Credit Scores & Credit Reports: How The System Really Works
Murphy Canyon Chapel
Military Saves Campaign 2009
Financial Readiness Symposium
Evan Hendricks, Editor/Publisher
Privacy Times February 24, 2009
Basics Of The Credit Score
If winning isn't everything, why do they keep score? – Vince Lombardi
All right, everyone, line up alphabetically, according to your height.
– Casey Stengel
What Is A Credit Score?
A number that reflects your credit worthiness at a given point in time.
The higher the score, the better the risk (Generally)
$150,000 30-Year, Fixed-Rate Mortgage
720-850 5.63% $864
700-719 5.75% $875
675-699 6.29% $927
620-674 7.44% $1,043
560-619 8.53% $1,157
500-559 9.29% $1,238
Mortgage vs. Auto Loans
Excellent Marginal Poor 720-850 640-719 500-559
Mortgage
30-yr Fixed 5.5% 7.4% 8.1%
Home Equity 7.8% 9.3% 12.1
48-Month 5.2% 11.4% 17.2% New Car Loan
48-Month 5.9% 12.0% 14.4%Used Car Loan
Translation$24,000 New Car (Financing)
‘‘Marginal’’ 127% In Higher Interest = $3,300*
‘‘Bad Credit’’ 255% In Higher Interest = $6,700*
* More than one w/ Excellent Credit
Who Makes Them?
75% of Lenders Use FICO Model
Equifax’s “Beacon” (Multiple Versions)
Trans Union’s “Fico Classic”
“Experian/FICO Risk Model.”
Who Else? (Knockoffs)
TrueCredit (Trans Union)
PLUS (Experian)
Vantage Score
FICO Scoring Range
780-850 – Low Risk
740–780 – Medium-Low Risk
690–740 – Medium Risk
620–690 – Medium High Risk
620 & Below – High Risk or “sub-prime.”
500 & Below – Fawgettaboutit
FICO Scoring Factors
Payment History (35%) Severity, Quantity & Recency of Delinquencies
Amount Owed—Extent of Indebtedness (30%) Ratio of Credit Balance To Credit Limit, How Much Owed?
Length Of Credit History (15%) Type Of Credit (10%) Inquiries (10%)
Payment History (35%)
Track record with lenders. (Pay on Time?)
Length Of Positive Credit History. (The longer the better.)
How Long Since Most Recent Negative Item? Severe Unpaid Debts (Bankruptcy, Collections,
Liens, Foreclosure) Severity & Quantity of Delinquencies
(Pages 15-16)
How Much Do You Owe (30%)
Ratio: Credit Balance vs. Credit Limit
Quantity of Credit Accounts(Too many, Too Few? No Magic Number)
How Old Are Accounts? How Long Since You’ve Used Them
(Pages 16-17)
Length Of Credit History (15%)
The Longer The BetterSpecific AccountsTotal of All Accounts
Type of Credit (10%)
Bank Credit Cards vs. Store Charge Cards
Mortgages vs. Finance Company Loans
New Credit – “Inquiries” (10%)
Designed To Catch “Credit Sprees” Not Supposed To Penalize Mortgage,
or Auto Loan Shopping (Page 20) How Old Are Accounts? How Long Since You’ve Used Them
The Importance Of Being Recent
0-11 12-23 24-35 36-47 48-HIGH NO DELQ
MONTHS SINCE MOST RECENT MAJOR DELINQUENCY
RIS
K
LOWLOW
Special Tips Closing Credit Cards Can Lower Score
Watch Out For Instant Credit (Page 29)
Paying Off Credit Cards Every Month Doesn’t Always Mean A Higher Score
Warning! Paying Off Old Debts The Wrong Way Can
Make Your Score Drop
Watch Out For:* Credit Repair
* Credit Counselors
* Debt Consolidators
Accuracy/Reliability Study?? 11% had middle scores between 575-630 and a
range of 30 points or more between highest, lowest scores; i.e., one CRA pegged consumer as “sub-prime” while other CRA did not
21%, “extremely consistent,” (range of fewer than 20 points between the highest and lowest scores)
31% had range of 50 pts or more between scores 5% had range of 100 pts or greater between scores Footnote: CFA/NCRA Study
Where Do We Stand? (FICO) 800-Above–11percent
750-799 – 28 percent 700-749 – 19 percent 650-699 – 16 percent 600-649 – 12 percent 550-599 – 8 percent 500-549 – 5 percent 499 and under – 1 percent
Where Do We Stand? (Experian) New England – 699 West North Central – 695 Mid-Atlantic – 690 East North Central – 684 East South Central – 677 South Atlantic – 675 Pacific – 674 Mountain – 670 West South Central – 656
Re-Scoring Mortgage Applicants
Only Reliable Help Available: ‘Resellers’
Avg. 30-pt. FICO Score Increase
Must Be Referred By Broker Or Lender
(Resellers may not deal directly with Consumers!)
Anti-Trust Lawsuit Pending
Where Do I Find?
