Building an A+ Credit Score
Presented By:
Kyle L. Smith, Lender
State Bank & Trust Company
Understanding how your credit score works
is the most important factor in improving
your score.
 Three bureaus exist that measure your score;
Experian, Transunion & Equifax.
 All three use a scoring system called FICO. FICO
has become the global standard for measuring
credit risk in banking, mortgage, credit card, auto
and retail industries.
Why are my scores different for the three
credit bureaus?
 Most of the information collected on a consumer are similar
for each agency, although there are differences. For
example, one bureau may have unique information captured
on a consumer that is not captured by the other two.
 A predictive FICO scoring system resides at each bureau.
The scoring system is similar for each bureau. “A” quality
credit will most likely be “A” quality all three bureaus.
 When there are differences, it’s likely the underlying data in
the bureaus is different.
 Not all credit scores are “FICO” scores although 90% of all
institutions use the FICO system. Make sure you are
comparing scores of the system.
 Scores should be accessed at the same time. Passage of
time allows for score differences due to model characteristics
that have a time based component. Comparing outdated
scores can be problematic. Something a week old is “dated.”
Continued….
 All of your credit information may not be reported to all three bureaus.
The info on your credit report is supplied by lenders, collection agencies
and court records. Don’t make the mistake of assuming each bureau
has the same info regarding your credit history.
 You may have applied for credit under different names (ex. Bob instead
of Robert) or a maiden name. This can cause fragmented at or
incomplete files at the credit bureaus.
 Wrong information can cause someone else’s info placed on your report
or vice versa.
 Lenders report updated info to the credit bureaus at different times, thus
resulting in one agency have more up-to-date info than another.
 The bureaus may record, display or store the same information in
different ways.
What’s in my credit report?
Although each credit reporting agency formats and reports the
info differently, all credit reports contain basically the same
categories of info. Your social security number, date of birth
and employment info. These are not used in determining your
score. The info comes from what you supply to a lender.
 Identifying Information: Name, address, SSN, DOB and
info are used to identify you. This info is not used in scoring.
 Trade Lines: These are your credit accounts. Lenders report on
you have established with them. They report the type of account
(credit card, auto loan, mortgage), the date you opened the
account, your credit limit or loan amount, the balance and
payment history.
 Credit Inquiries: When applying for a loan, you authorize the
lender to access your credit report. This creates an inquiry on
your credit report. Inquiries stay on your report for two years.
 Public Records & Collections: Bureaus also collect public record
info from the court systems, and info on overdue debt from
collection agencies. Bk’s, foreclosures, suit, garnishments & liens.
What are the minimum requirements
for a credit score?
 In order for a credit score to be calculated, a report must
contain the following minimum requirements: At least one
credit account that has been open 6 months or more, at least
one undisputed account that has been reported to the credit
bureau with in the past 6 months, no indication of deceased
on the credit report. If you share an account with a person
recently deceased, this may affect you.
What’s in my credit score?
 The score is calculated from several different pieces of credit
data in your report. This data is grouped into five categories.
 Your score considers both positive and negative info in your
credit report.
These percentages are based on the importance of the
categories for the general population. For particular
groups—for example, people who have not been using
credit long—the importance of these categories may be
different.
Importance of categories varies per
person.
 Your credit score is calculated based on payment history,
amounts owed, length of credit history, new credit and types
of credit used.
 The importance of any one factor in your credit score
calculation depends on the overall info of your report. For
some, one factor may have a larger impact that it would for
someone with a much different credit history.
 It’s impossible to measure the exact impact of a single factor
in how your score is calculated without looking at your entire
report. Even the levels of importance show in the score chart
are for the general population and will be different for
different credit profiles.
What’s in your score?
 Payment History (35%): This is one of the most important
factors in your credit score. The lender wants to know how you
have paid accounts in the past.
 Amounts Owed (30%): Having credit accounts and owing
money on the does not necessarily mean you are a high-risk
borrower. You should keep balances on revolving lines of credit
(credit card, etc.) low, ideally at 10% or less of the credit limit.
Anything over this can decrease your score. Maxed out lines of
credit severely decrease your score.
