Chapter 9 Credit Protection

True or False. Credit from a mix of lenders is considered superior to a single source of credit

True.

True or False. Opening new lines of credit in a short period of time can have a negative impact on a credit score

True.

Are credit scores used to determine insurance premiums?

Yes, there is a direct relationship between the likelihood of an insurance claim and someone's credit score.

Why are credit scores used?

Credit scores are used to summarize a person's risk of not paying back a lender. The higher the score the better. The scores are designed to predict the likelihood of debt repayment

What is the importance of Amounts owed with credit scores?

Debt burden and credit utilization accounts for 30% of the score. You begin to lose points when you have no utilization or over 30% utilization.

What information is included in a credit report?

- Personal information - Credit account info (Type of account, date opened, credit limit, payment history, account balance - Any inquiries, such as creditors who accessed the credit info in the past two years - Delinquency info - Any info from collection agencies - Any public record info (Legal suits, foreclosures, bankruptcies

What are the five primary factors for the FICO score?

1. Payment history 2. Amount of credit and credit utilization (1-30% best) 3. Length of credit history 4. Mix of credit types 5. New credit and new accounts

What is the breakdown of how each factor is weighed in a fico score

1. Payment history (35%) 2. Amount of credit and credit utilization (1-30% best) 3. Length of credit history (15%) 4. Mix of credit types (10%) 5. New credit and new accounts (10%)

What are the main sources of identity fraud by percentage?

28.0% Knew Source 21.6% Computer-related identity crime 15.1% Lost/stolen wallet, purse, checkbook, credit/debit card 11.6% Corrupt business or employees 4.7% Breaches of computer data 19% Other

What is a secured loan?

A loan in which the lender can seize the borrower's property if the loan is not repaid. Examples include: Mortgages, care loans (Typically where there is something of value used as collateral for the loan)

What are the 5 types of identity theft?

Child ID Theft: Children's IDs are vulnerable because they go undetected for many years and then the damage has been done before they find out. Tax ID theft: A thief steals and uses a Social Security number to falsely file tax returns with the IRS or state government. Medical ID Theft: This form of ID theft happens when someone steals Medicare ID or health account numbers to get medical services or issue fraudulent billing charges. Senior ID Theft: ID Theft that targets seniors. Seniors are vulnerable because they commonly in contact and giving personal information to medical people as well as professionals. Social ID Theft: Catfish

What are some factors that effect credit score in a positive way?

Consistent timely payments, More history of accounts, No 30/60/90 days late, No late charges, Credit utilization rate, No new hard inquiries, No recently closed accounts, No charge offs, No legal judgments, liens, foreclosures, or bankruptcies

How do you repair your credit report?

Errors should be addressed to the agency in writing (100 words or less). The agency has 30 days to investigate & respond. If an agency chooses not to correct, the 100 word statement will be appended to their credit report upon request. If the agency agrees to correct the error, the consumer should also follow up with the creditor.

How do you interpret a FICO score?

Excellent: 740 - 850 Good: 680 - 739 Fair: 620 - 679 Poor: 550 - 619 Bad: 300 - 549

Identify three major private credit reporting agencies and what do they do?

Experian: www.experian.com Equifax: www.equifax.com TransUnion: www.transunion.com Update consumer credit files monthly based on reports from lenders Provide credit history and credit score to potential lenders upon receipt of an inquiry

What are the two most common credit scores?

FICO (formerly Fair Isaac) Vantage (joint venture of 3 major agencies)

True or False. A credit report includes moving vehicle citations

False.

True or False. When a doctor or another "official" asks for your ssn, you should generally give it to them.

False.

True or False. A good credit score will always assure credit approval.

False. A consumer may be turned down for credit for other reasons than a credit score. Therefore, a good credit score does not assure credit approval.

True or False. A secured credit card requires only 50% of the card limit as security?

False. A secured credit card requires 100% of the card limit as security.

True or False. A credit report includes information about a person's income

False. It does not include income info. A credit report includes a consumers debt and history of debt payments.