National Credit Reporting Assoc. (www.ncrainc.org)
Potential Help www.peoplescreditbureau.com
Farmers Branch, Texas www.veracity.com
Denver, Colorado
Reason Codes (For Denying Credit)
05 = Too many accounts with balances 24 = No recent revolving balances 05 = Too many consumer finance accounts 09 = Too many new accounts 15 = Insufficient length of credit history17 = No recent non-mortgage balances 10 = Proportion of revolving balances to revolving
credit limit is too high22 = Serious delinquency, derogatory public record
or collection
‘Thin File’ Problem Many People Don’t Have FICO Score But They Pay Their Bills
Rent, Utilities, Phones
Fair Isaac Is Working On New Model
Pay Rent, Build Credit www.payrentbuildcredit.com
04/10/23
Obtaining Your Reports
www.annualcreditreport.com 1-877-322-8228
www.Equifax.com 1-800-685-1111
www.Experian.com 1-888-397-3742
www.TransUnion.com 1-800-888-4213
Extra Free Reports Available Under State Law(Page 78)
Reading Your Report (Chapter 5)
1) ‘Header’: Name, address, SSN, employment
2) Credit History: Mortgages, Credit cards, Auto & Student Loans – Ever Late?
3) Public Records? Tax Liens, Judgments
4) Inquiries – Whose Looking At Your Credit Report, and Why
‘Derogatories’ First Bankruptcy Court Judgments Liens Foreclosure Collections
9 = Charge Off 8 = Repossession 5 = Over 120 Days Past 4 = 90-119 Days Past Due 3 = 60-89 Days Past Due 2 = 30-59 Days Past Due 1 = On Time
Disputing Errors By Mail
Certified Mail By 800 Phone Number
– Take Notes, Get Names, Operator Numbers
Through CRAs’ Web Sites– Print Out Screens– (Pages 94-95)
Types Of Inaccuracies
Someone Else’s Data ‘Mixed’ Onto Your Report
Creditor Mistakenly Reports Delinquency Balances Incorrect Capital One: Doesn’t Report Credit Limit Identity Theft
Studied History 1989 James Williams 1990 US PIRG 1991 US PIRG 1991 Consumers Union 1993 US PIRG 1998 US PIRG 2003 Federal Reserve Board 2003 CFA/NCRA 2004 US PIRG
Arthur Anderson(1992) 8% Of Those Declined Requested File
2% Of Those Disputed Data
Conclusion: Only fraction were wrongly declined credit
Arthur Anderson(1992) “ … Policies & procedures of the AICPA
prohibit us from allowing public access to reports relating to … procedures (which) were established that misinterpretation of data prepared for a client would not occur…However, I confirm that out study uses statistically valid sampling techniques and supports the result …
‘Partial Matches’
7-of-9 SSN Match, Similar First Names “Judy Thomas” 541-69-5678
Klamath Falls, Oregon = “Judith Upton” 541-69-5679 Stevenson, Washington
Exact SSN Means Other ID Data Ignored ID Thieves Happy
Identity Theft Exact SSN Match
Myra Coleman 271-74-4267
Itta Bene, Mississippi
Maria Gaytan 271-74-4267
Madeira, CA
Can Ignore Date of Birth
Challenging Numbers
7,000 – 10,000 dispute letters per day 3 Disputed Items per dispute letter 10-12 letter per hour =2 minutes per dispute Handle volume thru code punching Outsourcing
…Actual court testimony from officials in the credit industry will make you shudder …
-- Michelle Singletary Washington Post
Kittell: Are they’re other methods of investigation despite the CDV or other than the CDV?Fluellen: No, we send out a CDV.Kittell: That's it. If it comes back one way, good for the consumer, if it comes back agreeing with the creditor, then not agreeing with the consumer, then it stays?Fluellen: Correct.Kittell: Basically, Equifax takes the word of the creditor, whatever the creditor says is what Equifax does?Fluellen: Yeah.
Identity Theft
2003 FTC Survey = 10 million Victims Fastest Growing Crime Used To Be Case-by-Case Now Thieves Are Going ‘Wholesale’ Criminals Talk About It In Prison
Golden MomentIdentity Theft is possible
because when the thief applies for Credit using some or all of your identifiers, the credit bureau provides your credit report. This enables the creditor to approve the application.
ID Theft’s Main Damage
Your Credit Report Is Polluted by the Thief’s Bad Payment History
Credit Score Plunges Calls From Debt Collectors Time & Energy To Clean Up Mess Humiliation & Emotional Distress
How To Watch Out For It
Check Your Credit Report For:
Unfamiliar Accounts (Tradelines)
Unfamiliar Inquiries
Credit Monitoring Services $$
Military Personnel Overseas
Especially Vulnerable Certain People Know Your Personal Data,
and, The Fact You’re Stationed Overseas You Have A Lot on Your Mind, Checking
Credit Report Is Not One Of Them Crime Can Go Undetected For Year(s)
(Pages 115-116)
ID Theft Goes Beyond Credit
Criminal
Medical
Taxes, Social Security & Govt. Benefits
Thank You!
Any More Questions?www.PrivacyTimes.com
www.CreditScoresandCreditReports.com
www.IDwatchdog.com