Credit score is key for lenders


POSTED: Monday, September 21, 2009

We all walk around with one, regardless of whether we know it.

Some of us know what it is, and some of us would rather not (the same way some people know how much they weigh and some won't step on a scale).

But the measure of how well we manage our money — our credit score — will matter when it comes time to buy or rent a house; purchase or lease a car; or apply for insurance or certain jobs.

Here's the deal: In case you haven't heard, lending restrictions have gotten much stricter these days. Keeping track of your credit score, including whether it contains errors, and knowing how to boost it, are good ideas.

A credit report is a financial track record, and it goes back years, including when you first applied for a credit card in college and whether you paid it on time (even how many days you were late).

It includes how many credit accounts you have, what is owed on them and what percent of available credit you're using.

It measures your ability to pay, not how much you make. The score ranges from 300 to 850, with higher being better. Most scores fall in the 600s and 700s.

If you're applying for a home mortgage, the credit report will likely be pulled from FICO — which stands for the Fair Isaac Corporation. You want FICO to be your friend, not your foe.

A high score from FICO can fetch you a better interest rate, while a low score can hurt your chances of getting a loan, although it depends on your lender and other factors.

Late payments and defaults can remain on your credit report for up to seven years, according to the Better Business Bureau. A bankruptcy can remain on your report for 10 years; and unpaid tax liens can remain for up to 15 years.

If you just moved to the U.S., unfortunately, credit reports are not transferable from another country, and you'll have to build a new history.

Got a terrible credit score? You can take some steps to improve it (some call this a credit makeover), but it takes time and discipline. It means reducing your balance, paying more than the minimum and paying on time consistently.

Beware of bogus credit report services that promise a quick and easy fix by issuing you a new social security number or asking for an upfront fee. Never pay an upfront fee.

Here are some tips from the Better Business Bureau and Federal Trade Commission:

» Know your score. You want to keep track of your score, including whether there are errors or whether you've become a victim of identity theft.

» Go to the source. The only authorized source for your free annual credit report under federal law comes from AnnualCreditReport.com. The Fair Credit Reporting Act guarantees you access to a free credit report from each of the three nationwide reporting agencies — Experian, Equifax and TransUnion — every 12 months. But you get them through AnnualCreditReport.com.

» Beware of false freebies. Many companies out there claim to offer free credit reports, but the FTC has fielded complaints about hidden fees. You may end up signing up for a free trial that you'll pay for unless you cancel. If you are required to enter a credit card number to get the free report, chances are you're being charged a fee.

» Aim for 700 or higher. This number could earn you a relatively low interest rate or favorable lending terms. If your score is below 600, lenders could view you as high risk and charge you a higher interest rate; even lower, and you could be turned down.

» Check for mistakes. Every bureau has its own formula for deriving scores, and mistakes do happen. Contact the bureau as well as the organization that provided information to it. Both are responsible for making corrections under the Fair Credit Reporting Act. The FTC has a useful site explaining how to report errors (hsblinks.com/qu).

» Boost your score. Paying off your balance, and paying on time will boost your score. The more credit you've been granted, the better.

» Keep old accounts open. You may want to simplify and close unused credit cards, but think twice before closing a longtime account with a good payment history because it may lower your score.





        » Where to get your score: Go to www.annualcreditreport.com (the only authorized source for your free annual credit report under federal law) or call (877) 322-8228.

» Tips for understanding a credit report from the Better Business Bureau: hsblinks.com/r3


» Tips on building a better credit report from the Federal Trade Commission: www.ftc.gov/credit


» Credit Scores 101 (free brochures): www.myfico.com/crediteducation/brochures.aspx