Credit Scores

1
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

2
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

3
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)
•      

4
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
•      

5
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
•      

6
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
•      

7
Who Makes Them?

• 75 of Lenders Use FICO Model
• Equifaxs Beacon (Multiple Versions)
• Trans Unions Fico Classic
• Experian/FICO Risk Model.

8
Who Else? (Knockoffs)

• TrueCredit (Trans Union)
• PLUS (Experian)
• Vantage Score

9
FICO Scoring Range

•   780-850 Low Risk
•       740780 Medium-Low Risk
•       690740 Medium Risk
•       620690 Medium High Risk
•       620 Below High Risk or sub-prime.
• 500 Below Fawgettaboutit

10
FICO Scoring Factors

• Payment History (35)
• Severity, Quantity Recency of Delinquencies
• Amount OwedExtent of Indebtedness (30)
• Ratio of Credit Balance To Credit Limit, How Much
  Owed?
• Length Of Credit History (15)
• Type Of Credit (10)
• Inquiries (10)

11
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)

12
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 Youve Used Them
• (Pages 16-17)

13
Length Of Credit History (15)

• The Longer The Better
• Specific Accounts
• Total of All Accounts

14
Type of Credit (10)

• Bank Credit Cards vs.
• Store Charge Cards
• Mortgages vs.
• Finance Company Loans

15
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 Youve Used Them

16
The Importance Of Being Recent
17
Special Tips

• Closing Credit Cards Can Lower Score
• Watch Out For Instant Credit (Page 29)
• Paying Off Credit Cards Every Month Doesnt
  Always Mean A Higher Score

18
Warning!

• Paying Off Old Debts The Wrong Way Can Make Your
  Score Drop
• Watch Out For
• Credit Repair
• Credit Counselors
• Debt Consolidators

19
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

20
Where Do We Stand? (FICO)                   

• 800-Above11percent
                      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

21
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

22
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

23
Where Do I Find?

• National Credit Reporting Assoc.
  (www.ncrainc.org)
• Potential Help
• www.peoplescreditbureau.com
• Farmers Branch, Texas
• www.veracity.com
• Denver, Colorado

24
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 history
• 17 No recent non-mortgage balances
• 10 Proportion of revolving balances to
  revolving
• credit limit is too high
• Serious delinquency, derogatory public record
• or collection

25
Thin File Problem

• Many People Dont 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

26
(No Transcript)
27
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)

28
Reading Your Report (Chapter 5)

• Header Name, address, SSN, employment
• 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

29
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     

30
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)

31
Types Of Inaccuracies

• Someone Elses Data Mixed Onto Your Report
• Creditor Mistakenly Reports Delinquency
• Balances Incorrect
• Capital One Doesnt Report Credit Limit
• Identity Theft

32
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

33
Arthur Anderson(1992)

• 8 Of Those Declined Requested File
• 2 Of Those Disputed Data
• Conclusion Only fraction were wrongly declined
  credit

34
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 occurHowever, I confirm that
  out study uses statistically valid sampling
  techniques and supports the result

35
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

36
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

37
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

38
Actual court testimony from officials in the
credit industry will make you shudder --
Michelle Singletary Washington Post

39
Kittell Are theyre 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.
40
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

41
Golden Moment

• Identity 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.

42
ID Thefts Main Damage

• Your Credit Report Is Polluted by the Thiefs Bad
  Payment History
• Credit Score Plunges
• Calls From Debt Collectors
• Time Energy To Clean Up Mess
• Humiliation Emotional Distress

43
How To Watch Out For It

• Check Your Credit Report For
• Unfamiliar Accounts (Tradelines)
• Unfamiliar Inquiries
• Credit Monitoring Services

44
Military Personnel Overseas

• Especially Vulnerable
• Certain People Know Your Personal Data, and, The
  Fact Youre 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)

45
ID Theft Goes Beyond Credit

• Criminal
• Medical
• Taxes, Social Security Govt. Benefits

46
Thank You!

• Any More Questions?
• www.PrivacyTimes.com
• www.CreditScoresandCreditReports.com
• www.IDwatchdog.com