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Part 2: Reading and Understanding Your Credit Report Scores By Ron Sibley Checking your credit report several times a year is a good habit to cultivate to help protect you against identity theft and incorrect information. It’s always a good idea to check your credit report whenever you are about to buy a new home or car, take out a new credit card or insurance policy, or apply for a new job. Whenever you get your report, from one of the three credit-reporting agencies included in my Part I article (you can go to www.cgsb.com and find them in the Spring 2005 newsletter), look it over thoroughly. Make sure it’s accurate because your credit history can help you financially…or seriously hurt you. Are there accounts you never opened, charges that are not yours? If you see any evidence of fraud, immediately contact the credit reporting agencies and ask them to put a fraud alert in your file. You should also report it to the police. One of the most important items on your credit report will be your credit report score. It ranges from 330 to 830. It’s derived from information in your credit file. The higher your score, the lower your credit risk. Lenders, landlords, employers and others can quickly gauge your credit worthiness by your credit score. While the three credit reporting companies use different scoring models and weigh criteria differently, the scoring models are fairly standardized, meaning your score should vary little from one company to another. Credit scoring helps companies better understand you financially. The benefits can mean faster credit approval, better terms and interest rates, exposure to other financial opportunities, special offers and preferential services. What are some of the factors that influence your credit score? Inquiries is one. Every time a potential lender, landlord, employer, etc., pulls your credit report for review, an inquiry is recorded in your file. Too many inquiries may negatively affect your score. It may indicate you are trying to take on more debt. It’s always better to apply for new credit sparingly, reducing the number of inquiries in your file. If the balances on your debts are close to your overall credit limits, you may receive a lower score. Lenders may feel the amount of debt you have is too close to your limits, even if these limits are high. It would be better to pay down some of your debt so lenders don’t perceive that you have more debt than you can handle. Paying your bills on time with no overdue accounts or deleterious information (collection agencies, charge-offs, bankruptcies, missed child support, etc.) raises your credit score. That’s considered positive credit behavior! If your credit limit on major credit cards, such as VISA or MasterCard, is high, lenders view you as a good credit risk, especially when your credit limit is high and your debt is low, or even better, you pay your credit card balance(s) every month. A percentile value is an excellent opportunity to see how your credit score compares to the rest of the U.S. population. The higher your percentile ranking, the more likely you are to be seen as a good credit risk. Here are some statistics reported by Equifax and based on a sampling of more than one million credit reports from U.S. consumers: • 15% of the U.S. population is below 600 • 35% of the U.S. population is below 670 • 50% of the U.S. population is below 710 • 70% of the U.S. population is below 755 • 90% of the U.S. population is below 790 Some credit reporting companies will also provide a credit score category—very poor, poor, fair, good and excellent. But keep in mind that a good credit score does not necessarily imply that you will get the loan, the job, the mortgage, etc. Other information contained in your report contributes to a final decision. Beginning September 1, 2005 you can obtain your credit report free once a year from each of the three credit reporting agencies. Stagger your requests and you can review your credit report every four months, which in an era of identity theft, is good financial vigilance. |
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