Narrator (00:01):
Welcome to module one, credit history and scores. This module is part of a series called helping clients monitor and improve their credit reports and scores from the Consumer Financial Protection Bureau. This presentation is being made by a Consumer Financial Protection Bureau representative on behalf of the bureau. It does not constitute legal interpretation, guidance, or advice of the Consumer Financial Protection Bureau. Any opinions or views stated by the presenter are the presenters own and may not represent the Bureau's views.
	The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces federal consumer financial law, and ensures that markets for consumer financial products are fair, transparent, and competitive. CFPB FinEx is a place where financial educators, practitioners, counselors, researchers, and others can share information and best practices, learn from one another, advance their work, and see what CFPB is doing to help consumers.
	Welcome to module one, credit history and scores. This module is part of a series designed to help you, as a practitioner, partner with clients to help them monitor and improve their credit reports and scores. There are three other modules that will share the information you need to feel confident having conversations about credit with clients. In module one we will learn about credit reports and scores and why they matter, partner with clients to discuss building and rebuilding credit, and explore more resources to help you in your role as a practitioner.
	So why do credit reports and scores matter? Some people say credit reports and scores don't matter to them because they never plan to get loan, but the information in someone's credit report is also used to make other decisions about them. Even if a person doesn't plan to borrow money, a poor credit history, or no credit history, can make it difficult for someone to get a job. A potential employer may use credit reports to determine whether someone will get a job. Get an apartment, a landlord may use reports or a score to determine whether to rent an apartment to someone. Get insurance coverage. Depending upon the state, an insurance company may use reports or scores to determine whether to offer insurance coverage, and the rates charged for it. Get better terms on contracts and services like utilities and cell phone plans. Service providers may use reports or scores to determine deposit amounts and the cost of service. Get a credit card. Poor credit or no credit history may result in denials of credit applications. Improve your credit scores. The information used to calculate scores comes from the credit history. Having no credit history or a poor credit history, may result in lower credit scores.
	Credit reports can influence whether someone can access credit, and how much they will pay. Some individuals may not have a credit score. This can occur because someone does not have enough credit history to have a score. Economically vulnerable consumers are more likely to have limited financial resources and a lack of credit history, and that can further limit their opportunities. Clients may express interest in their credit after the denial of an apartment, a job, or other opportunity that involves a credit check. We know you all work in a variety of settings, it is impossible to cover the variety of settings where you offer your skills, but today we will use an example to help us learn. Let's meet Maya.
Maya (03:46):
Hi, I'm Maya. I am a family case worker at a housing organization. I work with families who have transitioned from a shelter to a transitional housing program. Recently I worked with a family that was not approved for an apartment lease. The family did not meet the screening criteria because of their credit. I want to start working with families to address their credit goals, and to help clients prepare for applying for apartments, but I don't know where to start. I want to help, but I have a full caseload. Plus, I have student loans and a credit card of my own too. Let's explore credit together.
Narrator (04:26):
When someone takes out a credit card, or other loan, they create or add to their credit history. Sometimes when people talk about their financial situation they say they have good credit or bad credit. This usually refers to their credit history and credit score. Credit reporting companies are companies that gather, organize, standardize, and disseminate consumer information. These companies gather information from an individual's credit history into a credit report. A credit report may also show how much available credit a person has, how much of their available credit they're using, whether they have made their payments on time, and whether debt collectors have reported that they're attempting to collect debt. The information in credit reports is used to create credit scores. Many lenders use credit scores to decide how much money they can lend someone, and how much interest to charge. In general, the higher a credit score, the better the loan terms may be.
	Maya realizes that clients may be denied an apartment because of their credit report or score. Maya wants to help clients understand their credit history and know what steps to take to improve their credit history and scores. Let's explore what is on a credit report. A credit report contains a variety of sections, including: a header/identifying information section, public record information, collection agency account information, credit account information, and inquiries. An inquiry refers to a request to look at a person's credit file, and it generally falls into one of two types. Let's take a look.
	Hard inquiries happen when an individual applies for credit. These inquiries may affect their credit score. This is because most credit scoring models look at how recently and frequently a person applies for credit. Soft inquiries are reviews of a person's credit file when they have not sought to establish a new credit account. They include reviews of existing accounts by lenders, pre-screening inquiries, and an individual's request for their annual credit report. These inquiries won't affect credit scores.
	What about credit scores? Many people focus on credit scores, but credit scores are calculated based on the information in credit reports. Focusing on credit history and the information in a credit report may also improve your credit scores. A higher score can make it easier to qualify for a lower interest rate when applying for credit. Scores often range from 300 to 850. A person may have many credit scores, and we'll explore why in a moment. Throughout this module we will include the title of sources you can explore to learn more. To explore sources and learn more, go to www.consumerfinance.gov. Search for the title of the resource you're looking for. Be sure to explore all the other information and resources available to you on consumerfinance.gov.
	Maya realizes that she can add a question to her housing intake form to see if clients have a copy of their credit report. Getting and reviewing credit reports will be covered in module two. Maya also wants to learn more about credit scores. Even though different credit scores use different mathematical formulas, they all use the information from a person's credit report. One common provider of credit scores is FICO. Let's look at how FICO scores are generally calculated. Payment history tracks whether an individual is paying their bills on time. This is the biggest factor in FICO scores and makes up 35% of the score. Paying bills late, not paying bills at all, and having bills that go to collections will likely cause scores to drop. Paying bills on time may help increase scores.
