Personal and Family Financial Planning will address many critical personal financial management topics in order to help you learn prudent habits both while in school and throughout your lifetime.
Credit Reports and Scores
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來自 University of Florida 的課程
个人及家庭理财规划
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從本節課中
Building and Maintaining Good Credit
Credit basics.
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Michael S. Gutter, Ph.D.Professor
Family, Youth & Community Science
Hi.
While we've learned a little bit about how credit works, I want to talk to,
right now, a little bit about how we measure credit.
How do we measure performance and more importantly what are other
people looking at when they are talking about our credit checks.
So let's begin by saying, why do we care?
Why do we need to check our credit report?
Well, number one is to know where you stand.
The credit report represents an accurate portrayal of,
at the very least, what officially is on the books in your name.
It allows you to check for incorrect information.
For example, if there's accounts that are on your report that aren't yours,
you certainly need to rectify that.
And also can be, one of the surest signs of identity theft.
So, it also allows us to
understand if there's fraud that's occurring in our name.
And we also know that credit reports and scores are used a lot by people who
are interested in doing business with us or working with us.
So, lenders, insurance companies, potential employers, utility companies,
and even landlords are all going to potentially check our
credit report to understand how we've done with managing our money.
And that's kind of an important thing.
So, let's kind of look at what credit reporting really looks like.
So, credit reporting is a system that involves multiple players.
So, if we take a look in the beginning.
We have our lenders, our service providers,
who are sharing information with our credit reporting agencies.
And there's three major agencies that we'll kind of name and
talk a little bit about.
Those credit reporting agencies are able to share the data directly with
lenders and service providers.
But they also allow this company called Fair Issac's and
Company to generate something called the FICO score.
And that's the commonly used measure of credit that we're often talking about.
So lender's give information to credit reporting agencies,
who share it with Fair Issac's and Company for us.
So, what type of information are they collecting on us?
Well, credit reporting agent bureaus are collecting personal data,
employment information on us, anything that's public records.
This could include judgements, liens, or
other types of court proceedings that are on there.
Data, especially on our credit use and repayment and even inquiries that have
been made on our behalf with respect to our credit management.
Now also, it will show your history of credit.
So things like what you owe, what accounts you've had that are closed,
the length of credit history that you've had.
The payment history, and
we'll look specifically at what that might look like on one report or another.
Judgements, liens, foreclosures and as we said before, inquiries.
Now the three major types of credit reporting agencies are Equifax,
TransUnion, and Experian.
And they're always somewhat out there,
they represent different regions of the country.
But, in general,
no matter where you live, chances are all three of them have a report on you.
But one thing to note,
is they don't necessarily share information with each other.
So you may find that the information contained on a report from Equifax, for
example, might be a little different than the one that Experian has.
That means, depending upon who your lenders or
service providers are working with, there may be slight deviations in
things like your records or, as a result, in your FICO score itself.
Now, to get a free copy of your credit report, which we ask you to do as part of
this particular course, is we recommend that you go to annualcreditreport.com.
There's lots of websites out there that will sell you your credit report, and
even claim to give it away for you for free.
However, annualcreditreport.com is the only
website that the FTC actually puts its seal of approval on.
So we don't advocate or endorse any other websites ourselves.
This is the one when we talk about the fair and accurate credit transactions act,
when we learned about the rules governing the credit market,
this is the website that was established to allow us to monitor our credit report.
And a reminder that you can obtain up to three copies of
your credit report each year, because the law requires that we're to obtain,
be allowed to have one copy from each of the three major credit reporting agencies.
Hence, you can get one copy of your credit report every four months and
get three copies a year.
You can do it on the website.
You can call.
Or, you can write.
And in any case you'll need to be able to verify your personal information.
We will take a quick look at what the website looks like, so we're not
too confused if we try to navigate it for the purposes of this class or for life.
So the website you're looking for, annualcreditreport.com.
Start here, request a report and detail what your state is.
Now the state doesn't matter as much, but when this law first rolled out,
it's important to note that every state wasn't given access immediately.
In fact, they rolled it out across the country.
