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Credit Score Management

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Kellie Lankutis

on 11 February 2014

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Transcript of Credit Score Management

Presented by:
Tyana Grayson

Public Service Credit Union offers a FREE Credit Score Analysis for all members.
Thank You!
Understanding Your Score
What components make up your credit score?
Understanding Your Score
What information impacts a credit score?
Your credit score varies depending on the information being used.
Generally, credit scores are affected by elements in your credit report, such as:
- Payment history
- Type, number and ages of accounts
- Total debt
- Recent inquiries
A higher number typically indicates a lower risk.
Understanding Your Score
What is a credit score?
Your credit score is a snapshot of your credit risk at a particular point in time.
Your credit score influences the credit available to you and the terms (interest rate, etc.) that lenders offer you.
Most widely used credit scores are FICO scores.
A better score means better financial options for you.
& Improving
Your Credit
& Bad
Good & Bad Credit
How does good or bad credit effect you?
Good Credit
Loan: $5,000
Interest Rate: 8.00%
Term: 36 months
$156.70 paid monthly
Total Interest Paid Over Life of Loan:

Total Paid:
Bad Credit
Loan : $5,000
Interest Rate: 18.00%
Term: 36 months
$180.81 paid monthly
Total Interest Paid Over Life of Loan:

Total Paid:
Good & Bad Credit
Why should you care about your credit?
Any time you apply for a loan your credit will be pulled to determine your approval and terms. If you have poor credit, you will usually have a higher interest rate because you are a higher risk. You may also be denied approval.
Credit Cards
Most employers use credit reports to judge how responsible and financially stable candidates for employment are. Credit reports also provide employment history.
When you apply for a credit card, your credit will be pulled to determine your approval and terms. If you have poor credit, you will usually have a higher interest rate and/or a higher annual fee as well as a lower card limit. You may not qualify for some credit cards with poor credit.

of Credit
Credit Effects
What is the cost of using credit?
If you charge $2,000 to a credit account and make the required minimum monthly payments at 19.80% interest, plus a $40 annual fee:
It will take more than 5 years to pay off this charge!
You paid an additional $2,265 in non-tax deductible charges.
When you make the last payment, will the stereo, car or clothing you purchased be long gone?
Adapted and used with permission from Mary Stoecker, Iowa State University, Cooperative Extension, Resource Management Specialist, Emmetsburg, Iowa.
Credit Effects
Get a copy of
your credit report:
This is the ONLY authorized source for the free annual credit report that is yours by law.
Equifax: (800) 685-1111
Experian: (888) 397-3742
TransUnion: (800) 888-4213
If you believe there is an error on your credit report:
Be Aware of Credit Repair Scams
The Federal Trade Commission (FTC) says:
Don't believe these claims. They are very likely signs of a scam.
Good & Bad Credit
How does good or bad credit effect you?
> 720
Credit Score
Loan: $25,000
Interest Rate: 3.44%
Term: 60 months
$545.12 paid monthly

Total Paid:
< 600
Credit Score
Loan : $25,000
Interest Rate: 17.25%
Term: 60 months
$624.67 paid monthly

Total Paid:
Most landlords will pull your credit before approving you to rent their property. If you have poor credit, you may miss out on your dream apartment.
Credit Effects
What is the cost of using credit?
Beware of Shady Lending Practices
Universal Default Language
Disclosure Language
Due date AND time
Cash Advance Fees & Balance Transfer Fee
Inactivity Fees
Default Rate
Read the Print!
Tips for Managing Your Credit Score
Consider opening a Secured Credit Card that reports a limit to establish credit or increase credit score
Maintain low balances on credit cards (never use more than 25% of capacity)
Don't close credit cards after you have paid them off
Minimize the number of inquiries per year (recommended no more than 3 per year)
Always make payments on time, every time!
Bring past dues current and continue to make payments on time
Avoid subprime lenders and finance companies who charge higher interest rates and fees
Many credit card companies may raised your interests rate to their default rate (as high as 30%) when ever you default with any creditor, not just with their company!
"We have the right to raise your interest rate for any reason"
Ex: "Must be received by 5pm on specific due date interest rate can be increased to default rate..."
(new litigation prevents time constraints prior to 5pm)
May be as high as 30% if you are one minute/one day late on your payment
May average as much as 3-5% of each cash advance or balance transfer
A fee could be assessed if you don't use your credit card within a specified period of time (usually a 12 month period
$37,482-$27,247 =
$10,234 Savings!!!
Understanding Your Score
How does it work?
-Are you on-time with your payments?

