FICO Score Credi t Risk 11A Grange Building University Park PA 16802 financialliteracypsuedu finlitpsuedu 8148630214 Description FICO credit score is used as the standard measurement for extending other credits so it affects you as a consumer ID: 732858
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MoneyCounts: A Financial Literacy Series
FICO Score – Credit Risk
11-A Grange Building
University Park, PA 16802
financialliteracy.psu.edu
finlit@psu.edu
814-863-0214Slide2
Description
FICO credit score is used as the standard measurement for extending other credits, so it affects you as a consumer.
To apply for and get approved for a new line of credit, a credit card, or any loan, the lender uses your FICO credit score to (a) make sure you qualify,
(b) calculate your interest rate and annual fees, and (c) calculate down payments.
FICO credit score ranges 300-850:
The higher the grade, the better off the terms of loans!Slide3
Learning Outcome
Understand the impact of FICO credit score on consumer credit risk measurement
Understand Credit Reporting Agencies function
Understand how FICO credit score is calculated
Explore ways to protect, improve, or repair FICO credit score Slide4
What is FICO
The Fair Isaac Corporation (FICO)
Consumer credit risk measurement tool
Three digit score (300-850)
A consumer financial grade
The base for all lending credit decisionsSlide5
Why bother?
FICO
Ability to secure new
loans
(mortgage, car loan)
Ability to get additional
credit
(credit cards)
The
interest rate
received on major purchases on credit
Long-term financial decisionsSlide6
When does it matter most?
Before you embark on a major purchase
Before you apply for additional credits
At least one year prior to making significant long-term financial purchases Slide7
What makes the score?
FICO
Payment
History
Account
Mix
Credit
Age
Credit
Inquiries
Credit
UtilizationSlide8
Key terminology
Credit reporting agencies (CRA)
Equifax, Experian, TransUnion
Credit report
Entitled by law to a free copy from
each CRA once each calendar year
Credit history
The need to establish credit
Credit score
Financial grade (300-850) Slide9
Function of CRAs Follow, record, analyze, and report every credit-based financial transaction by consumers
Provide credit informationSlide10
Who sends CRAs the information?
Credit cards companies
Lending institutions
Collection agencies
Consumer goods providersSlide11
Types of credits
Revolving credit
Credits
Charge card
Service credit
Installment creditSlide12
How is FICO calculated?
Payment History
(35 %)
Credit Utilization
(30 %)
Credit Age
(15 %)
Credit Inquiries
(10 %)
Credit Mix
(10 %)Slide13
What hurts FICO? Slide14
What does NOT affect FICO?
Income,
cash saving, investments, assets
Length of residence
Length of employment
OccupationSlide15
Changes to calculating FICO
Cash balance
in saving and checking accounts will be included in calculating FICO credit score starting 2019
FICO will start caring how much money you have in addition to how you manage your money!
Keep enough in your saving and checking accounts as minimum balance
Pad your emergency fund and use that as minimum balance in your checking accountSlide16
How do I protect FICO score? Adhere to respecting the factors used to calculate the score!
Establish credit mix
Choose a few credit cards and keep them overtime
Pay bills on time and in full
Never max any credit limit
(use only 30% of the capacity credit utilization)
Refrain from filing many credit applications
1
2
3
4
5Slide17
How do I improve or repair FICO
FICO
Negative
information
Child support/
loan defaults
Bankruptcy
(Chapter 7)
Until satisfied
Indefinitely
Positive
information
7
yrs
10
yrsSlide18
How do I protect credit information From3 free reports each year (total) you can get all at the same time or one every 4 months from each CRA
You do NOT get FICO score, you only get the report - Free FICO score Slide19
What to check for?
Accuracy of information
Timely of information
Protecting your identity
Correcting reporting errors
Validating positive information
Evaluating credit mix
Negative should drop off in 7 years
Child support and student loan until satisfied
Bankruptcy 10 years Slide20
Tips to protect yourself! Slide21
MoneyCounts:
A Financial Literacy SeriesComments and questions
11A Grange Building
University Park, PA 16802
financialliteracy.psu.edu
finlit@psu.edu
814-863-0214