So again, we start with this site.
If you get to a different page,
check to make sure you typed in the address correctly.
There's a lot of phony websites that are engaging in phishing scams
that have similar names to annualcreditreport.com.
It might be annual spelled with one N for example.
So be very leery of any site, and
double check the spelling before you start entering in your personal information.
What type of information you say?
Well, name, you will have to put in your social security number without question.
As we said, this is why we don't recommend other sites.
We know what this site's all about.
Contact information of course,
personal addresses, current addresses and of course little security codes to try and
prevent hackers from getting more and more information from you.
As you can see, they know who I was.
So, some of the things that they'll try and
do once they know who you are is they'll ask you to verify certain
information like, specific accounts that you've had.
They'll ask you things,
like what your mother's maiden name is, streets you grew up on.
And basically what they're doing is they're mining the data that they have on
you and using that to ask you questions.
So they may say, what's your account number for XYZ credit card?
You may have to get out your card and look for it and enter it in as information.
Again, another reason why we say be very careful which website you go to,
because you will be entering information that could harm you,
if you're sharing it with the wrong people.
So again, taking a look here you'll see things like,
do you accept these different responsibilities?
You can even create a username or password, so
that if you're going to go back throughout the year or across the year,
it's easy enough to do so, and you can log right back in.
So again, taking a look through here,
what types of things we might have, even a little estimation for it.
Now what's important is take a look here.
No thanks, just want my credit report, or yes, add to my order.
Now this is an important thing.
What they're talking about is whether or
not you want to pay to get your FICO score.
Remember, the report isn't all of the information that's housed on you.
The score uses data from the report, to give a numerical measure.
Which ranges from 300 to 850.
After we're done talking about the report today,
we will spend a little bit of time breaking down the score as well.
And then we take a look and say, here's an example of our report.
We can see some of the different sections that are going to be involved,
this is what the beginning of the report looks like from Equifax.
You also might have one from Trans Union.
And in each case, again, they want to know what do you want to have.
So, examples of verification information before they actually
release the report to you.
If you do it online, it will simply pop up as a PDF issue.
Now, if you happen, right, to have pop-up blockers on,
you'll want to make sure you've got those turned off, or else your report will not
pop up when it's supposed to and you'll have spent a lot of time for nothing.
Which we'd like you to avoid.
So again, you'll be asked potentially more than once, no thanks, just my report.
Or yes, show me my credit score, rest assured if you ask for
the score, you will be charged money.
So if you don't want to do this on the web,
and for the purposes of this class, that's your call, what you want to do?
The website's official and legit, so if you use this site,
that's pretty comfortable but you can, for example, write and ask for it via mail.
You can call.
No matter what you do, you will be asked for
the same types of personal information.
So it's a question of whether or
not you're more comfortable doing that over the phone, more comfortable putting
it in the mail or more comfortable just entering it into a website.
So what's on the report?
Section 1, your demographics.
This will have things like your name,
social security number, address, and employment information.
Now you may think, well, why is that on there?
We want to make sure who you are, so do spend some time verifying this.
You may find that even though you entered in everything correctly,
they've got the wrong person.
And because depending upon your age, might have been before we had so much
connectivity, you may find that there's things on there that aren't correct.
And this is because of how records potentially used to be pushed around,
versus being sent over the internet now through many
of these companies and providers.
Section 2, is the heart of the matter.
Right, if we take a look we're going to see that we'll have account information.
So, in particular we're going to get a listing of almost everything associated
with our accounts, account balances, our payment history.
And with accounts, we're going to see things like are we current?
Is it not applicable because there's no payments being made?
Are we current?
And we always say green means good on some of the reports.
And then we'll see things like 30 days, 60 days, 90 days late.
Just be wary, right, the more of those lates we have,
the lower we'll end up seeing our score being in the end.
Satisfactory accounts will be labeled as being in good standing.
Other accounts will certainly indicate if you have past due and
what amounts are past due on those accounts.
So you'll see things like lender information,
the most current balance they have, which might actually be a month or
two old, depending upon how often data's being shared.
And you'll know when that was.
