Credit ReportsCredit Reports

How to improve your score, and help members to do the same.

Long Term Effects of Credit Scores

Two friends - Carl and James Borrow the same amount of money

over the same amount of years.

Credit Cards

Balance Carried

Credit Score

Interest Rate

Annual Interest Costs

Lifetime Interest Paid

James Penalty

Carl James

$8,000 $8,000

730 650

9.90% 19.90%

$792 $1,592

$39,600 $79,600

$40,000

Auto LoansThe average person spends $20,000.00 every 7 years

when purchasing a car. Over 20 years that interest can add up.

Total Amount BorrowedCredit ScoreInterest RateMonthly PaymentInterest Cost Per LoanLifetime Interest PaidJames Penalty

Carl James$140,000 $140,000730 6505.00% 8.50%$378 $411$2,645 $4,620 $18,515 $32,340

$13,825

Mortgage 1 Mortgage 1 (10 Years)(10 Years)

Total Amount Borrowed

Credit ScoreInterest RateMonthly PaymentTotal Interest PaidJames Penalty

Carl James$230,000

$230,000730 6505.50% 7.375%$1,306 $1,589$116,524

$159,650

$43,126

Mortgage 2Mortgage 2

Total Amount Borrowed

Credit ScoreInterest RateMonthly PaymentTotal Interest PaidJames Penalty

Carl James$280,000

$280,000730 6505.50% 7.375%$1,590 $1,934$292,326

$416,191

$123,865

Adding It All Up

How much more money in interest did James pay than Carl?

$220,816.00

Credit Score Breakdown

Payment History 35%

Amount You Owe (Capacity) 30%

Length Of Credit History 15%

Types Of Credit 10%

New Credit And Inquiries 10%

ScorecardsScorecards

The FICO scoring model sorts people into scorecards. This allows

the FICO score to enhance its predictive power by analyzing how

the same behavior, in different people, can mean different things.

Ten Myths About the Fico Ten Myths About the Fico ScoreScore

1. Closing Credit Accounts Will Help Your Score.

2. You Can Boost Your Score By Asking Your Credit Card Company To Lower Your Limits.

3. You Can Hurt Your Score By Checking Your Own Credit Report.

4. You Can Hurt Your Score By Shopping Around For The Best Rates.

5. You Don’t Have to Use Credit to Get a Good Credit Score.

Myths 6-10Myths 6-106. You Have to Pay Interest to Have a Good

Credit Score.

7. Adding a 100-Word Statement to Your File Can Help Your Score.

8. Your Closed Accounts Should Read “Closed By Consumer,” Or They Will Hurt Your Score.

9. Credit Counseling Is Worse Than Bankruptcy.

10.Bankruptcy Hurts Your Score So Much That It’s Impossible to Get Credit.

Actions That Will Hurt a FICO Actions That Will Hurt a FICO ScoreScore

► Late Payments and Derogatory Public Records.Late Payments and Derogatory Public Records.► A Low Level of Percent Available on Revolving A Low Level of Percent Available on Revolving

Accounts and Total Revolving Accounts.Accounts and Total Revolving Accounts.► Closing Revolving AccountsClosing Revolving Accounts► Having a Lender Lower your limit, or not report Having a Lender Lower your limit, or not report

the limit on your revolving account.the limit on your revolving account.► Multiple New Accounts In a Short Period of Multiple New Accounts In a Short Period of

Time.Time.► Settling for Less Then the Full Balance.Settling for Less Then the Full Balance.► Having Loans at “Second Tier” Finance Having Loans at “Second Tier” Finance

Companies.Companies.

Actions That Will Help A FICO Actions That Will Help A FICO ScoreScore

► Check Credit Report Regularly and Dispute Check Credit Report Regularly and Dispute Legitimate Errors.Legitimate Errors.

► Bring Currently Delinquent Loans Current.Bring Currently Delinquent Loans Current.► Shop Rates for Mortgages and Auto Loans within a Shop Rates for Mortgages and Auto Loans within a

14 day period.14 day period.► Pay off and Close “Second Tier” Finance Companies.Pay off and Close “Second Tier” Finance Companies.► Pay Down Credit Cards First That Are Near Their Pay Down Credit Cards First That Are Near Their

Limits.Limits.► Pay Down Total Revolving Balances. (Do Not Close)Pay Down Total Revolving Balances. (Do Not Close)► Move Revolving Balances To Installment Loans, but Move Revolving Balances To Installment Loans, but

do not close revolving accounts.do not close revolving accounts.► Minimize New Accounts.Minimize New Accounts.

Teaching FICO Scores To Members

• Remember that most members do not look at credit reports or know how a score is calculated.

• Make sure you inform them that you are teaching them the basics because not all information has been made public.

• Teach them the credit score formula.• Teach them “Capacity.”

Teaching FICO Cont.

• Show them a list of actions that will hurt a score.

• Show them a list of actions that will improve the score.

• Show them how better interest rates can benefit them in the long run.

How Insurance Companines Use FICO

About 90% of insurance companies pull your credit to help determine what rates to give you.

Collection Accounts

3 or More Accounts

1.19 on every dollar

Collection Accounts

1 Account

97.5 cents on every dollar

Collection Accounts

0 Accounts

74.1 cents on every dollar

Helpful Websites

• www.annualcreditreport.com• www.myfico.com

• Your Credit Score – By Liz Pulliam Weston

• Credit Scores & Credit Reports – by Evan Hendricks

Helpful Books