Welcome!
Home Purchase and
Consumer Credit
Scoring
Deuteronomy 28:8-13
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The LORD will send a blessing on your barns and on everything you
put your hand to. The LORD your God will bless you in the land he
is giving you.
The LORD will establish you as his holy people, as he promised you
on oath, if you keep the commands of the LORD your God and walk
in his ways.
Then all peoples on earth will see that you are called by the name of
the LORD, and they will fear you.
The LORD will grant you abundant prosperity – in the fruit of your
womb, the young of your livestock and the crops of your ground – in
the land he swore to your forefathers to give you.
The LORD will open the heavens, the storehouse of his bounty, to
send rain on your land in season and to bless all the work of your
hands. You will lend to many nations but will borrow from none.
The LORD will make you the head, not the tail. If you pay attention
to the commands of the LORD your God that I give you this day and
carefully follow them, you will always be at the top, never at the
bottom.
The Order of Money
• We TITHE
Are you believing God for this primary step of
stewardship?
• We SOW
Are you being obedient to financially sow into the kingdom
of God?
• We SAVE
How much is in your savings account?
If you save $25 per week, in 1 year you would have saved
$1300.
• We SPEND
Is this the fourth step in your life?
Should I Rent or Own?
Average rent in Pittsburgh $750 per month
$750 x 5 years = $45,000
$750 x 10 years = $90,000
$750 x 20 years = $180,000
$750 x 30 years = $270,000
Mortgage Payment for an $85,000 home:
30 year FHA mortgage @ 5%
Principal and interest payment
Private mortgage insurance
$444.73
$79.39
Escrow for taxes and insurance
$225.88
Total mortgage payment
$750.00
Decreasing Balance:
5 years $76,075
10 years $67,387
12 years PMI is eliminated (78% of purchase price)
20 years $41,929
30 years $0.00
Benefits of Renting
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Little or no responsibility for maintenance
Easier to move if your needs change
1 year commitment
Minimal cost to move in
Benefits of Owning
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Tax deduction
Sense of community, Stability
Freedom
Appreciation / Building Equity / Forced Savings
Your pets are welcome
What are your obstacles
for purchasing a home?
Is purchasing the best
option for everyone?
Strategy
 If you are struggling financially, set a FOCUS goal
and write it down.
 I will own a house by XX/20XX
 I will pay off my credit cards by X date
 Be specific and deliberate in HOW you are going to
achieve your goals
 I will set up an automatic deduction to save $50 each week
to use as my down payment on a house
 I will pick 1 credit card and add $75 extra each month until
it is paid off, then move to the next card
 Set up a Budget
 A guide to show where you are and where you want to go,
not an unbreakable law
 Managing your finances should not be a struggle. The
financial areas of your life should be freeing, not restricting.
What is the Latte Factor?
Based on a simple idea, there’s a financial theory known
as the Latte Factor. To put aside only a few dollars per
day for your future, rather than purchasing items like
lattes, cigarettes, fast food, bottled water, magazines,
etc., an individual can see a difference in his/her
finances by no longer living from one paycheck to
another.
The Latte Factor dictates that an individual can
redirect the unnecessary spending to him/herself.
Imagine being able to change your destiny by altering
bad spending habits as well. The number one step is to
identify your Latte Factor and how much it costs you
per day. An individual can actually see how much
he/she can save in several years.
What is the Latte Factor?
The Latte Factor calculator can be used to aid
the individual to watch his/her savings increase.
Coffee each day on average costs $3.00
$3.00 x 365 = $1095
Lunch each day on average costs $5.00
$5.00 x 260 = $ 1300
Don’t think you have to quit drinking coffee and
quit eating lunch, just make changes to your
spending habits. Buy a good coffee pot and pack
your lunch.
Excerpts taken from: Automatic Millionaire by David Bach
What is your Latte?
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No money down
Can finance closing costs if home appraises high enough
Allows 6% seller assist
No PMI
Area Specific
 FHA (Federal Housing Administration)
 3.5% down payment
 Down payment can be a gift from a family member
 Allows 6% seller assist
 Conventional (Fannie Mae & Freddie Mac)
 5% down payment
 Allows 3% seller assist
Purchase Programs
 USDA (United States Department of Agriculture)
Useful Resources
 www.annualcreditreport.com
 1 free credit report per year
 All three credit reporting agencies
 No credit scores
 www.creditcards.com
 If you need to establish credit, use this website to obtain
a major credit card.
 Do not apply for department store charge cards if you
are trying to establish credit.
 www.myfico.com
 With their programs you can monitor your credit report
and obtain your credit scores.
What is Credit Scoring?
• It’s the use of a statistical model to
objectively evaluate all the credit
information available in a single
repository
• There are three repositories in the US:
– Equifax: Beacon Score
– TransUnion: Emperica Score
– Experian (FKA: TRW): Fair Isaac
Score (FICO)
What is a Credit Score?
• A credit score can change daily.
Anytime information is updated on
a credit report your score changes.
• 5 key parts we will discuss that
make up your credit score.
• How will knowing this help me?
Your Credit Score Affects?
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Mortgage loans
Homeowners insurance premium
Car insurance premium
Car loan rates
Instant credit card approvals
Employers- should I hire them or not?