 Length of Credit History (15%): A longer credit history will
increase your score. Your credit score takes into account: how
long your accounts have been established, including the age of
your oldest account, the age of your newest account and an
average age of all your accounts, how long specific credit
account have been established, how long it has been since you
used certain accounts.
 Types of Credit in use (10%): The score will consider your mix
of credit cards, retail accounts, installment loans, finance
company accounts and mortgage loans.
 New Credit: Research shows that opening several credit
accounts in a short period of time represents a greater risk –
especially for people who don’t have a long credit history.
What’s not in my Credit Score…
 Your race, color, religion, national origin, sex and marital status.
US law prohibits credit scoring based on these facts.
 Your age.
 Your salary, occupation, title, employer, date employed or
employment history. Lenders may consider this information.
 Where you live.
 Any interest rate being charged on a particular credit card or
other account.
 Any items reported as child/family support obligations or rental
agreements.
 Certain types of inquiries do not count. These include
consumer-initiated inquiries, promotional inquiries (lenders
offering pre-approvals), or administrative inquiries (request
made by lenders to review your accounts with them. Requests
that are marked as coming from employers are not counted
either.
 Any info not found in your credit report.
 Any info that is not proven to be predictive of future credit
performances.
 Whether or not you are participating in a credit counseling of
any kind.
Do scores change that much over
time?
 It’s important to know to note that your fico score is calculated
each time it’s requested; either by your or a lender. Each time
it’s calculated it takes into consideration the credit history
available at that particular time.
 Your current profile – Have you opened a new credit card
recently? This may affect someone less history more than
someone with more history.
 The degree of reported change. Someone who always pays
their bills on time will be affected very little by another note
being paid on time. However, if a person files for BK or misses a
payment the change will be substantial.
 How quickly info is updated. There is a lag between the time you
perform an action and when it hits your credit report.
How credit scoring helps me.
 People can get loans faster, without bias.
 Credit decisions are fairer. Lenders can focus only on the
facts related to credit risk, rather than their personal feelings.
 Credit mistakes count less. Poor credit performance doesn’t
haunt you forever. Past problems fade as time passes.
 More credit is available. It allows lenders to approve more
loans giving them the ability to identify prospects who will pay
their debt.
 Credit rates are lower. With more credit available, the cost of
credit decreases. Automated credit processes make the
process more efficient and effective. By controlling credit
losses due to scoring, lenders can lower rates.
Facts & Fallacies
 Fallacy: My score determines whether or not I’m approved.
 Fact: Lenders have many tools they use to approve applicants with the
credit score being one of many. Lenders look at debt to income ratio,
employment history and credit history. Even though your score may be
high you can still be declined.
 Fallacy: A poor score will haunt me forever.
 Fact: Your score changes as new info is added. As time passes past
mess ups will fade and will eventually disappear.
 Fallacy: Credit scoring is unfair to minorities.
 Fact: Scoring considers only credit related info. Race, sex, nationality
and marital status are not considered. The Equal Opportunity Credit Act
from considering this type of info when issuing credit.
 Fallacy: Credit scoring infringes on my privacy.
 Fact: Credit scoring evaluates the same info lenders already look at.
 Fallacy: My score will drop if I apply for new credit.
 Fact: If it does, it probably won’t drop much. If you apply for several
credit cards within a short time frame multiple inquiries will appear on
your report. This can equate with higher risk. Most credit scores are not
affected by multiple inquiries into auto loans and mortgages within a
short period of time. The system uses an algorithm that realizes that a
consumer may be shopping for a loan. These are treated as a single
inquiry.
Loan Savings Calculator on a $200,000
mortgage. Example only.
Credit Score
APR
Monthly
Payment
Total Interest
Paid
760-850
3.968%
$951
$142,412
700-759
4.19%
$977
$151,672
680-699
4.366%
$998
$159,103
660-679
4.579%
$1023
$168,201
640-659
5.008%
$1075
$186,864
620-639
5.552%
$1142
$211,160
How to increase my score!
Get on the road to improving your
credit. Remember, stay on the path.
