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Credit ScoresHow They Impact Your Financial Success

Presented by: Lynne A. Coverdale, MBASalin Bank & Trust Company

Background The FICO stands for Fair Isaac and Co., a company

founded in 1956 by Bill Fair, an engineer, and Earl Isaac, a mathematician

The company philosophy was that data can improve business decisions when applied intelligently. In 1957, Conrad Hilton hired FICO to develop and install a

billing system for Carte Blanche, one of the first credit card companies.

In 1958- Fair Isaac began creating credit score systems FICO sent letters to 50 biggest American credit grantors

asking for opportunity to explain a new concept – credit scoring

FICO builds its first credit scoring system for American Investments (the only respondent out of the 50 companies)

In 1963- FICO builds credit scoring system for Montgomery Ward – beginning of a very long term relationship

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Background In 1981 – FICO introduced the first

credit bureau risk score By 1991 all three credit bureaus were

using the FICO credit bureau scores as their standard procedure The three bureaus: Experian, TransUnion and

Equifax Experian score: FICO® (Experian) Transunion score: Classic Score formerly called

Emperica Equifax score: Beacon

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Background In 1993 – the first insurance bureau

score is introduced for the insurance industry

Early 90s – mortgage lenders and banks are using credit scores for lending decisions in some cases

In 1995 – Fannie Mae and Freddie Mac recommend use of “FICO” scores for evaluating US mortgage loans

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Background 2001 to today – credit score usage

expands into a variety of industries, credit score education is prevalent

The range of scores for each of the bureaus is roughly 300 – 850 Equifax: 334 – 818 Experian: 320 – 844 Transunion: 309 - 839

The higher the score - the better Examples: better rate, lower insurance cost,

obtain a job offer

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Components of a Credit Report Identifying information

Your name, and previous names Address history Social security number Date of birth Employment information

Requestor’s identifying information Name Address Contact

Tradelines Current accounts open with or without a balance Closed accounts Paid-off accounts History of tradelines

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Components of a Credit Report

Public records Judgments Bankruptcies Foreclosures Liens such as tax liens Satisfactions

Inquiries Typically for the last 90 – 120 days

Credit Scores Score from each bureau ordered Key 4 -5 factors that adversely affected the

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Components of a Credit Report

Specific to Mortgage Credit Reports ID Cross Check

Compares social security number provided to social security number on record for each bureau, also compares to SSA issuance date and SSA death master

Compares current address provided to address history for each bureau

Checks birthdate of record Identity index provided

The higher the index, the better – the more the consumer’s identity was verified

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Users of Credit Data Consumer Lenders

Banks Credit unions Auto finance companies

Mortgage Bankers, Mortgage Brokers Commercial and Business Lenders Other Companies

Insurance companies Prospective employers Landlords US Government

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Uses Credit reports and credit scores are

accessed and evaluated to aid in decisions such as: Consumer Lenders

Auto loans RV loans Personal loans Lines of credit Credit cards

Mortgage Bankers, Mortgage Brokers First mortgages Second mortgages Home equity lines of credit

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Uses Credit reports and credit scores are accessed and

evaluated to aid in decisions such as: Commercial and Business Lenders

Small business loans Commercial loans Lines of credit

Other Companies Insurance companies

Insurance for autos, homes, businesses, personal property Prospective employers

Possible employment opportunities Landlords

Apartment or home rentals US Government – background checks

Special projects Employment

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Credit Score Factors The number and types of accounts you

have Credit cards, auto loans, mortgages, other

installment loans Credit payment history

Paid on time? Paid late? Not paid?

Percentage of available credit you are using versus available credit

Age of accounts Derogatory accounts/ history

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Credit Score Factors Payment history (35%)

Paid on time? Paid late? Not paid?