True or False. The justice Department's acronym SCAM stands for Sensitive Careful Alert Monitor

False. SCAM stands for Stingy (Regarding personal data), Check(Financial information), Ask, (for credit reports often, maintain (careful records.)

What tax form should a person complete if they are a victim of identity fraud?

Form 14039

Why does having good credit matter to consumers?

Good credit means: Reduced borrowing costs & greater credit availability Based on reputation and borrowing history

How does having a good credit score impact interest over a lifetime?

Having a High FICO score can generally help provide a lower interest rate which will save thousands of dollars in interest over a lifetime.

What is the relationship between credit and personal reputation?

If you continue to pay back creditors in a timely manor and you don't owe more than you can hand you will be given a good credit score.

What is the importance of payment history with credit scores?

Is the most important factor when determining a FICO score and accounts for 35% of the score. Up to seven years of payment history is included in this category, as well as the any missing payments.

What role does consumer lending play in the economy?

It drives 60 - 70% of US GDP

What are some basics for managing a good credit score?

Keep credit balances low but not zero Do not close accounts Pay accounts on time Only apply for credit as needed Have a mix of credit (Cards, installments, mortgages) Get free credit reports annually

What are some factors that effect credit score in a negative way?

Late payments, significant change in utilization rate, closing accounts, opening new accounts, liens, judgements, foreclosures new hard inquires, bankruptcy, child support in arrearage, wage garnishments

What is a hard inquiry?

Occurs when creditors make a lending decision they may make an inquiry. Hard inquiries occur when a consumer is applying for an auto loan, mortgage, student loan, personal line of credit or credit card. Hard inquiries may occur when renting an apartment or opening a checking or brokerage account. Hard inquiries have only a small negative effect for 12 months unless there are several in a short time.

What factors influence vantage score?

Pay on time Maintain a mix of credit Keep balances below 30% Reduce the amount of total debt Do not open too many accounts rapidly Maintain the amount of credit that is really needed.

What is the Fair Credit Reporting Act of 1971?

Provides that US citizens have free access to their credit reports and credit scores from the three national credit reporting agencies. It also allows for consumers to know why their credit request was denied. There are frequently errors in these reports.

What is a soft inquiry?

Soft inquiries occur when a consumer is checking his or her own credit score or when a potential employer is conducting a background check. Soft inquiries may occur when renting an apartment or opening a checking or brokerage account. Soft inquiries have no effect.

Why is credit mix important for FICO credit scores?

The mix of credit is the fourth factor and accounts for 10% of the FICO score. This means having a mix of types of loans, mortgages, bank loans, student loans, care loans. If you can manage all of those you will be looked upon favorably.

What are some key things to know from looking at a credit card statement?

The statement date, the minimum payment due, and the due date of the payment

Explain a Vantage Score

The three major credit bureaus joined together to create their own measurement for creditworthiness. The main difference is that the vantage score puts more weight on the past 24 months.

What is the importance of the length of credit history?

This accounts for 15% of the FICO score. It weighs the older accounts to a higher level. It is more favorable to have older accounts.

True or False. A credit report can be used to determine the risk of a person filing an automobile insurance claim

True

True or False. A credit report can be used to determine the risk of a person filing an homeowner's insurance claim

True

True or False. An auto loan is one of the easiest loans to obtain

True

True or False. Victims of identity theft should act immediately to protect themselves.

True

True or false. Payment history is the most heavily weighted variable in a FICO score

True

Is a secured credit card a good way to establish credit?

Yes, this is the easiest way to establish credit. This is a single purpose card or auto loan with a substantial down payment. It's basically like providing a security deposit down for a line of credit and the issuer will limit the dollar limit to the amount of credit.

How are credit scores calculated?

based on information from credit reports and a single number is assigned. Scores are based on payment history, debt utilization, age of credit accounts, credit type mix, and credit inquiries.

What is an unsecured loan?

has no such collateral and it is backed by the consumers promise to pay (Credit cards)