High balance, the highest balance you've ever had in the life of the account.
If this is an installment loan,
it'll be the amount that you've been given or that you were loaned.
If it's a credit card,
it'll be the highest amount you've ever owed on that account.
Again, if it's past due or if you've paid or paying as agreed,
meaning you're making payments on time or it's potentially paid off.
You'll see a few more pieces of information revolving or installment.
Remember, we said those are the two primary types of credit,
and we're going to see that, that actually factors into the FICO score as well.
Is the lender working with you or have they written you off?
When was the account opened?
When was the account closed?
Right? And again,
this contains information about your payment history for the last three years.
So if you, for example, been late four or five years ago,
that may not actually be factoring as much into your credit rating as it used to.
And most of the time these are color coded or using different types of
symbols in order to help make this easier to read and peruse.
You want to check for a few things.
Does the balances make sense?
Do you ever remember owing that much?
You may not remember, but hopefully you can verify that it's true.
Your payment history is accurate.
For example, do you see missed payments,
when you know you made your payment on time?
You'll want to correct those.
And also, is the account even yours?
Invariably, a lot of times we'll see this where people get it and
all of a sudden they say that's not my account, and they check, and
they do some investigating and they realize it really isn't my account.
This could be human error, this could be a mistake driven by the databases, or
it could be a symptom of identity theft.
And so either case,
we say if there's something you don't recognize circle it and follow up on it.
You're going to have to ask questions, you're going to have to make some phone
calls and determine if you didn't open that account, who did?
And what do you need to do about getting that cleared off, because accounts that
are in your name are providing data that's used for you or against you.
So again, contact those creditors.
If you're not sure who the creditor is, usually on the websites.
Especially if you're looking at it online, you can click the account, and
you'll often get the lender information, popping right up for you,
so you can get in touch with them right away.
And that's one of the beneficial things.
If it comes up as a PDF, go ahead and
download that, save it on your computer in a secure drive, in a secured folder,
not something, and if you're using a public computer,
make sure you put it on some sort of removable drive like a flash drive.
On Section 3, you'll see the number of inquires that you've had.
These are people that you've authorized to pull your credit report.
The one's you've authorized, will affect your credit score.
You will see other inquiries that you didn't authorize,
those are often the source of a lot of our junk mail that we get.
If you didn't authorize it, it's not going to be in this section,
it's also not going to count against your credit report.
The fact that you're high up on someone's marketing list,
does not make something as evidence of your own credit management.
You'll want to look for these inquiries and see how much they're bunched together.
The more bunched together they are, right, the more you might be looking desperate.
If it's revolving credit, on the other hand,
if it's installment credit that's usually considered good consumer decision-making.
So, what time period were those inquiries happening on?
Short time frame, or spread out over time?
So with Section 4,
this is those promotional inquiries we were talking about.
So, they might've obtained your name from a credit report,
even your contact information.
But they haven't seen your full report.
They haven't looked at your score, they haven't even, and
you have authorized them to do so.
So it doesn't impact your score.
If those types of offers are annoying to you, you can always try doing the opt out
numbers and seeing if you can get on the list to make sure that the information is
not sent on your behalf, so that you're able to reduce the amount of junk mail.
Section 5, right, similar to the inquiries we've been talking about.
These are account review inquiries.
This is going to be someone that you're already doing business with,
who's also reviewed your account to see whether or
not they want to provide you with additional services.
So let's say, for example, you're working, you're working with bank ABC.
They might be pulling your information, taking a look at it to say,
do we want to offer you a loan.
Do we want to offer you a new credit card?
Do we want to raise your limit, for example.
So these, also, will not typically impact your score as well.
But, if it's the insurance company doing it, depending upon what they see,
that might impact your insurance score, which is another day's topic.
So the report versus the score.
The reports are based on the information obtained by these companies,
driven by your lenders.
And the data is used for things like your scores.
The scores, themselves, are created from one entity.
There are some competition out there, but
the major score that's used is called the FICO score.
And we'll see that it's going to be lowered by specific factors,
which we'll review.
