With the current state of the economy and the credit industry, lenders are now requiring even higher credit score ratings than before to get the best rates. So a common question among would-be borrowers is, "How do I check my credit score?"
Most people have gotten the word that they are entitled to a free credit report from each of the three Credit Bureaus (annualcreditreport.com) each year. But do you know if you can check credit score for free?
Unfortunately, it's not free. But you can get your FICO credit score (along with 1 credit report) for $15.95 at myfico.com.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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You may already know that your credit score can tell a lot about you. But, did you know that it's perfectly legal for perspective employers to refuse to hire you for a job if you have a low credit score?
A survey conducted by VISA USA found that about 80% of Americans didn't know that their credit score could be used in hiring criteria. "Credit scores have become the defacto GPA for all aspects of modern life, because they can affect everything from getting a job to being able to buy a house," says Jason Alderman, Director of Financial Education for VISA USA.
So, if you have a low credit score, now may be a good time to learn how to raise your credit score.
Until next time - be well and prosperous!
PapaJoe
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It's a new year. Have you requested your free credit reports for this year yet?
Here's a suggestion for remembering to request them annually. Tie the request to a date you will remember, such as changing the batteries in your smoke alarms each year when Daylight Savings Time begins.
It's tax time. You could tie your free credit report requests in with that date. The government will not let you forget April 15th!
You can get your Free Credit Report by doing one of the following:
Until next time - be well and prosperous!
PapaJoe
credit reportFree Credit Report
Q My credit score is 685. Is that good?
A Yes, your score falls with the "good" range of a FICO credit score. And you will probably be approved for a loan. But you will probably have to pay a higher interest rate than someone whose credit score falls within the FICO "excellent range". Check the credit score distribution chart below to see what percentage your score falls in compared to the rest of the country.
Credit Score Distribution
<-499 2%
500-549 5%
550-598 8%
600 - 469 12%
650-699 15%
700-749 18%
750-799 27%
800+ 13%
For more information on the FICO credit score ranges, see my October 20, 2006 post, FICO Score Range. And see my January 4 2007 post, FICO Credit Score Range, for more information on loan interest rates.
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score ratingspersonal credit score
The Vantage Credit Score is again making the news. What is it? It is a credit score that has been developed by the three major credit bureaus: Equifax, Experian and Trans Union.
It was designed by the bureaus to try to solve two problems. One problem was credit scores varying by up to 50 points depending on which credit bureau you used. And to eliminate which credit score you received.
It is a common myth that there is only one credit score. Currently, there are at least three different scores depending on where you requested the score from and what you requested. The most commonly used score is FICO, developed by the Fair Isaac Corp.. All three credit bureaus can provide this score, but two of the bureaus have their own score. Experian and Trans Union have their own credit scores Plus and True Choice respectively. If you request a credit score from Experian, are you getting a FICO credit score or a Plus score?
The other unspoken reason I think the credit bureaus are designing their own credit scores is to cut the Fair Isaac Corp. out of the picture. I do not have information on how the credit industry works, but I would be willing to bet your money that the credit bureaus must be paying the Fair Isaac Corp. to use the FICO formula. If they can stop using their formula, they can stop paying them money.
It's too early to tell if the Vantage Credit Score will catch on and replace FICO as the industry standard. The final decision will be made by the nation's lending institutions. What they decide to use will be what the credit bureaus provide.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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A recent encounter with a friend reaffirmed my belief that managing your credit score is a critical and ongoing process. A friend had approached me to find out what she could, and should do to fix her credit score. I was surprised because she had always taken pride in having a good credit score for someone her age. So I asked, "What happened?"
She explained that in the process of moving to a new address, one of her credit card bills did not get forwarded. As a result she missed a payment on one of her six credit cards. Then the evil face of Universal Default popped up. Very simply put, Universal Default is a provision in a credit card agreement that says if you miss a payment with any creditor, that they can consider it a missed payment on their account and can adjust your interest rate. In her case, all six cards raised her rates. She went from having interest rates ranging from 0% to 9.99% to rates ranging from 21% to 25%. Her minimum payments increased dramatically and caused her to miss more payments. And a bad situation became a disaster within three months.
Some warnings to take from her situation:
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Have a list of all your bills and their due dates and mark them off each month as you pay them. This way if you never get a bill, or you lose it, you still know it needs to be paid and can get it paid on time.
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Don't drop and add credit cards to save a couple of dollars. Her experience was the creditors who were most willing to work with her were the ones that she had a longer history with.