	Amounts owed tracks what is owed, including debts that someone is paying down, and makes up 30% of FICO scores. It also includes credit utilization rate, which is how much of available credit someone is using. When the credit that's available decreases, scores may drop. Length of credit history makes up 15% of a FICO score and tracks how long an individual has had credit accounts. The longer the history, the more positive effect on their scores. A long credit history provides strong evidence of how an individual uses credit and patterns of their payment behavior. Types of credit used are also considered. For example, FICO scores may increase if an individual has both revolving credit, such as credit cards, and other types of credit, such as a mortgage or an auto loan that they repay in installments and are in good standing. New credit is tracked by measuring credit inquiries made by creditors and others. Too many inquiries may signal that an individual has had a high demand for credit. Because this may be an indicator of risk, scores may drop. Scores are not affected at all when an individual checks their own credit reports.
	A person may have many different credit scores. Each of the nationwide credit reporting companies, Equifax, TransUnion, and Experian, have their own scoring models to predict credit performance. While consumers can obtain annual credit reports from these companies for free, they typically have to pay for credit scores. These are generally considered educational scores and may be different than the score a lender or a landlord would see. Consumers can also obtain credit scores by subscribing to credit monitoring services. Again, these scores are typically educational. Some providers make educational scores available to consumers for free. Educational scores can be used to track credit scores without applying for a loan. In some circumstances, consumers can purchase FICO scores, and even if a consumer goes to a creditor that uses FICO scores, the score obtained by the consumer may be different from the one the creditor used as it is possible that the creditor obtained the score from a different credit reporting company. Keep in mind, this is just one option for getting a score.
	Let's look at an example. A client saw their credit score online provided by their credit card company. That score was 626. Then the client signed up for a separate credit monitoring service. They checked their score there and it was 598. Then the client applied for a car loan and the lender showed the client a score of 611. Knowledge check: it is normal for the same person to have many different credit scores. True or false? If you said true, you are correct. Different scoring models may result in the same client having different scores.
Maya (11:27):
I want to help families, but I feel nervous talking about credit. I want to be prepared for my conversations with clients and help them come up with concrete steps they can take to improve their credit.
Narrator (11:40):
In working with clients, Maya recognizes that many of the people she meets may feel overwhelmed by their financial situations. She remembers that each person's needs are unique and often complex. Includes values, culture, and tradition in the conversation. They all impact how we spend, save, and make financial choices. Ask questions. Maya builds on client strengths and ideas, and remembers she doesn't need to be an expert. Maya makes referrals when she needs to and helps clients navigate the CFPB website to find answers to questions.
	Maya gains confidence and knows she can use free CFPB resources as she works with clients on credit goals. She now feels ready to partner with clients to build their credit history. Some things that can help clients build credit include: paying bills on time every time, not getting too close to credit limits, not applying for too much credit in a short time, considering a secured credit card, paying off credit card balances each month, and keeping up the steps to build credit. In addition, clients applying for credit may want to ask if lenders accept alternative data. Alternative data includes information not typically found in consumers' credit reports, or customarily provided by consumers when applying for credit, such as cash flow data derived from consumers' bank account records, rent payments, and more. Alternative data can help those with a thin credit file access credit.

Maya (13:13):
I'm going to order How to Rebuild Your Credit handouts in English and Spanish. That way when clients share their credit goals, I can easily provide them with information on building credit. I don't even have to be an expert myself. I order materials by going to consumerfinance.gov, I search for the link to order free brochures, or I can go to consumerfinance.gov/order. When I click on the li, I am taken to a separate system called Pueblo. Then I order the materials I need to be shipped to me for free.
	Some clients wanted to use a financial product to help them build credit. I learned about two options, secured credit cards, and credit builder loans. Secured credit cards are applied for like a traditional credit card. After approval an individual deposits an amount of money into a separate account. The financial institution holds onto this deposit and extends a credit line matching the deposit amount. Financial institutions typically report to the credit reporting companies about card activity, so an individual builds credit with its use. Credit builder loans are offered by financial institutions and nonprofits. An individual deposits a small loan, often $300 to $1,000, into a locked savings account, and pays it back over six to 24 months. These payments are reported to the credit reporting companies. At the end of the loan term the borrower can access the money. These loans have the dual benefit of building credit and savings at the same time.
Narrator (14:51):
Knowledge check: secured credit cards and credit builder loans help a person build credit by reporting payments to one or more credit reporting companies. True or false? If you said true, you are correct.
	We've covered a lot of information today, let's explore resources that you can use in the future. On consumerfinance.gov, look for the credit report scores resources page to review key terms, how-to guides, and videos. Our slides featured a variety of resources, use the links to visit sources. To continue to learn more join the CFPB FinEx community. You'll receive updates by email, and engage with a large network of practitioners. You can also use the LinkedIn discussion groups for news, research, and best practices. Plus, stay up to date with webinars, regional meetings, and conferences, all while meeting CFPB presenters who can work with your organization. Use the link to join today.
	Thank you for joining us as we explored the basics of credit. Module two, getting and reviewing credit reports and scores, is up next. Please join us for the next three modules to learn more.



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