Late payments, maxing out your credit card,
owing too much money relative to your income or your credit lines.
And how often you're asking for new credit.
So, if you've made a mistake write the credit bureau, explain the error,
enclose copies of the proof and contact the company that provided the error.
You're going to want to follow through with all of those pieces to make sure that
your reputation is protected.
So, get a copy of your report, verify, highlight it as your check list.
Write a letter.
And this is one of those times when we say putting it in writing,
putting it on a piece of paper, sending it out certified creates a paper trail, so
that you can show that you're trying to remedy the problem.
Locate and copy any information that verifies this could be an issue.
So for example, when I was younger, and
was getting my first credit, I saw that I had a problem on my credit report.
When I took a look,
I realized that it was someone that had a very similar name to me, but it wasn't me.
And in fact, the evidence was very simple.
The credit line was opened up, when I was only 12 years old.
At 12 years old, I couldn't have been the one authorized to take on new credit.
I was a minor at that time.
So little things like that, are ways in which we can easily demonstrate an error
that's occurred on our credit rating, and something that we can have corrected.
Send that information to the credit reporting agency, and
you'll see that it was removed, just like my problem was.
After you dispute it,
make sure the error's been fixed by getting another copy of your report.
If you can't resolve it, attach a large statement, try and
explain what you're concerned about, explain the nature of your disagreement.
And again, you'll want them to see, that this statement will
be something that anyone sees on your credit report when they pull it.
So if the information isn't removed, but you believe, is still an error.
It's, you're still going to be able to communicate back to people who
are reviewing you for potentially doing business or for hiring you.
Let's talk for a few moments about the score itself.
The score then represents this numerical value for how creditworthy you've been.
In other words, it's a measure of financial risk taking.
How risky are you to lend money to.
Now in general, it's pretty hard to get a perfect score.
Perfect score on the FICO score is an 850.
But to get that, we have to have this perfect mix of habits and
behaviors that we've had.
In general, if you haven't had an account open for
at least, 15 years, you're not going to have an 850.
There's a few other tricks to it besides that.
But simple things like that are kind of the reality.
So we find that most lenders aren't concerned with the perfect credit score.
They're concerned with reaching certain thresholds.
You'll often hear the terms a credit b credit c credit.
Or prime and subprime credit.
And this is where they're looking at particular scores.
Usually, 680 or
720 and above are what they're looking for, for certain types of credit loans.
And right for others below that,
they're going to be giving you higher rates that they're charging you.
And of course, below scores like 500, you simply may not be approved.
So let's talk about what this score's made up of.
This is really kind of important here.
So the first things that we want to take a look at is the biggest factors that we
see, 35% of the score is your payment history.
How many times you've been late.
How often you've been late.
On how many accounts you've been late.
How much are you late by.
These are really important factors and that's 35% of that numerical value.
The next measures your level of debt.
And this right, this yellow box, if you will.
Now this really corresponds to how much of your credit line are you using.
So let's envision for a moment that you have a credit card with a $1000 limit.
If you're using $200 of that, you're using 20% of your credit capacity.
If you're using $800 of it, you're using 80% of your credit capacity.
In general, once you start getting above 30% of your credit capacity,
your score will slightly come down.
When you're maxed out, right, as you can see the more and more you owe, and
the longer you owe that, the lower your score's going to be as a result of it.
The next measure, right, and
we can see that 65% of your score is have you been late, and how much do you owe?
Beyond that then, the next three factors which get a lot more press
aren't necessarily as powerful in terms of affecting your score.
Length of credit history.
This is the average length of credit history.
So if you have two, two accounts let's say.
One that you just opened and one that you've had for ten years.
The average length of credit history is five years, right.
0 plus 10 divided by 2.
So the higher your average length of credit history is,
the higher your score, all things equal.
The types of credit in use, we mentioned those before.
Remember the two types?
Revolving and installment.
So when we're using both of those successfully, that helps our score.
The fact that we're not using both of those at any one point in our lives
does not mean we ought to go out and do so.
As I said before, that perfect credit score would require that we've used
both of those successfully.
We tell everybody for everything there is a season and a time.