- Capacity used: total revolving
debt divided by the total
revolving limits reported

-Length: how long you've had your loan or credit card, the average age.

-New credit: inquiries and new trade lines.
Your Credit

Establishing Credit
For a score to be calculated, your report must:
Contain at least one account that has been opened for 6 months or more
At least one account that has been updated in the past 6 months
Your credit score is a fluid number, and it changes as the elements in your credit report change.
How do people score?
- For example, payment updates or a new account could cause your score to fluctuate
Credit Card

Line of Credit
Establishing Credit
- Co-signing?
- It's all about managing
How can I establish my Credit?
Understanding Your Credit
What is capacity?
Total Balances on Revolving Debt
Total Limits Reported on Rev. Credit
Capacity Used
Maximum capacity is 100%
Subtract capacity used from 100 = Capacity Available
Average: 1 point is equal to 1% capacity gained or lost
Understanding Your Credit
Capacity Example
$500 (revolving balance)
$1,000 (Limits)
50% Capacity Used
Note: Maximum Capacity is 100%
100%(max) - 50%(used capacity) = Capacity Available
Average Point Lost: 50 points (1 point is equal to 1% capacity gained or lost)
Definition of Terms
: A line of credit issued by the creditor for the consumer to borrow against (Ex: Credit Card Limits)

High Credit
: the most a consumer has charged on a line of credit since the opening date
"Limits" are used to calculate your capacity, not "High Credit"
Understanding Your Credit
What's not Considered in a Credit Score
Age, gender, race, religion, nationality, and marital status
Salary, occupation, title, employer, date employed
Where a person lives
Maxing out credit cards
Late payments: 30 days (60 points),
60 days (15 points), 90 days (15 points). Mortgage is 90-120 points!
Closing all credit cards that report a limit
Maintaining balances on credit cards especially
on those that don't report a limit
Opening several lines of credit in a short period of time
Bankruptcies, Collection items, and Settlements (depending on how it's reported)
What hurts my credit score?
Improving Credit
It will usually take 2-3 months for it to reflect on your credit report
Scores can differ with each agency
What is the cost of using credit?
Understanding Your Credit

: Member buys a $500 TV using a credit card

Person A used 100% of their limit and lost 100 points

New Score: 600
Understanding Your Credit
Inquiries - the 10% (Max. 15+/-points)
Inquiry - when you apply for a loan, you authorize your lender to ask for a copy of your credit report.
inquiries made by you don't affect your score. Ex: Online inquiries
inquiries don't affect your credit score. These are inquiries made by creditors without your authorization (soft pull, example: pre-approved credit cards)
inquiries count as one inquiry
Autos within a 30-40 day period
Mortgage within a 30-45 day period
The Fair Isaac Corporation scoring model is proprietary to the Fair Issac Corporation. Points referenced in this presentation are approximate guesstimates based on credit score simulator calculations.
Installment Loans
: Unsecured loans and secured loans
Auto, mortgage

Revolving Debt
: Lines of credit and certain types of credit cards

: Member buys a $500 TV using a credit card

Person B used 10% of their limit and lost 10 points

New Score: 690
Person A - 700 FICO Score
Person A has one credit card with a $500 limit
Person B - 700 FICO Score
Person B has several credit cards with total limits of $5,000

Lender Perspective:
-debt versus income
-employment history
-credit history
-length of residence
Full transcript