Know Your FICO Score
FICO measures credit-worthiness. Underwriters have determined that people with low FICO scores default on loans with far greater frequency than do their higher scoring peers, so they use three credit bureaus — Equifax, Experian, and Trans Union — to determine your score in several ways:
1. Delinquencies: A 30-day late payment is less risky than a 90-day late payment.
2. New credit: Your score drops when you open several credit accounts in a short period, as you may be unable to meet new credit obligations.
3. A long credit history is better than a newly established one.
4. A consumer with “maxed out” cards may have trouble with payments.
5. Public records: Tax liens and bankruptcies jeopardize a healthy FICO score.
6. The use of consumer credit counseling agencies may lower scores.
7. Small balances, no late payments show responsibility.
8. Too few revolving accounts: If you fail to use credit, there is no way to evaluate your ability to manage it.
9. Too many revolving accounts may mean overextension.
10. Credit scores affect interest rates. Some lenders establish lower interest for high FICO scores and vice versa.
Check Your Credit Report
Credit card companies and lenders rely on credit scores, which determine someone’s chances to borrow money — and how favorable the terms will be. Scores range from 200 to above 800. Scores below 620 are considered risky; 720 and over are excellent.
There are five categories of scoring: payment history (35%); amount owed (30%); length of credit history (15%); new credit (10%); and types of credit (10%). Lenders receive your score and “reason codes,” which are the keys to improving your score.
Check your own score yearly by ordering reports from the three major credit scoring companies: Equifax (www.equifax.com), Experian (www.experian.com), and TransUnion (www.tuc.com).
Notify the credit bureau of inaccuracies, along with copies of documents that dispute incorrect entries. Close accounts not in use. Request that late payments older than seven years be removed. Verify and update accounts and account numbers. Verify your address and Social Security number.
To improve your score: Pay your bills on time. Reduce outstanding debt. Build up your savings. Don’t fall for illegal schemes that help create a new credit identity.
FREE Credit Reports
Federal law allows you to:
-Get a free copy of your credit report every 12 months from each credit reporting company.
-Ensure that the information on all of your credit reports is correct and up to date.