We want to wait to use the right type of credit,
when we need it, not try and manipulate our score because of it.
Lastly then, and that was 10%, and
the last 10% of our score, is based on those requests for new credit.
Remember, when you've made the request,
authorized someone to pull your credit, that counts.
They call them Hard Inquiries.
Those are what we're talking about, within this particular element.
Those other types of inquiries we mentioned, don't factor into the score.
You didn't ask to do business with somebody.
Not something that should count against you.
So let's just review a few key types of things, right?
And again, we recommend it as part of your readings, check out MYFICO.com.
And this is because, these are the people that created the score itself.
They do a really good job of explaining the factors that go into it.
So let me just provide a few tips.
Remember, it's going to take time to impact your score.
So, if late payments has been the problem that's dragging your score down,
only really the passage of time and making on time payments is going to improve that.
Being, so we want to pay our bills on time.
That means having a good budget.
Go back to one of our first lectures if you need help with that, right?
But we want to pay our bills on time.
And if you're struggling with managing your debt and
making your payments, that's where a debt repayment plan can
be very helpful to making sure that you don't continually miss payments.
Your score will improve over time if you stop being late, but if you're chronically
late your score will continue to suffer.
Amounts owed, again, we talked about how high you let your limit be.
Keep balances low.
Moving your debt around doesn't really help as much as we think.
Consider those five measures.
If I open a new account to pay off another account.
Well maybe I've lowered the capacity usage on the first one but
I've also lowered my average length of credit history.
I've also generated a new inquiry as well.
So some of the very other factors will be brought down,
even though I tried to improve one.
So we'll find that the,
actually trying to play those games, may not be that effective.
May keep us from missing payments,
we're not saying it's never beneficial to do these things, but
don't believe that they're going to fix your credit overnight by doing so.
Even closing unused accounts, may not actually help your credit score.
In fact, sometimes people will see a slight decrease.
Because they've altered their length of credit history.
However, closing unused accounts may still be a good idea,
because a closed account can't be used for an impulse purchase.
Length of credit history, again, we talked about this, only the passage of time.
So remember, opening new accounts regularly can also backfire on us over
time as well.
New credit?
Shopping around.
Now I want to say a word on this.
We've talked about this before.
Shopping around for installment loans is factored into the score.
If you have two or three inquiries for
installment loans within a few week period, that's not going to hurt you.
If you do the same thing with credit cards,
that's looked upon very differently.
Remember, with an installment loan we can't get the quote that we need to,
to know if it's the right loan for us until we've typically had our credit
checked, but we tend to know a lot more about a credit card we're applying for
than we do an installment loan without a credit check.
So, and again,
thinking to about making sure we strategically use credit over time.
It's never something we say to go out and get an installment loan just to have it or
to go out and get a credit card just to have it for the score's benefit.
But we do want to responsibly build credit, over time.
So again, make sure we balance our needs
with our strategies in terms of credit use.
So what's going to improve the score, if your score is suffering?
There's no quick fixes, right?
Consider the components of the FICO score, and try and
make decisions that are meaningful for you in that regard.
So again, even things like utilities in your name may not be that meaningful, but
it can help some lenders, if you don't have any other credit history.
College students in particular, may be able to have a landlord consider
their utility history in lieu of a credit report.
Simply because it does demonstrate your ability to make on time payments.
So, the take home message, be responsible with credit.
Exhibit as much self control as possible.
Use your credit report not only to monitor, but
also protect yourself from things like identity theft.
Check your credit report frequently.
At the very least, get a copy from each of the three credit reporting agencies once
per year, so that you're seeing your credit report three times per year.
Pay more than the minimum payments on your credit card.
Right, bringing down those balances faster, will improve our score over time.
And be leery of things, like debt consolidation and credit repair companies.
If it was that easy to fix our credit report overnight,
we probably wouldn't have to pay someone else to do it.
So do kind of bear that in mind.
That a lot of those make promises but in the end,
unless they're going to undo missed payments in the past or give you a bunch
of money to pay off your debt, it's pretty hard to fix your credit overnight.
