"UNIVERSITYCredit Reports: WhatThey Mean to YouPROFESSOR’S NAMESTUDENT’S NAMEBanks, Credit Unions and other lenders, Home and auto insurers, potential employers, landlords,auto dealerships and utilities Need to assess the “stability” in a potential buyer’s, lessee’s oremployee’s life. Credit Reports: What They Mean to YouI.INTRODUCTIONA. What’s in your credit report?Identifying Information Name, SSN, address, phone number, date of birth, employment Trade LinesThese are credit accounts that lenders report. They report the type of account, the date youopened the account, your credit limit or loan amount, the account balance and your paymenthistory.InquiriesWhen applying for any loan product you are authorizing the lender to pull and review a copyof your credit report. There is a list of everyone who accessed your credit report within thelast two yearsPublic Record and Collection ItemsThese include collections, bankruptcies, foreclosures, suits, wage attachments, liens andjudgmentsB. Credit scoring evaluates the same information lenders already look at - the creditbureau report, credit application and/or your bank file.A score is simply a numeric summary of that information. Lenders using scoring sometimesask for less information - fewer questions on the application form.C. Fact: “If it does, it probably won't drop much. If you apply for several credit cardswithin a short period of time, multiple requests for your credit report information(called "inquiries") will appear on your report. Looking for new credit can equate withhigher risk, but most credit scores are not affected by multiple inquiries from auto ormortgage lenders within a short period of time. Typically, these are treated as a singleinquiry and will have little impact on the credit score.”D. Do rate shop for a given loan within a specific period of timeRe-establish your credit history if you have had problems It’s imperative to check your credit report annuallyFact: “Just the opposite is true. A score is a "snapshot"of your risk at a particular point in time. It changes as new information is added to your bankand credit bureau files. Scores change gradually as you change the way you handle credit. Forexample, past credit problems impact your score less as time passes. Lenders request acurrent score when you submit a credit application, so they have the most recent information available. Therefore by taking the time to improve your score, you can qualify for morefavorable interest rates.”E. Who uses credit scores & why Important are they ?Banks, Credit Unions and other lenders, Home and auto insurers, potential employers,landlords, auto dealerships and utilities Need to assess the “stability” in a potential buyer’s,lessee’s or employee’s life.The less stability/predictability in behavior (as shown by a lowcredit score), the higher the risk of future problemsHow credit scoring helps you?People get loans faster Credit decisions are fairer Credit “mistakes” count for less More credit is available Credit rates are lower Higher risk borrowers that used to be turned down are granted loansII. BODYA. Purpose of Credit ReportingHow much money would you lend afriend orco-worker ifyouknew they had a reputation fornever paying back the money they borrowed? So the main purpose of credit reporting is toknow in real time if the loan is being given to someone will he or she will repay it and in thespecified time.1. Lending moneya)Amount Owed(Approximately 30% of your score)• How much is too much?• Considers amount owed and account types (credit cards, installment loan, mortgage)• Pay off credit cards monthly?• Near line of credit limit?• Number of accounts with balances?b)Length of Credit History(Approximately 15% of Score)• How long is your credit history?• How long have your accounts been established?• Are you constantly using the revolving accounts? • How does the length of your credit history compare to your age?2.Individual businesses used to keep recordsNumeric Range Classification Risk Rated730 and above Platinum Very Low680 to 729 A Low640 to 679 B Low to Medium600 to 639 C Medium to High550 to 599 D High549 and below E Very HighFallacy: My score determines whether or not I get credit.Fact: “Lenders use a number of facts to make credit decisions, including your FICO score.Lenders look at information such as the amount of debt you can reasonably handle given yourincome, your employment history, and your credit history. Based on their perception of thisinformation, as well as their specific underwriting policies, lenders may extend credit to youalthough your score is low, or decline your request for credit although your score is high.”Fallacy: A poor score will haunt me forever.Fact: “Just the opposite is true. A score is a "snapshot"of your risk at a particular point in time. It changes as new information is added to your bankand credit bureau files. Scores change gradually as you change the way you handle credit. Forexample, past credit problems impact your score less as time passes. Lenders request acurrent score when you submit a credit application, so they have the most recent informationavailable. Therefore by taking the time to improve your score, you can qualify for morefavorable interest rates.” "