Amounts owed (30%) Amount owed versus amount available

Length of credit history (15%) The number and types of accounts (10%)

Credit cards, auto loans, mortgages, other installment loans

Inquiries/new credit (10%)

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Credit Score Factors

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Source: myFICO

Credit Score Factors Credit score detail

A person has a score of 700 which consists of: 35% = 245 points for Payment history 30% = 210 points for Amounts owed

$4,000 balance on a $5,000 credit card 15% = 105 points for Length of credit history

Had old history but just closed out the oldest accounts

10% = 70 points for Types of credit 10% = 70 points for New credit/ inquiries

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Credit Score Factors Credit score detail

A person has a score of 740which consists of: 35% = 259 points for Payment history 30% = 222 points for Amounts owed

$450 balance on a $5,000 credit card 15% = 111 points for Length of credit history

Did not close out any old accounts 10% = 74 points for Types of credit 10% = 74 points for New credit/ inquiries

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Credit Score impact

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Loan Level Price Adjustment Chart Fannie Mae

Credit Score impact Mortgage Example 95% LTV (5% down) purchase:

Credit score 700 $200,000 loan on 30 year fixed

Loan Level Pricing Adjustment (LLPA) 1.0% Rate: 4.50% PMI: .89% ($148.33) Principal and interest and Mortgage Insurance: $1,161.70

Credit score 720 $200,000 loan on 30 year fixed

Loan Level Pricing Adjustment (LLPA) .50% Rate: 4.375% PMI: .67% ($111.67) Principal and interest: $1,110.24

Credit score 740 $200,000 loan on 30 year fixed

Loan Level Pricing Adjustment (LLPA) .25% Rate: 4.25% PMI: .54% ($90.00) Principal and interest: $1,073.88

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Credit Score impact Mortgage Example 80% LTV (20% down) purchase:

Credit score 700 $200,000 loan on 30 year fixed

Loan Level Pricing Adjustment (LLPA) 1.0% Rate: 4.50% Principal and interest: $1,013.37

Credit score 720 $200,000 loan on 30 year fixed

Loan Level Pricing Adjustment (LLPA) .50% Rate: 4.375% Principal and interest: $998.57

Credit score 740 $200,000 loan on 30 year fixed

Loan Level Pricing Adjustment (LLPA) .25% Rate: 4.25% Principal and interest: $983.88

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Credit Score impact

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Fact or Myth Fact or Myth: Not having credit is the

best strategy for credit scores? Fact or Myth: Credit Scores are fixed

for a year? Fact or Myth: Opening a new account

does not affect your score? Fact or Myth: Using the majority of

your credit line is a great strategy to build your credit?

Fact or Myth: Not having revolving credit will insure your credit score is the highest?

Fact or Myth: You should always close out accounts that you don’t use?

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Fact or Myth Fact or Myth: Each creditor sends

payment information to each of the 3 bureaus?

Fact or Myth: Having no more than 30% of your credit lines outstanding is a good strategy to maximize credit scores?

Fact or Myth: Opening a credit card is a good idea to establish credit?

Fact or Myth: Being added on as an authorized user to a persons credit card is all one needs to do to establish credit?

Fact or Myth: Inquiries into your credit make a huge impact on your credit scores?

Fact or Myth: Scores are the same for each credit bureau?

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Tips to Avoid Identity Theft Shred Shred Shred Opt-out of unwanted mail and solicitations Get on do not call list Don’t give passwords or personal information over the

phone Protect your passwords

Change them Keep personal information secure and offline If online – make sure it is safe, secure, encrypted,

password protected Vacation hold for mail or mail picked up by trustworthy

neighbor or family member, friend Trash receptacles back from front of house in timely

manner Use the blue box Don’t overshare on social media sites

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Tips to Avoid Identity Theft Lock up your laptop Be careful when you use Wi-Fi in public areas

Perhaps use your own personal hotspot Avoid phishing emails

Example annual credit search

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FAQs What is the difference between a soft

credit pull and a hard credit pull? How do I obtain a copy of my credit

report? How can I stop the junk mail solicitations How do I dispute inaccurate information

on my credit report? Why are my credit scores different?

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Helpful Websites www.annualcreditreport.com www.optoutprescreen.com  or 1-888-5-optout www.donotcall.gov www.dmachoice.org http://www.ftc.gov/faq/consumer-protection www.experian.com www.equifax.com www.transunion.com www.myfico.com https://

salin.mortgagewebcenter.com/Resources

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Q & A and Thank you

My contact information:Lynne CoverdaleSalin Bank and Trust8455 Keystone Crossing Dr.Indianapolis, IN 46240317-452-8125 – direct317-370-0016 – celll.coverdale@salin.comwww.Salin.mortgagewebcenter.com

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