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A little history lesson:

December 2007 gave birth to the “Late- 2000s recessions “better known as the “Great Recession”. It ended in June 2009 at an unemployment rate of 9.10% according to the U.S. National Bureau of Economic Research. But if you ask the ordinary working class citizen they will say that they are still living in a recession. In December 2010 the unemployment rate was reported to be 9.4% (not a massive improvement from 9.10% eighteen months ago when the recession officially ended).

The financial downturn of the United States is linked to the careless lending practices of the financial institutions.

In 2004 the US household savings rate fell below 0%.

http://en.wikipedia.org/wiki/Late-2000s_recession.com

http://www.google.com/publicdata?ds=usunemployment&met=unemployment_rate&tdim=true&dl=en&hl=en&q=what+is+the+current+us+unemployment+rate

http://www.bea.gov/scb/pdf/2007/02%20February/0207_saving.pdf

A little History Lesson








U.S. unemployment rate 1990 - 2010




House hold Saving Rate 1992 - 2005


Indication of A Recession

The size of the total consumer debt grew nearly five times in size from 1980 ($355 billion) to 2001 ($1.7 trillion). Consumer debt in 2009 now stands at $2.5 trillion.

From 1990 to 2000, the number of Americans seeking the help of a credit counselor doubled.

There were 173 million credit card holders in the United States in 2006 and that number is projected to grow to 181 million Americans by 2010. These same Americans own approximately 1.5 billion cards - an average of nearly nine credit cards issued per credit card holder.

This works out to approximately $5,100 in credit card debt per cardholder (not household as mentioned in the Federal Reserve statistics mentioned earlier.) And that number is expected to increase to nearly $6,500 by 2010.

http://www.money-zine.com/Financial-Planning/Debt-Consolidation/Credit-Card-Debt-Statistics/

History Lesson continued……



Credit (as defined by www.investorwords.com) is a contractual agreement which a borrower receives something of value now and agrees to repay the lender at some later date. When a consumer purchases something using a credit card, they are buying on credit (receiving the item at that time, and paying back the credit card month by month). Any time when an individual finances something with a loan (such as an automobile or a house), they are using credit in that situation as well.

What is Credit?

Credit life begins when credit is extended to you and you make a purchase. In some cases credit begins negatively when you default on a payment (ex. Non co-payment for emergency room visit).

When does Credit Life Begin?

Cell phone contract. Depending on your credit score you may have to pay a deposit to be able to obtain a cell phone contract. If your credit score is too low the company may not extend their services to you.Rent or lease an apartment. Depending on your credit score you may have to pay a deposit or you may not be able to rent or lease an apartment.Utility companies. Depending on your credit report you may or may not have to make a deposit or set up automatic billing for the payment of your utilities.Insurance companies. Insurance companies use your credit report along with other information to rate your risk or liability to their company. This affects the amount you pay for your insurance premium.Some employers. Some employers analyze your money management skills and use it as a guideline on how you may manage other areas of your life. Lenders. Banks extend loans for the purchase of cars, homes, or to start a business etc. Your credit score and credit history affects the interest rates you receive on your loan.

Why is Credit important?

A credit report contains detailed information about a person’s credit including: identifying information, credit and loans, bankruptcies and late payments, and recent inquiries. It can be obtained by prospective lenders with the borrower’s permission, to determine his or her credit worthiness.

Credit reporting started with a “cuff”. A cuff is paper tube that general store clerks wore around their wrist with a collection of little papers with information about purchases bought on credit.

What is a credit report and what does it include?

http://money.howstuffworks.com/personal-finance/debt-management/credit-report1.htm


Personal IdentifyingInformation

name, current and previous address, social security number, telephone number, birth date, your current and previous employers, and your spouse's name may be included as well

Credit History

Bill-paying history with companies that have granted you credit. Account information such as: date opened, type of account, credit amount extended, monthly payment amount, etc. Information about late payments, closed, charged off, or paid off account.

Public Records

Information that might indicate your credit worthiness, such as tax liens, court judgments and bankruptcies.

Report Inquiries

All credit granters who have received a copy of your credit report and others who were authorized to view it. Lists of companies that have received your name and address in order to offer you credit.

