Credit Score and Debt basics 2nd edition

FINANCIAL PROSPERITY: UNDERSTANDING CREDIT AND CREDIT REPORTS

Instructor: Jeff Wilson II, CPA, AFC Personal Finance Counselor

The WII Group, LLC

Presented at Mt.Ennon Baptist Church

JEFF WILSON II CPA, CGMA, CFE, AFC Mr. Wilson is the President of The WII Group, LLC a “Cloud

Based” accounting firm, based in Clinton, MD.

He is a Certified Public Accountant (CPA), Accredited Financial Counselor (AFC), and Chartered Global Management Accountant (CGMA), and Certified Fraud Examiner (CFE) in the State of Maryland. In addition, he is an Advanced QuickBooks ProAdivsor.

He specializes in working with small to mid–size business and Not for Profits using QuickBooks Online and QuickBooks Desktop.

In addition to being a CPA, he spends his free time as an advocate for financial literacy and personal money management by teaching financial management for local non-profits and churches in Southern Maryland.

Other Professional Accomplishments:

• 2006 Bowie State University Accounting Success Stories

• 2007 Black Enterprise Financial Fitness Winner

• 2013 American Institute of CPAs (AICPA) 2013 Leadership Academy Graduate

The WII Group, LLCPresident

www.wiicpas.com

WE WILL ALL MEET JUDGMENT DAY

AGENDA /OBJECTIVES What is a Credit Report

Understand your Credit Score

Disputing Errors on your Credit Report

Ways to build or Rebuild Credit

Credit Score Services (The Good, Bad, and Ugly) Understand

Debt Collection Rules and ways to deal with Debt Collectors

Learn what not to do when dealing with creditors

WHAT IS A CREDIT REPORT?

The Consum

er

Summary of a persons history of paying debts and other bills

Prepared by the (3) credit reporting agencies Big Three: Experian, Equifax, and TransUnion

Used by those who have a need to understand your spending and borrowing history:

WHAT IS A CREDIT REPORT? Information obtained from banks, stores,

credit card companies, various lenders, and public records

You are entitled to a free credit report from (each) of the Credit Bureau. This means you could get 3 separate copies of

your credit report for free in one year Credit Report form on

www.annualcreditreport.com

www. Freecreditreport.com is not the free website for your credit report

http://www.annualcreditreport.com/

WHAT’S ON YOUR CREDIT REPORT

Personal Information-name, ssn, dob, current/previous addresses, employer

Credit History -List of loans and credit cards, timelines of payments, defaults and negative information ( up to 7 to *10 years)

Public Record-Courthouse, liens, foreclosures, bankruptcy

Inquiries-Usually 2 years; self initiated and promotional

Personal Identifying

Information (PII)

•Name•Address•Date of Birth•Employer•Social Security Number

Credit History

•Open Credit Accounts•Open Credit Accounts•Negative Account Information (late payments, judgments, liens, collections) lines•Active trade lines

Public Records

•Bankruptcies•Foreclosures•Judgments•Liens

Inquiries• Creditor looking to offer your credit (Soft Inquiries)•Potential lenders that you have approved to request your credit report (Hard Inquiries)

SAMPLE CREDIT REPORT

Credit History


Public Records


Inquiries

TIME LIMITS ON NEGATIVE CREDIT INFORMATION REPORTING

• IndefinitelyOpen Accounts in Good Standing

• 10yrs from date of closureClosed Accounts in Good Standing

• 7yrs from date of 1st delinquencyLate or missed payments

• 7yrs from date of charge offCharge Off/Collection

• Ch.7 (10yrs), Ch.13 (7yrs) from date of stay implemented by courtBankruptcy

• 7yr from beginning of case Civil Judgment

• 7yrsForeclosure

• 7yrs from paid date or no limit if unpaidTax Liens

• 2yrs (Hard Inquiry) Inquiries

HOW IS YOUR CREDIT WORTHINESS MEASURED?

