CREDIT 101: BUILDING A BETTER CREDIT SCORE

How Do I Order My Credit Report?

Retrieve credit reports from all 3 bureaus:

• Equifax – (800) 685-1111 www.equifax.com
• Experian – (888) 397-3742 www.experian.com
• TransUnion – (800) 888-4213 www.transunion.com
• AnnualCreditReport.com (877) 322-8228
  • A centralized service for consumers to request free annual credit reports.

What is a Credit Score?

A complex mathematical model that evaluates many types of information in a credit file. Used by a lender to help determine whether a person qualifies for a particular credit card, loan, or service.

How is my Score Calculated?

Think of the word PLANT
P – Payment History (35%)
L – Length of Time accounts have been open (15%)
A – Amounts Owed (30%)
N – Number of open accounts (10%)
T – Type of Credit (10%)
 

The Four C’s of Credit

• Capacity – Documented Income to make payments
• Credit – Make payments on time and not heavily into debt
• Capital – Cash, savings, or investments that can be converted to cash
• Collateral – Property used as security to the money you have borrowed

Items on a Credit Report

• Name, date of birth, Social Security #
• Current and previous addresses
• Debt history
• Payment history for all creditors
• Public records – tax liens, judgments, etc.
• Credit inquiries
• Collections

Constructive Debt vs. Destructive Debt

• Constructive debt is good debt - it increases our net worth because the purchase grows in value as the indebtedness decreases.
  Example: Home or Auto
   
• Destructive debt is bad debt - erodes our net worth because the purchase diminishes in value as the indebtedness increases.
  Example: Shoes or clothes purchased on credit

10 Ways to Improve Credit

1. Pay your bills on time!!!!!
2. Pay down the balances of credit cards to 50% of limit.
3. Pay open collections, charge offs, judgments, etc. (if possible, ask if a payment plan can be set up)
4. Minimize the use of credit cards.
5. Postpone major purchases prior to home buying (i.e. Cars, furniture, TV’s)
6. Contact the credit bureaus with any discrepancies and provide necessary documentation to support your claim.
7. Minimize inquiries to your credit.
8. Avoid the “no payments, no interest” offers!
9. Avoid the “Rapid Refund Loans” at tax time. (these show up as a loan on credit)
10. Do not co-sign for anyone.

 *Provided by the Partners for Affordable Homeownership (PAH) Committee of the Wilmington Regional Association of REALTORS®