©2004 Iowa Student Loan ©2004 Iowa Student Loan

Credit ScoringWhat’s Your Score?

Presented By:Natalee GirardiCollege Consulting Services

©2004 Iowa Student Loan

What is a Credit Score?

• Measurement of overall credit risk• FICO Score – Fair, Isaac &

Company– Based solely on credit report data– Higher the score, the lower the risk– Lenders will “individualize” the score– Score may vary by credit bureau– Score will change over time

©2004 Iowa Student Loan

What is a Good Credit Score?

FICO ScoreFICO Score Credit RatingCredit Rating

Above 730 Excellent Credit 700 - 729 Good Credit670 - 699 Lender will take

a closer look585 – 669 Higher RiskBelow 585 Limited Credit

Available

Where do you fall?

©2004 Iowa Student Loan

National Distribution of FICO Scores

1%5%

12%16%

19%

28%

11%

0%

5%

10%

15%

20%

25%

30%

Up to499

500-549

600-649

650-699

700-749

750-799

800+

©2004 Iowa Student Loan ©2004 Iowa Student Loan

Fact or Fallacies

©2004 Iowa Student Loan

Fallacy: My score determines whether or not I get credit.

• Lenders use a number of factors to make credit decisions

• Lenders may extend credit to low scores

• Lenders my decline credit for high scores

Fact

:

©2004 Iowa Student Loan

Fallacy: A poor score will haunt me forever.

• A score is a “snapshot”• Changes as information is added• Past credit problems impact score

less, as time passes

Fact

:

©2004 Iowa Student Loan

Fallacy: Credit scoring is unfair to minorities.

• Scoring only uses credit-related information• Not included:

– Gender– Race– Nationality– Marital Status

• Equal Credit Opportunity Act (ECOA) prohibits these factors from being used

Fact

:

©2004 Iowa Student Loan

Fallacy: Credit scoring infringes on my privacy.

• Credit scoring evaluates the same information lenders look at –– Credit bureau report– Credit application– Bank file

Fact

:

©2004 Iowa Student Loan

Fallacy: My score will drop if I apply for new credit

• If it does, it probably won’t drop much.

• It’s the “looking” that can be equated with higher risk

Fact

:

©2004 Iowa Student Loan

What’s in Your Score?

35%

15%10%

10%

30%

Payment History Length of Credit History

New Credit Types of Credit Used

Amounts Owed

©2004 Iowa Student Loan

Payment History – 35%

• Account payment information on specific types of accounts

• Presence of adverse records• Severity of delinquency• Amount past due• Time since adverse records• Number of past due items• Number of accounts paid as

agreed

Tips:

•Pay on time

•Get current

and stay

current

•When in

trouble,

contact

creditor

©2004 Iowa Student Loan

Amount Owed – 30%

• Remaining balance• Remaining balance on specific

types of accounts• Lack of specific type of balance• Number of accounts with balances• Proportion of installment loan

amount balances• Proportion of credit lines used

Tip:

•Keep balances

low on Credit

Cards

•Pay off, rather

than move

©2004 Iowa Student Loan

Length of Credit History – 15%

• Time since accounts opened

• Time since accounts opened, by specific types of accounts

• Time since account activity

Tip:

If you have been

managing credit

for a short time,

don’t open a lot

of new accounts

too rapidly.

©2004 Iowa Student Loan

New Credit – 10%

• Number of recently opened accounts – and time since

• Number of recent credit inquiries – and time since

• Re-establishment of positive history

Tips:

•Shop within a

focused time

•Re-establish your

credit history

©2004 Iowa Student Loan

Types of Credit Used – 10%

• Number and kinds of credit accounts established– Credit Cards– Retail Cards– Installment

Loans

Tips:

•Open new credit

accounts as needed

•Have credit cards –

Manage credit cards

•Closing an account

doesn’t make it go

away

©2004 Iowa Student Loan

Reasons for Low Scores

• Serious delinquency• Time since delinquency is too recent• Level of delinquency on accounts• Number of delinquent accounts• Amount owed• Debt to credit limit ratio is to high• Length of time accounts have been

established• Too many accounts with balances

©2004 Iowa Student Loan

Your Credit Report…

• Your credit report can affect all aspects of your life

• Monitor your credit report New legislation: FACTA, the Fair and

Accurate Credit Transactions Act Americans can receive a free credit report

from the three national credit bureaus once per year.

To request your free report go to www.annualcreditreport.com or call 877-322-8228.

©2004 Iowa Student Loan ©2004 Iowa Student Loan

Questions