Credit worthiness

Capacity

Collateral

Capital

Types of Credit

New Credit

Length of Credit History

Amounts Owed

Payment History

o 10%

o 10%

o 15%

o 30%

o 35%

WHAT IS A CREDIT SCORE

Credit Score: a number scale based on the analysis of an individual’s credit reports that represents the consumers likelihood to pay his/her debts

A higher score means that you are more likely to pay your debts

A lower score means that you are less likely to pay your debts The score is typically three digits

Scores range from 300-850

Credit Score/FICO Score: FICO and Vantage provide various scoring models

Different models = Different Scores

Cannot be obtained free like Credit Report

CREDIT SCORE = FINANCIAL GPA

Rating Scale of Risk Higher the number, the better your credit

worthiness FICO Scale Rating: 300- 850 Vantage Scale Rating: 501-990

EFFECTS OF THE CREDIT SCORE

Range Fico Score Meaning

Subprime(Poor/Low) Under 620 No access or unfavorable rates & terms

Prime (Fair/Good) 620-780 Reasonable or good rates & terms

Super Prime(Excellent) 780+ Best or best rates & terms

LOW SCORES = HIGHER INTEREST RATES

CREDIT SCORE IMPACT

DISPUTING INCORRECT INFORMATION

Inform the credit reporting company, in

writing, what information you think is inaccurate.

Include copies of supporting documents.

Clearly identify each item in your report you dispute,

state the facts and explain why you dispute the

information, and request that it be removed or

corrected.

Enclose a copy of your report with the items in

question circled.

Send your letter by certified mail, “return receipt requested.”

Keep copies of your dispute letter and enclosures.

DISPUTING INCORRECT INFORMATION

BUILDING CREDIT

Installment Loan

Secured Credit Card

Store specific credit card

Pay on Time Pay on Time Pay on Time

STEPS TO IMPROVE YOUR CREDIT SCORE…

Pay bills on time (#1 weighted factor) Keep older accounts open – Older accounts establish length of history Keep debt-to-available credit ratio < 50%;

30% better (*don’t use over 30% of available credit capacity)

Get a mix of types of credit – Revolving and installment credit Check credit reports and fix mistakes Avoid simultaneous inquiries

CREDIT MONITORING SERVICES

Businesses who claim to check your credit for you-allow you access to your credit report & score at all times and alert you if there are any changes in your credit. Some companies offer help if ID Theft occurs.

Costs-$10-15 a month

Individual Consumer choice whether or not to buy—can spread out the credit reports throughout the year and monitor credit yourself?

CREDIT REPAIR SCAMS

SIGNS OF CREDIT REPAIR FRAUD

CREDIT REPORTS AND SCORES

Three major credit reporting bureaus Experian Equifax TransUnion

Retrieving your credit report www.annualcreditreport.com Call 1-877-322-8228

http://www.annualcreditreport.com/

DEBT COLLECTION RULES

No Harassing or False Statements No contact if send Cease letter

Time Barred Debts-must disclose if asked

DEBT COLLECTION RULESFEDERAL DEBT COLLECTION PRACTICES ACT (FDCPA)

The FDCPA applies only to debt collection agencies and attorney and generally does not apply to debt the original creditor.

Original Creditor who collects debt not covered under FDCPADebt Collector = someone who regularly collects debt

Business debt not covered under FDCPA

Can call between 8am-9pm only Not at work if they have been told not to Can call others—only for address, phone # etc

TIPS ON DEALING WITH DEBT COLLECTORS

Be polite but firm Record name, company name and phone

number Do not discuss debt over phone, unless you

are calling them. Do not reaffirm the debt

CONQUERING DEBT

Prioritize what debt to pay 1st

Utilities Back Taxes Child Support

Rent Pending lawsuit Student Loan

Secured loans, if need the collateral Bank/Credit Union

Car loan, insuranceDoctor Friends

Credit cards Family Unsecured loans

IS BANKRUPTCY RIGHT FOR YOU?

Consumer Credit Counseling Services 877-254-1097

Legal Aid 800-999-8904

Thank You

Jeff Wilson II, CPA, AFC, CFE

Email: [email protected] address: http://www.wiicpas.com

Slides can be downloaded at: http://www.slideshare.net/JeffWilsonIICPACFECG/

credit-score-and-debt-basics

mailto:[email protected]

http://www.wiicpas.com/

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Credit Score and Debt basics 2nd edition

Economy & Finance

Transcript of Credit Score and Debt basics 2nd edition