550-599. 51%. 600-649. 31%. 650-699. 15%. 700-749. 5%. 750-799. 2%. 800- 850. 1%. Credit Score exist because they accurately predict delinquency rates ...
FICO Scores John Meeks Federal Deposit Insurance Corporation
What is your most valuable asset? Frank Abagnale of Catch Me if You Can fame once remarked that if you don t own a house it is most likely your credit score!
The Cost of Lower Credit Scores $250K 30 yr fixed mortgage as of 5/10/2011 FICO Range 760-850 700-759 680-699 660-679 640-659 620-639
APR% Mo. Paymt Life of loan cost 4.36 $1,256 0 4.58 $1,279 $11,880 4.76 $1,305 $21,240 4.97 $1,338 $33,120 5.40 $1,404 $56,880 5.94 $1,491 $88,200
What is a FICO Score? Ø A measure of risk in lending Ø Developed by the Fair Isaac and Co. Ø The three major credit reporting agencies have their own names: Equifax = BEACON Score Experian = Experian/Fair Isaac TransUnion = EMPIRICA
Score Range FICO scoring ranges from 300 to 850. (VantageScore was developed by the three major credit reporting agencies to provide consistency in scoring and it scores from 501 to 990.)
FICO Score Distribution – skewed to high end of the scale
FICO Score Distribution – skewed to high end of the scale The average score is 687 but the median score is 723 – half the population have a 723 or better.
Demographic Differences Age
Demographic Differences Race Missouri Dept of Insurance study Comparing credit scores by zip code found minority neighborhoods averaged scores in 17th percentile (about 550) while nonminority neighborhoods averaged in 57th percentile (about 700). Texas Department of Insurance study African-Americans and Hispanics made up 60% of worst scores and only 10% of best scores.
Lower scores (or no score) mean fewer credit opportunities and more dependence on predatory lenders!
Delinquency Rates Credit Score exist because they accurately predict delinquency rates
Delinquency Rate by FICO Score Range: 300-499 87% 500-549 71% 550-599 51% 600-649 31% 650-699 15% 700-749 5% 750-799 2% 800-850 1%
Delinquency Rate by FICO Score Range: 300-499 87% 500-549 71% 550-599 51% 600-649 31% 650-699 15% 700-749 (723 median) 5% 750-799 2% 800-850 1%
FICO Factors Weighting
FICO Factors Weighting Payment History – 35% • •
• • • • •
Account payment information Bankruptcy, judgments, suits, collections activity Severity of delinquency Amount past due or in collection Recency of past due items Number of past due items Number of accounts paid as agreed
FICO Factors Weighting Amounts Owed – 30% • • • • •
Amounts owing on accounts Amounts owed on specific account types Number of accounts with balances Proportion of credit lines used Proportion of installment loan amounts still owning
FICO Factors Weighting Length of Credit History – 15% • •
Time since accounts opened Time since accounts opened by account type Time since account activity
FICO Factors Weighting Type of Credit Used – 10% •
Number of (presence, prevalence and recent information on) various account types – credit card, retail, installment, mortage, consumer finance
FICO Factors Weighting New Credit – 10% •
Number and proportion of recently opened accounts, by account type Number and time of recent credit inquiries Time since recent account openings, by account types Re-establishment of positive credit history following past payment problems
Everyone is different The importance of any factor depends on the overall information in your credit report. For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO score. Thus, it's impossible to say exactly how important any single factor is in determining your score - even the levels of importance shown here are for the general population, and will be different for different credit profiles. What's important is the mix of information, which varies from person to person, and for any one person over time.
Bad Credit Data – Credit Score Points Deduction If you are a:
Maxed out credit card
30-day late payment
FICO 08 Scoring Changes (not all lenders have adopted the new model) Minor one-time delinquencies ignored Small (under $100) collection actions ignored Delinquencies more than 2 years old stressed less High credit utilization a greater factor Credit piggybackers weeded out – authorized users on account only to inflate their credit score
Tips Best way to get and keep good credit scores is to pay your bills on time. Have a variety of credit types, but don t get credit that will be abused. Keep your ratio of credit availability to credit use at about 35%. Check your credit reports every year – www.annualcreditreport.com
John Meeks 919-787-8727 x4915 [email protected]