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CREDIT BUREAUS / FICO scores
Transcript of CREDIT BUREAUS / FICO scores
Credit report: Transcript of your financial transactions (score=GPA)
FICO (Fair Isaac Co) score: Mathematical model (Experian, Transunion, Equifax)
FEDERAL CONSUMER CREDIT LAWS
What creditors look for: 5 Cs of Credit
Fair Credit Reporting Act (1971)
Equal Credit Opportunity Act (ECOA) (1975 &77)
Co-signing a loan
Everything you need to know
Improve your credit score
Debt Payments-to-Income Ratio (DTI)
Measuring Your Credit Capacity
= Total monthly Debt payments* / gross income
CO-SIGNING A LOAN
The creditor will give you a notice that tells you…
You are being asked to guarantee the debt, so consider if you can afford it if the borrower defaults.
If the borrow does not pay, you may have to pay up to the full amount and also any late or collection fees.
If a payment is missed the creditor can collect the debt from you without first trying to get it from the borrower.
Regulates the use of credit reports: only issued to properly identified persons for approved purposes.
Requires the deletion of obsolete information: 7-10 years.
Gives consumers access to their files and the right to have erroneous data corrected
Bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors (credit rights of women)
- Do you pay bills on time?
- Can you repay the loan?
- What are your assets and net worth?
- What property do you have to pledge that the lender can repossess if you default on the loan?
- What economic conditions could affect your ability to repay the loan?
Get copies of your credit report-review for accuracy.
Pay your bills on time.
Understand how your credit score is determined.
Learn the legal steps to improve your credit report.
Beware of credit-repair scams. Sometimes doing it yourself is the best way to repair your credit. Federal Trade Commission's web site.
Do not believe on Urban Legends:
Checking your score will cause it to decrease: NOT
Your age, gender, race, occupation, and State have a lot to do with your FICO score: NOT
Employers can get your credit score as hiring tool: YES
Fair Credit Billing Act (1975)
Guidelines for resolving mistakes
Fair Debt Collection Practices Act (1978)
Fair and Accurate Credit Transactions Act: FACT (2003):
one free credit report per year
CARD: Credit Card Accountability, Responsibility, and Disclosure Act (2009)
1. Payment History (35%)
: Forget to make a payment (even a fraction of the payment), it will have a negative impact on your FICO score. Pay on time and pay more than the minimum payment.
2. Amounts Owed and available credit (30%)
: Cannot afford to pay your balance in full - pay a portion of your bill. Now you are "DEBTED". FICO will take a hit. FICO and Debt DO NOT LIKE EACH OTHER.
Debt to credit ratio (what you owe over what your credit line is). Ideally this ratio should be <30% (closer to zero is best)
3. Length of Credit History (15%) :
Open up an account and stick to it even if you do not use the card. Remember #2?
4. New Credit (10%):
Collecting Cards is not a way to earn a better FICO score. Too fast too furious is NOT GOOD!
5. Types of Credit (10%)
: car/mortgage loans?, department store cards?, major credit cards?
HOW TO RAISE YOUR FICO SCORE:
Costs to get it $19.95 (myFICO.com) (CreditKarma)
FREE annual credit report:
Annualcreditreport.com or FTC.gov
Truth In Lending (1969) (1971)
prohibits lenders to send unauthorized cc. Limits liability to $50 for unauthorized use.
DTI = Should be 36% or less (20-25% best)
DTI Should never exceed 43%
1. Add up what you owe, including credit cards, rent or mortgage payments, car loans, student loans, and anything else that you are expected to make a constant monthly payment on.*
2. Then calculate your income: wages, dividends and freelance income, alimony, etc. **
3. Now, convert each one of those to a monthly figure. If your annual income is $60,000, the monthly total is $5,000. Do the same for debt. If your annual debt total is $30,000, the monthly total is $2,500.
4. Now divide your debt by your income and multiply by 100 to arrive at a percentage representing your debt-to-income ratio. In this example, that would be 30,000 divided by 60,000 = .5 x 100 = 50%.
*Payments That Are Included In Monthly Debt Payments When Calculating DTI
Monthly credit card payments (you can use the minimum payment when calculating your DTI ratio)
Monthly mortgage payment (including insurance, taxes, HOA payments)
Monthly car payment
Monthly student loan payments
Monthly personal loan payments
Monthly debt consolidation loan payments