Dispute Statements

The report may also include any statements you've made disputing information on the report. Most credit bureaus allow both the consumer and the creditor to make statements to report what happened if there is a dispute about something on the report.

Contents of Credit Report.



A credit report does not include information about your income, checking or savings accounts, bankruptcies that are more than 10 years old, charged-off or debts placed for collection that are more than seven years old, gender, ethnicity, religion, political affiliation, medical history, driving record, or criminal records. Your credit score is generated by information on your credit report, but is not part of the report itself.

What a credit report does not include.

http://www.equifax.com/credit-information/credit-report

http://www.equifax.com/credit-information/credit-report

Fair Isaac Corp. developed the first credit score as well as the Classic FICO score.

There are currently three major credit bureaus in the United Sates. Equifax, Experian, and TransUnion. The three credit bureaus may provide you with different credit scores as the data they collect are different and their method of FICO scoring is also different.

Who calculates credit score?

Equifax Experian Transunion

Beacon Score/ Pinnacle Score

Experian/Fair Isaac Risk Model

Empirica Score

Classic FICO Score

Plus Score Transunion score

300 to 850 330 to 830 150 to 934

http://www.scoretruth.com/basics/range.php

Classic FICO Score allocation

35% How you pay your bills.

30% Amount of money you owe and the amount of available credit.

15% Length of credit history

10% Mix of credit

10% New credit applications or inquires.

100% TOTAL

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Credit-Scoring-101-START-HERE/m-p/8169

Score Percentage of Population

Delinquency Rate

300-499 1 87%

500-549 5 71%

550-599 7 51%

600-649 11 31%

650-699 16 15%

700-749 20 5%

749-799 29 2%

800 and higher 11 1%

General Credit Score Statistics.


FICO Score Grade Typical Mortgage Rates *

720-850 Excellent A (e.g., 6.2%)

700-719 Very Good A + 0.13%

675-699 Good A + 0.65%

620-674 Fair A + 1.80%

560-619 Bad A + 4.30%

500-619 Very Bad A + 5.00%

Fico Score and Loan Rates


The three major credit reporting bureaus are currently involved developing and allowing for restricted use of an alternative credit rating system called Vantage score. It ranges from 501 to 900. Your personal score is transformed into a letter grade.

Credit Rating Alternative!!!!!!!!

Score Grade

901 – 990 A

801 – 900 B

701 – 800 C

601 – 700 D

501 – 600 F


About 90% of auto lenders do not actually use classic FICO credit scores to extend car loans to their customers. Instead they use auto credit score which is primarily made up of their auto loan history. Due to this, there are individuals with car loans that are not necessarily eligible for credit cards. The theory behind this is that, people are more inclined to maintain good payment history in regards to auto loans. Studies have shown that individuals with low credit scores will continue payments while deteriorating their classic FICO score by defaulting on other payments.

Auto Industry Option Score

http://www.smartcredit.com/blog/2010/05/01/what-is-an-auto-credit-score/


Great or Excellent 775-850

Good or Very Good 685-774

Normal or Average 615-684

Below Normal or Poor 515-614

Bad or Very Bad 350-514

Auto credit score Calculation and Scoring.

Factors affecting auto score

An auto loan or lease sent to collections

Any late payments on an auto loan or lease

An auto loan or lease settled for less than owed

A repossession by the lender

Previous two year overall credit



An insurance credit score is not a measure of credit worthiness but instead a assessment of risk. Some information from your credit report such as (age of oldest account, number of inquiries in 24 months, ratio of total balance to total limits, number of open retail credit cards, number of revolving accounts with balances greater than 75% of limits, etc.) are included in the calculation of the insurance credit score. The remainder of insurance score is calculated by insurance claims and probability data.

Insurance credit scores are unique to the insurance company and each line of business (example auto or home).

It is very possible for someone with a high classic FICO score to have a low insurance credit score.

Insurance credit score

http://en.wikipedia.org/wiki/Insurance_score

Everyone is entitled to a free annual credit report or a free credit report after being denied credit.

You can retrieve your credit report and credit score at Myficoscore.com or at the major credit bureaus

Before shopping for credit, pull your own free credit report (it does not affect your score negatively) and show lenders to see if you are credit worthy according to their lending standards.