Do not deviate no matter how loud
your credit card screams at you
from your wallet.
“USE ME, JIM! USE ME! You know
you want that 400 horse power
toaster!”
How to Improve my Credit Score
 Fixing credit is kind of like losing weight. There is no quick fix
and it takes time. Quick-fix claims usually backfire so beware of
claims to fix it quickly. The best advice is to manage it
responsibly over time.
 Check your credit report. Now that you understand how your
score is accumulated, pull your score. Avoid websites like
freecreditreport.com.
 The Fair Credit Reporting Act (FCRA) requires each of the
nationwide credit reporting companies — Equifax, Experian, and
TransUnion — to provide you with a free copy of your credit
report, at your request, once every 12 months.
 Set-up payment reminders. As I have shown you, making your
payments on time is a HUGE contributing factor of your score.
Many online banking portals offer text and email reminders. Put
reminders on your phone calendar. Write them on your forehead
if you have to.
 Reduce your debt. Easier said than done, I know. Stop using
credit cards. Use your credit report to make a list of all your
accounts. Dig up your statements and write down all of your
balances. Come up with a payment plan. Pay off the debts with
the highest interest rates first.
 Be aware that paying off a collection account will not remove it
from your credit report. It will stay for seven years.
Amounts Owed Tips
 Remember to keep balances low (below 10%-if possible) on
all credit cards and revolving debt.
 Pay off debt rather than moving it around. Balance transfer
are a great way to reduce interest expense when paying
down revolving debt, just be sure to continue to pay off the
debt.
 Don’t close unused credit cards as a short-term fix to raise
your score. Eliminating accounts can hurt your score.
 Don’t open unneeded accounts just to increase available
credit.
Length of Credit History Tips
 If you have been managing credit for a short time, don’t open
many new accounts rapidly.
 New accounts will lower your average account age, which
will have a large affect on your score if you have not had
credit for more than five years.
 Applying for multiple credit cards in a short time frame deems
you high-risk.
New Credit Tips
 Do your rate shopping for a given loan within a focused
period of time.
 Re-establish your credit history if you have had problems.
Opening new accounts responsibly and paying them off will
increase your score with time.
 Remember to access your annual credit report from
Experian, Equifax & TransUnion.
Types of Credit Use Tips
 Apply for and open new accounts only as needed.
 Have credit cards—but manage them responsibly. In general,
having credit cards and installment loans will rebuild your
score. Someone with no credit cards tends to be higher risk
than someone who has managed credit cards responsibly.
 Closing an account does not make it go away. A closed
account will show up on your credit report and may be
considered by the score.
Additional Tips
 If you do not have a major credit, get one.
 ALWAYS PAY ON TIME.
 Reduce highest interest rates first.
 Keep your credit lines free. Only use revolving credit in
emergencies.
 Have a good mix of credit cards & installment loans.
 Have a plan!
 Keep track of what is owed and when. Do not “wing” it.
What if I find accounts are missing from
my credit report?
 Unfortunately, this does happen.
 Some retail stores, gasoline companies and student loan
lenders do not report the accounts to credit bureaus. If you
are denied credit because of insufficient account history
contact the lender ask them to report your account.
 I have seen accounts mistakenly go unreported including
mortgages, major credit cards and auto loans. Contact the
lender as well as the three major credit bureaus. This could
come back to haunt you if not straightened out.
How are credit report mistakes made?
 The person applied for credit under another name. (Ex. Bob
instead of Robert)
 Someone made a clerical error in reading or entering a name
or address info from a hand-written application.
 The person gave an inaccurate social security number or the
number was misread by the lender.
 Loan or credit card payments were applied to the wrong
account.
 If you find wrong info on your report contact the three major
bureaus immediately to dispute the negative items.
Fixing credit report errors---what to do.
 Contact both the credit bureau as well as the organization
where the debt/account is held.
 Identify the incorrect information. The credit bureau will
investigate the items-usually in less than 30 days. Include
copies of documents that support your claim (save
everything!).
 Clearly identify each disputed item.
 State the facts and explain why you dispute the item.
 Request deletion or correction.
