What Your Credit Score Says About You
It’s only a number. Or is
it? Your answer can be as varied as to whether you are talking about a golf
score or your age. But what about your credit score? Do you even know what
your credit rating is?
The FTC has been diligent
the past few years in making sure that consumers have access to their credit
reports. No longer is a credit report just a mystical document held by
government bureaucracies. Today’s consumers are able to access their own
credit reports for a nominal fee. Yet most people do not avail themselves of
this privilege. Why?
One possibility is that
people do not value the information that is held in these reports. The
widely purported belief is that credit ratings are used solely to obtain new
credit. While this is the major purpose for the reports, credit reports can
also be used to gauge your health, employment history, rental history and
insurance claims. Many lenders feel that a person’s personality can be
identified by their spending habits. A person who has many credit cards that
are maxed out is deemed less responsible than a person who has only 1-2 cards
who pays their balance in full each month. The same would be said of a person
who changes jobs or moves frequently.
The best way to avoid this
pitfall is to avoid opening many accounts. Even though the credit limits on
individual accounts might seem small, each spending limit is attached to each
other making your overall spending capacity greater than perhaps a potential
lender might allow. One popular remedy for this problem has been to close
accounts out prior to seeking a new loan (particularly a mortgage), but this
rarely works as most lenders look at long term credit history and by removing
accounts suddenly you only serve to shorten your credit history and
reapportion your debt balance to a smaller overall limit, making you look like
you are almost at your spending capacity.
Another reason more
consumers don’t pull their credit reports is that they are afraid of making
their credit rating lower by adding on another request for their report.
Requesting your own report for verification will not lower your score.
Consistently trying to obtain new credit will.
So you have reconciled
yourself to recognizing the need for knowing what your credit report says
about you, but where do you begin? There are three main credit reporting
agencies that most lenders use: Experian, Equifax and TransUnion. Each agency
has different parameters for the information contained in their reports so
what is on one report isn’t necessarily on the other. In order to accurately
estimate your score you should obtain all three to compare and then assume the
average of the scores.
In the past consumers were
required to pay for their credit reports (usually a nominal fee averaging
$9.50). The Federal Trade Commission has finally succeeded in rectifying this
situation with the passing of the Fair and Accurate Credit Transactions Act (FACTA).
This act allows consumers to obtain a FREE credit report from each of the
three credit reporting agencies per year. They can all be obtained at the same
time, or at varying times during the year.
One requirement of this
act was to incorporate all requests being processed in one central facility.
If you order the reports from this facility you will not be charged, however,
if you go to the credit reporting agencies directly you will be. To obtain
your free credit report you can request one online at:
www.annualcreditreport.com,
or call them at 877-322-8228, or request a form by mail at: Annual Credit
Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
The FTC has added several
rules to ensure that this central facility does not use the information stored
against the consumer or in an otherwise inappropriate manner. For more
details please view the FTC’s summary at:
http://www.ftc.gov/bcp/conline/pubs/credit/fcrasummary.pdf.
In order to ensure a
smooth process this act is being initiated in several stages. Depending on the
state you live in your availability of these reports range in date from
December 1, 2004 to September 1, 2005. To determine your date of eligibility
please go to:
http://www.ftc.gov/bcp/conline/pubs/credit/freereports.htm.
Once you’ve obtained your
credit report what do you look for? Generally your main focus will be making
sure all of the information is correct. This includes, but is not limited to:
name(s), addresses, social security etc. Next you will want to verify all of
the accounts listed are accounts you have opened, and consequently, that any
accounts you closed are, in fact, closed. You will also want to make sure to
verify the credit limits, outstanding balances and any balances due agree with
your files.
Also worth checking is the
section listing all of the people who have made inquiries into your credit
history.
Lesser known, but
potential problems are any bankruptcies, liens, etc. Depending on the
condition these items can stay on your record anywhere from 7 to 10 years. If
you have ever incurred any of these you will want to make sure they are lifted
in a timely manner from your record.
If you spot any
inaccuracies you need to contact both the creditor, (or reporting
organization) and the credit reporting agency. They will both want the request
in writing and will dictate to you what information they require.
So now that you know how
easy it is to obtain your report, why put it off? Why risk identify theft or
even being denied a loan because of errors? You have it in your power to know
where you stand, and to make changes!