Mortgage insurance
Ranges of a Credit Score
Millions of Americans have
Inaccurate Credit Scores
• December 17, 2003 Report by Consumer
Federation of America and The National Credit
Reporting Association showed…
– Variance = 33%
– 15k J = 34 points
• How to fix errors?
• Watch out for scams
How the Credit Score
Affects Loan Programs
660-850
620-659
600-619
580-599
540-579
500-539
300-499
No Score
Top 5 Items Which Affect
Your Credit Score
Top 5 Items Which Affect Your Credit Score
1. 35% How you pay your bills
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How often it’s late, how late it is and when was it late?
The majority of focus is placed on last 2 years (most
recent 11 months more sensitive, with current lates
most sensitive) Excluding BK and FC
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Example: True or False: 30 day late 4 months ago will hurt
your score more than a 30 day late 3 years ago.
Example: True or False: a current 30 day late will hurt your
score more than a 30 day late 4 months ago
Example: True or False: a few 30 day lates 4 months ago will
hurt your score more than a 90 day 26 months ago
Time frame items stay on your credit report
Top 5 Items Which Affect Your Credit Score
1. 35 % How you pay your bills (continued)
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Collections: Caution! (if old leave alone)
Collections: if purchased by another collection
company it will hurt score (ITT, Household, Sherman Acq.)
Public records (judgments/liens/ bankruptcy etc)- same
as bills. The severity and recently hurts score. (If its
old leave it alone!)
Public records: use date of last activity
Stories of paying off collections or public records and
score lowering?
Top 5 Items Which Affect Your Credit Score
2. 30% Credit Utilization
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The amount owed on all accounts
Revolving only: amount of current balances in
relationship to high credit limit individually and
collectively
The percentage owed on open installment loans
Amount owing on specific types of accounts
Top 5 Items Which Affect Your Credit Score
2. 30% Credit Utilization (continued)
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Do check your credit report annually and close any unused
cards for security reasons
Ideally do keep 4-6 accounts open
Do use these accounts at least once every 6 months
Do try to keep your balances at 30% of high credit limit
Don’t open numerous accounts simply to try to increase your
score
Don’t close old accounts just for your credit score
Don’t increase your credit limit just to achieve the 30% target
to improve your score (you’re tempted to use it)
Bottom line is to show ability to manage credit
Top 5 Items Which Affect Your Credit Score
3. 15% Length of credit history
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Length of time account is open
• Credit opened in the last 24 months viewed as a higher
risk (risk increases if other negative factors)
• Looks at the oldest time an installment account has
been open (look at open date on credit report)
• Looks at the oldest time a revolving account has been
open
• Looks at the average age of all accounts
• Remember: needs to be opened 6 months and used once
in last 6 months
Top 5 Items Which Affect Your Credit Score
4. 10% Type of credit being used
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Number of bankcards you have
Number of retail or department store cards you have
Number of installment accounts you have
Number of finance company loans you have
Excludes mortgages
What’s the ideal number (of open accounts) to have?
Top 5 Items Which Affect Your Credit Score
5. 10% New credit/ Inquiries
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New credit means: inquiries but also how long have you
had accounts, how many new accounts and what types all
play a factor.
Inquiries are a subset of new credit- yet the most
notorious.
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How many inquiries do you have?
Only consumer authorized inquiries count
Fact and myth of inquiries
What about rate shopping for mortgages or autos?
Impact of inquiries on 550 credit score vs. 750 credit
score
See the facts
How to Improve…
1. 35% How you pay your bills
• Pay your bills on time
• Look at the “windows”
• Any currently “late pays” pay current
and re-score
• Confirm any recent lates are correct
• Leave old collections alone and why
• Leave old public records alone
• Watch small balances
• Define late payment
How to Improve…
2. 30% Credit utilization
• Keep balances low vs. zero. The magic number is?
• If your credit is recently new, don’t open a lot of
new accounts
• Utilize your cards how often? (to count)
• Avoid “continual” balance transfers (double
negative)
• Don’t close all your unused credit cards
• Don’t open unused credit cards to raise your score
How to Improve…
3. 15% Length of Credit History
• Establish credit early in life
• If your credit history is relatively recent,
don’t open a lot of new accounts
• Never rely on your spouse for all your
family’s credit
• Rotate usage of your credit cards
• Watch out closing accounts (common error)
How to Improve…
4. 10% Type of Credit
• Finance company accounts can hurt your score.
Why?
• Watch out for 90 day same as cash
• Paying cash for everything?
• Apply and open new credit only as needed
• Have credit cards, but manage them responsibly
• FYI: closing out accounts doesn’t remove them
from your credit report
How to Improve…
5. 10% New Credit/ Inquiries
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Do marketing inquiries count?
Best advice: have an old and strong credit file
Repeated inquiries with same company
Shopping for mortgages or auto (buffer period)
Shop for mortgages and auto loans within
specific time period
• Apply and open new credit only as needed
• Request your credit report directly
• Law in Affect
How to Dispute Your Credit
• Mistakes happen a lot!
• How mistakes happen
– Applied for credit under different names
– Clerical error entering information
– Person gave incorrect SSN
– Payment was mistakenly applied to wrong account
• Identity theft #1 in 2003
– In 2007 estimated losses of 49.3 Billion
• Free dispute method
• Rapid Re-scoring method
Questions?
Graph of 5 key components
Thank you
for coming!