 Send your request by certified mail with return receipt so you
can document when the credit bureau received your dispute.
 Write to the appropriate creditor explaining that you’re
disputing the information provided to the bureau.
 They investigation may not resolve your dispute. If that’s the
case, ask the credit bureau to include your statement of
dispute in your file and in future reports.
 If you tell the information provider that you dispute an item, a
notice of your dispute must be included anytime the
information provider reports the item to a credit bureau.
Know your rights! The Fair Credit
Reporting Act.
 You have the right to receive an annual free credit report from
each bureau.
 You have the right to know the name of anyone who received
your credit report in the last year for most purposes or in the
last two years for employment purposes.
 Any company that denies your application must supply the
name and address of the credit bureau they contacted.
 You have a right to a free copy of your credit report when
your application is denied because of info provided by a
credit bureau.
 If you contest the completeness or accuracy of info in your
report, file a dispute with the credit bureau and with the
company that furnished the info to the bureau.
 You have a right to add a summary explanation to your credit
report if your dispute is not resolved to your satisfaction.
How can I minimize the effect of a
bankruptcy?
 The BK will be factored into your report until it falls off. It may
take up to ten years for a BK to fall off your report, but the
impact of the BK will lessen over time.
 If filing a BK, check your credit report to ensure accounts that
were not part of the BK filing are not being reported with BK
status.
 Make sure the BK is removed as soon as it eligible to be
purged from your credit report.
 After a BK, the sooner you can begin to re-establish credit
the sooner your score will begin to improve.
 Obtain a secured credit card and make your payments on
time.
 As more time passes you will be able to obtain a traditional
credit card.
How long will a foreclosure effect my
credit score?
 A foreclosure remains on your credit report for 7 years but its
impact will lessen on your score over time.
 If all other obligations stay in good standing your score will
begin to improve in as little as 2 years.
 Keep in mind a foreclosure is a single item. Do not make it
worse by defaulting on other credit obligations.
How do public records and judgments
affect my credit score?
 Public records are legal documents created and maintained by Federal
and local governments, which are usually accessible to the public.
Some public records, such as divorces, are not considered by your
credit score, but adverse public records, which include bankruptcies,
judgments and tax liens, are considered by the credit score. Your score
can be affected by the mere presence of an adverse public record,
whether paid or not.
 Adverse public records will have less affect on your credit score as time
passes, but they can remain on your credit report for up to 10 years
based on what type of public record it is. Judgments specifically remain
on your credit report for 7 years from the date filed.
 Judgments will almost always have a negative affect, if not directly to
your credit score, then to your general stress level when you receive a
formal court appearance letter and then have to deal with going to
court. Before letting a bill or credit obligation get to the courthouse, see
if there is an alternative that might work. Reach out to the person or
company that you owe money to and see if some sort of arrangement
can be worked out. If you are dealing with a collection agency or other
company, they may be willing to work out a settlement with you that is
equitable as it's almost always more efficient for them to work with you
directly than through the courts.
What are the different categories of late
payments and how does your score
consider them?
 Your credit score considers late payment using these general criteria; how recent the
late payments are, how severe the late payments are, and how frequently the late
payments occur. So this means that a recent late payment, could be more damaging to
your credit score than a number of late payments that happened a long time ago.
 You may have noticed on your credit report that late payments are listed by how late the
payments are. Typically, creditors report late payments in one of these categories: 30days late, 60-days late, 90-days late, 120-days late, 150-days late, or charge off (written
off as a loss because of severe delinquency). Of course a 90-day late is worse than a
30-day late, but the important thing to understand is that you can recover from a late
payment prior to charge-off by getting and staying current with your payments. If
however, you continue not to pay your debt and your creditor either charges it off or
sends it to a collection agency, it is considered a significant event with regard to your
score and will likely have a severe negative impact.
 It's important to always stay on top of all of your bills; your history of payments is the
largest factor in your FICO score. There may be circumstances which cause you to be
unable to keep current with your bills – maybe an unexpected medical emergency or
losing your job. Before being late for any payment, we recommend that you reach out to
your creditor; the creditor may be willing to work something out with you that you both
can live with. If your creditors won't work with you, try to avoid having your account
going so delinquent that the creditor sells your account to a collection agency or it
becomes a judgment. Again, late payments hurt, but you can get current with them by
paying them off – you can never again get that account current once it becomes a
judgment or is turned over to a collection agency.