- All other things being equal, pick and use the credit cards that do not have the Universal Default provision. The only problem with this is the credit card companies can change these provisions whenever they choose. i.e. they can add the Universal Default provision at any time.
A closing thought: It is your responsibility to pay your bills on time every month, bill or no bill.
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit reportcredit score ratingsfico credit scoreunderstanding your credit scoreuniversal default
True or False.
The Financial Planning Association lists "getting a handle on your credit score" as one of their 5 tips to follow to get your financial affairs in order.
True
The association does recommend you get a handle on your credit score because the higher your score the more likely it is you will be approved for credit and the lower the interest will be for this credit.
The other 4 things they identified as needing to address to get your financial affairs in order are:
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Develop a budget that includes regular savings to be put aside for emergencies.
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Set up a will with durable power of attorney.
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Plan for retirement - start early and save regularly.
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Check to make sure you have adequate insurance coverage. Take the time to make sure you understand what you're paying for and that it provides the coverage you need.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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True or False?
I have credit cards that I never use. I want to cancel them to reduce my risk of losing them and to reduce my risk of identify theft. What I cancel can affect my credit score.
True.
Canceling credit cards can have a negative effect on your credit score because it can result in your utilization rate going up and your average length of credit going down.
If you decide to cancel some cards, take the following into account when considering which cards to cancel.
An alternative to canceling credit cards is don't cancel them, just cut them up. If you ever decide that you need the credit again, just request a new card.
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score helpunderstanding credit scoreunderstanding my credit scoreunderstanding your credit score
True or False?
Once I have all of the information from my credit report, I still cannot calculate my own credit score.
True.
The Fair Isaac Corp., which designed the FICO score, has issued guidelines regarding which factors are included in your credit score.
These are:
But they have not, and probably never will, given a breakdown on how each factor is calculated. For example, 10% of your score is for the type of credit used.
But some unanswered questions are:
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Do I need to have a mortgage to get the maximum score in this area?
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How many installment loans is the right amount?
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Do I get penalized for having too many or too few credit cards?
That's enough to give you the idea. Even though you can't calculate your exact credit score, you can still manage your credit score. By using the guidelines you can develop a financial plan that considers these guidelines. The end result should be a higher credit score.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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True or False?
I pay my MasterCard bill on time every month, therefore they cannot contractually raise my interest rate.
This is False if there's a provision in my contract called Universal Default. Quite simply it states, "If you fall behind on any payment in any account they can consider it falling behind on their account." That could include medical bills, utility bills, rent, etc. Your interest rate could go from low and reasonable to 25% or more.
Not all credit cards have Universal Default. When choosing a new credit card or deciding which credit card to keep or cancel, read the small print. Obviously choose the credit card that does not have Universal Default. The last number I saw said 45% of credit cards do not have Universal Default. They can change that anytime they want. So when they send you that notice saying your contract has changed, read the small print to see if Universal Default has been added or deleted.
Remember, if you’re not working the system, it’s working you.
PapaJoe
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True or False?
According to federal law, I can get my credit score free once a year from the three major credit bureaus.
False.
Trick question. Federal law states that you can get a copy of your credit report free once a year - NOT your credit score.
If you want your credit score, you must still pay for it. It is strongly recommended that you review your credit report a minimum of once a year.
You can get your credit report free in one of three ways. You can either:
Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281
Remember, if you’re not working the system, it’s working you.
PapaJoe
free credit scoreunderstanding credit score
True or False?
It is against the law when it comes to credit to discriminate against me because of my gender.
True.
Federal law prevents the credit industry from discriminating against you because of your gender, national origin, age, marital status, or the receipt of public assistance.
However, federal law does not specify what factors are to be used in determining your credit score.
The guidelines used by FICO are:
Your credit score is based on:
Remember, if you’re not working the system, it’s working you.
PapaJoe
credit score helpcredit score ratingscredit score reportsfico credit scoreunderstanding credit scoreunderstanding my credit scoreunderstanding your credit score
True or False?
Even if my credit score is good enough to get credit approval, I still need to be concerned about my FICO credit score level.
True.
In addition to approval, the lender can use your credit score to determine the interest rate charged for your credit card, car loan, mortgage, etc. The difference between a 650 and 750 credit score could result in thousands of dollars over the course of a car loan, or tens or thousands of dollars for a mortgage.
Remember, if you’re not working the system, it’s working you.
PapaJoe