If your shopping around for lenders through different companies in the same industry over a span of 14 days then the inquiries will only affect your credit score as if it was only one inquiry.

Closing unused accounts lowers your credit score so its best just to leave it open.

Helpful information………..



Diversifying your types off credit will improve score.

The fastest way to increase your credit score is by staying within the 10% margin of utilization. Balance (divided) by Credit Limit = percentage.

To establish credit it is a good idea to become an authorized user on a responsible person’s account. The authorized user has no legal responsibility for the debt as oppose to a Joint or Co-Signer accounts. If this account starts to report negatively it is also easier to remove these types of credit from the credit reports by either contacting the creditor and requesting termination of the relationship; or disputing through the CRAs. Be certain that the lender reports this information to the credit bureaus.

More helpful information …….



Do not apply for credit you do not need or apply for credit if you know you will be denied.

If your credit life is relatively new do not open numerous accounts in order to build credit. This looks risky to lenders. It will also lower your average account age which has an effect on your total credit score.

If you find yourself unable to pay back your debt be careful of debt consolidation or debt settlement companies. If you decide to settle your debt the negative report will take seven years to be removed from your credit report and your credit score will be substantially lowered. You may also have to pay income taxes at the end of the year for the discounted portion (balance – settlement = discounted portion) if the amount is $600 or greater. If you decide to declare bankruptcy it will take 10 years for the negative information to be removed from your credit.

More Helpful Information…….



There are two types of consumer credit: Installment credit (closed- end credit) and noninstallment credit.

Installment Credit usually requires a set monthly payment until the balance is paid off in full. The agreed upon terms are fixed. Example car loan, student loan, or a mortgage.

Noninstallment credit encompasses all consumer credit that do not fall under installment credit.

What are the different types of Credit?

http://www.finweb.com/banking-credit/types-and-sources-of-consumer-credit.html


Revolving (open-end credit) includes: a maximum chargeable amount, allows balance carryover, service charge and interest rates, varying specified monthly minimum payment, and open terms. Examples are major credit cards and department store credit cards.

Charge Card (open-end credit): payment is made in full at the end of the month.

Personal line of credit: Borrow is loaned a specific amount. The borrower can withdraw funds as needed with generally a check or bank document.

T&E accounts: Travel and Entertainment accounts extend credit for a specified time period usually 30 days. Balance must be paid in full on date specified. (These are not major cards and are accepted by fewer merchants)

Different types of Credit

http://www.finweb.com/banking-credit/types-and-sources-of-consumer-credit.htmlhttp://www.mycreditscorereview.com/revolvingaccount.html


http://www.mycreditscorereview.com/revolvingaccount.html

Single payment loans (term loans): Balance must be paid in full on date specified. May demand that the interest rate be paid periodically but usually the principal and interest are required to be paid at the same time.

HELOC: May be a line of credit (revolving account) or installment loan. Funds usually equal the equity of the borrower’s home because it is used as collateral.

Thirty day account: allows consumer to make purchases within a thirty day span without incurring interest charges. The funds must be repaid in full by the due date.

Service Credit: are usually extended by utility companies or any other business that supply a service. Allows client to make payments fifteen to thirty days after the date of service without incurring interest or charges

Different types of Credit.



Lenders use your credit report as a measure of the amount of interest rate to extend to you. The lower the consumer’s credit score the less likely they are to abide by the terms of their contractual agreement with the lender. The higher the risk the higher the interest rate. A lenders risk and a consumer’s credit score are inversely proportional.

Example: A person with a credit score of a 520 will have a 4.36% difference in interest rate in comparison to a person with a score 720 according the Fair Isaac’s website. If we use the mortgage calculator at www.bankrate.com a $100,000 30-year mortgage would cost $110,325 more in interest which equates to $307 more in monthly payments.

How does credit affect credit cards, lines of credit, and interest rates?

http://www.bankrate.com/brm/news/credit-scoring/20031104a1.asp

http://www.bankrate.com/

http://www.bankrate.com/brm/news/credit-scoring/20031104a1.asp

300 822 850 720 433 650 369 569 487 502 679 750

Documents

credit score

credit cards

credit worthiness

credit life

persons credit

credit granters

credit counselor

credit reporting