How long will negative info remain on
my credit report?
 It depends on the type of negative information. Here's the
basic breakdown of how long different types of negative
information will remain on your credit report:
 Late payments: 7 years
 Bankruptcies: 7 years for completed Chapter 13 bankruptcies
and 10 years for Chapter 7 bankruptcies.
 Foreclosures: 7 years
 Collections: Generally, about 7 years, depending on the age
of the debt being collected.
 Public Record: Generally 7 years, although unpaid tax liens
can remain indefinitely.
 Keep in mind:
For all of these negative items, the older they are the less
impact they are going to have on your score. For example, a
collection that is 5 years old will hurt much less than a
collection that is 5 months old.
Minimize effect on your credit score
when applying for credit.
 When it comes to credit cards, always ask yourself "Why am I getting this
card?". If your answer is need-based, such as needing credit for increasing
expenses or wanting a lower interest rate to reduce monthly payments, then
these may be perfectly legitimate reasons to open a new card. However, if
you want a new card because it has a pretty logo or it's from your alma
mater, then you might want to think twice. We recommend you only apply for
new credit cards that you really need. When deciding if you need an
additional card, it's also important to be aware of what's called credit
utilization.
 After asking yourself "why you need more credit", then ask yourself "How
much more credit do I need?" If you only need a small amount to pay
additional bills for a few months, try contacting your existing credit card
companies to get your credit limits raised first. Why is this a better option?
While a request for an increased limit may count as an inquiry just like
opening a new card would, it won't reduce the average age of your credit
accounts, which is also important for your score.
 If getting the limit raised on an existing card isn't an option, then try to apply
for the fewest number of credit cards so that the combined credit limit meets
your needs. If you think you need an extra $5,000, try to get one card with a
$5,000 limit rather than two cards each with a $2,500 limit. When applying
for new credit cards, each application is counted separately as an individual
inquiry on your credit report, and the more inquiries you have, the more that
could hurt your score. Historically, people with six inquiries or more on
their credit reports are eight times more likely to declare bankruptcy
than people with no inquiries on their reports. So having more inquires
makes you look more risky to potential lenders.
Continued…
 Home & Auto Loans
 Rate shopping for a home or car is a smart practice, so your
score won't penalize you for doing this. You might even want to
check out what rates you can expect ahead of time. As you're
rate shopping, multiple lenders may request your credit report to
check your credit. We're aware this goes on, so your score
doesn't even consider any mortgage or auto inquiries made in
the 30 days prior to calculating the score. So, do your homework
ahead of time, decide on the companies to get quotes from, and
try to do all the rate shopping and get the loan within 30 days.
Not only will the rates be easier to compare when the quotes are
closer together, but it will have no immediate impact to your
score.
 Given rate shopping for home and auto loans has no immediate
impact, why do you even see an inquiry on your credit report?
While home and auto loan inquiries may appear on your report,
after the initial 30 days your score counts all those inquiries that
fall in a typical shopping period as just one inquiry. So try to do
your rate shopping within a matter of weeks as opposed to a
matter of months to limit the longer-term impact as well.
Preparing for next year NOW! Here’s
what to focus on.
 Set goals for yourself: pay ALL your bills on time, don’t
charge more than you can pay off each month, don’t get into
the minimum payment zone, don’t open credit accounts you
don’t need.
 Get out of credit card debt: set a repayment plan based on
what you can afford to pay each month, prioritize your credit
cards so you pay any card with past due amounts first, then
pay more to the ones charging you the highest interest rates.
 Don’t fall back into the overspending pattern that got you in
credit card debt in the first place.
 When buying a car ask the auto lender what your score
needs to be to qualify for the loan you want so you know
what score range to shoot for. Understand how your credit
score is affected by your credit behavior and what factors are
considered.
 Monitor your score so you know when your score qualifies for
the rate you want.