now lower to 630 to 580.

If you miss monthly payments by the due date on all of your credit card accounts your FICO score could decrease between 75 to 125 points. If your FICO score is 650

it will now lower to 575 to 525.

Pay down the balances on your credit cards by 34% and you could raise your FICO score almost 20 points. If you owe $2,230 on a credit card, paying $750 (34%) alone

could raise your score.

If you can pay your bills on time for 6 months you could raise your FICO almost 20 points. If your FICO score is 650 it would now be 670.


Glossary of Credit Rating Terms



Credit ScoreA credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person. Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits. Lenders also use credit scores to determine which customers are likely to bring in the most revenue.

Bankruptcy A proceeding in U.S. Bankruptcy Court that may legally release a person from repaying debts owed. Credit reports normally include bankruptcies for up to 10 years.

Charge-off The balance on a credit obligation that a lender no longer expects to be repaid and writes off as a bad debt.

Collection Attempted recovery of a past-due credit obligation by a collection department or agency.

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Glossary of Credit Rating Terms Consumer credit file

A credit bureau record on a given individual. It may include: consumer name, address, Social Security number, credit history, inquiries, collection records, and public records such as bankruptcy filings and tax liens.

Credit bureau A credit reporting agency that is a clearinghouse for information on the credit rating of individuals or firms. Is often called a “credit repository” or a “consumer reporting agency”. The three largest credit bureaus in the U.S. are Equifax, Experian and TransUnion.

Credit bureau risk score A type of credit score based solely on data stored at the major credit bureaus. It offers a snapshot of a consumer's credit risk at a particular point in time, and rates the likelihood that the consumer will repay debts as agreed.

Credit history A record of how a consumer has repaid credit obligations in the past.

Credit obligation An agreement by which a person is legally bound to pay back borrowed money or used credit.

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Credit report Information communicated by a credit reporting agency that bears on a consumer's credit standing. Most credit reports include: consumer name, address, credit history, inquiries, collection records, and any public records such as bankruptcy filings and tax liens.

Credit risk The likelihood that an individual will pay his or her credit obligations as agreed. Borrowers who are more likely to pay as agreed pose less risk to creditors and lenders.

Default A failure to make a loan or debt payment when due. Usually an account is considered to be “in default” after being delinquent for several consecutive 30-day billing cycles.

Delinquent A failure to deliver even the minimum payment on a loan or debt payment on or before the time agreed. Accounts are often referred to as 30, 60, 90 or 120 days delinquent because most lenders have monthly payment cycles.



Equal Credit Opportunity Act (ECOA) Federal legislation that prohibits discrimination in credit. The ECOA originally was enacted in 1974 as Title VII of the Consumer Credit Protection Act.

Fair Credit Reporting Act(FCRA) Federal legislation that promotes the accuracy, confidentiality and proper use of information in the files of every “consumer reporting agency”. The FCRA was enacted in 1970.

FICO® scores Credit bureau risk scores produced from models developed by Fair Isaac Corporation are commonly known as FICO scores. Fair Isaac credit bureau scores are used by lenders and others to assess the credit risk of prospective borrowers or existing customers, in order to help make credit and marketing decisions. These scores are derived solely from the information available on credit bureau reports.

Inquiry An item on a consumer's credit report that shows that someone with a “permissible purpose” (under FCRA rules) has previously requested a copy of the consumer's report. Fair Isaac credit bureau risk scores take into account only inquiries resulting from a consumer's application for credit.



Installment debt Debt to be paid at regular times over a specified period. Examples of installment debt include most mortgage and auto loans.

Insurance bureau score An insurance rating based solely on credit bureau data stored at the major credit bureaus. It offers a snapshot of an individual's insurance risk at a particular point in time, and helps insurers evaluate new and renewal auto and homeowner insurance policies.

Late payment A delinquent payment; a failure to deliver a loan or debt payment on or before the time agreed.

Revolving debt Debt owed on an account that the borrower can repeatedly use and pay back without having to reapply every time credit is used. Credit cards are the most common type of revolving account.


Thank You !


Questions


About the Author/Presenter

Floyd Saunders has worked on Wall Street with both Bank of America and JPMorgan, where is was a vice president in global financial systems. He has worked across the industry in retail, commercial, and investment banking.

He has taught courses in Money and Banking and extensively for the American Institute of Banking and various colleges.

As a consultant, he developed and taught a wide range of banking and investing courses.

He authored three programs for the American Bankers Association: Banking on Mutual Funds and Annuities, Introduction to Securities Markets and Investing in Securities.

He is the author of “Figuring Out Wall Street” and his next book is “Family Financial Freedom” a book on personal money management.

Economy & Finance

Credit reporting bureaus