 Credit Score 101
Do's and Don't's
A credit score is an indicator of how likely you are to default on a loan or credit card. Your credit score is determined by a combination of the following:
- Payment History.
- Do you pay your bills on time? Are there recent late payments? How many times were you late?
- Amounts owed. Are your cards maxed out? Do you have a ton of debt?
- Length of credit history. How long have you been using credit? Have you established good credit history?
- New Credit. Are you opening new accounts and borrowing more? How many recent inquiries do you have will lower your scores.
- Types of credit in use. Do you a good mix of various accounts?
Things like age, race, color, national origin, sex, and marital status do not have any bearing on your credit score. Only positive and negative information from the five categories
mentioned above make up your credit score.
Follow these tips for reaching your maximum credit score:
DO
- Pay your bills on time. Accounts paid more than 30 days late have an adverse affect on your credit score. If you have missed payments, get current and stay current.
The sooner you can begin to manage your credit and pay on time, the sooner you will see your credit score improve.
- Keep credit card balances low. If you cannot pay the balance at the end of the month, don’t keep charging it up. High outstanding debt
- Re-establish credit especially if you’ve had problems in the past. Getting back on track and showing the world that you are worthy of credit will raise your score in
the long run.
- Check and monitor your credit regularly.
DON’T
- Open a bunch of credit cards or accounts that you don’t need.
- Transfer credit card balances from one card to another. It’s best to simply pay them down and gradually pay them off.
- Open a lot of new credit all at once especially if you are a new credit user. Rapid account build up looks risky if you are a new credit user.
Credit scores make a difference. Anything below 500 is a credit night mare. Hit the 620 mark and you are considered Fair, 680 is good and anything above a 700 is
great. At 700 or above you will be considered a prime borrower and should have no problem getting credit and the very best interest rates. Your credits your life so take it seriously.?
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Who is looking at your credit scores - and why?
Strangers – all kinds of strangers – are regularly looking at your credit scores, accessing your history, and forming pictures of your life. All they need is your
social security number – and that isn’t hard to get any more.
Who are these people, and why do they want to know your private business?
- Credit card issuers – who may want to offer you a card, or may want to change the percentage rate on cards you currently hold
- Insurance companies – to determine if they want you for a customer, and if so, what kind of rates they'll offer you
- Cell phone, cable, and satellite companies – to decide if you can have their service
- Prospective employers – because now they do consider your credit rating
- Prospective landlords – to decide if you're a good risk as a tenant
- Car dealerships
- Furniture stores
- Department and office supply stores
- Mortgage Lenders
- ... and even prospective mates
Looking at your financial life gives people an impression of you, and of how you conduct your life in general. Of course, much of it is none of their business – but it’s a fact.
A prospective employer looking at your credit report will see if you’ve been job-hopping or if you move from city to city with regularity. Why do they care?
Because it costs time and money to train a new employee and they want people who will stay and work after they're trained.
They’ll even know if you’ve changed spouses, because your credit report shows who shared responsibility for each debt.
As for prospective mates – it's very unromantic, but when you tie your financial life to another's, it's good to know if it will hurt you or help you.
Of course everyone who might extend credit to you wants to know if you're a good risk. That only makes sense. But what about insurance companies, cell phone and cable companies, and
satellite providers?
Apparently insurance companies have decided that you're more likely to file a claim if your credit score is low. I don't know if that's true, or just an excuse to charge more.
Cell phone, cable, and satellite providers generally have money invested in getting you as a new customer – the "free" equipment and installation isn't free – they figure it into your
first year or so of service, so they want to know that you can and will continue to pay your monthly fees.
Shouldn't you be looking at your free credit report? Get it now and see what the world knows about you.
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A Free Credit Report Could be Worth Thousands
 How can something free be worth thousands? Because your free credit report contains information that will affect every aspect of your life – from where you live and what you drive, to the dollars you're able to put
away for your child's college education.
The information you get may be good – and you'll know that you need to keep doing what you're doing. But... if it's only mediocre or even bad, you'll know that you need to make some
changes in your life.
Even if you have no desire to use credit today, things change. Next year, or three years from now you may have a burning desire to buy the home of your dreams. But if you've let your
credit scores fall, you'll pay far more than necessary for that home – if you're even allowed to make the purchase.
Why? Because the higher your score, the lower the interest rate you'll be required to pay for a mortgage. Rewarding good money management with a lower interest rate is a lender's way of
trying to attract more people who are a good credit risk.
Smart borrowers opt for fixed rate mortgages – right now thousands of Americans are losing their homes because they chose adjustable rate mortgages and I'm sure any of them would be glad
to tell you what a mistake they made!
So think about these numbers: If you purchase a home for $150,000 and pay 6% interest, the first year's interest would be roughly $9,000, or $750 per month. If you purchase the same house
and pay 8% interest, that first year's interest would be $12,000 – or $1,000 per month. What could you do with an extra $250 per month in your pocket?
The same scenario applies when you're purchasing a car, or even furniture. Lenders reward good credit scores with lower interest.
You may be thinking that you pay your bills on time and don’t owe an excessive amount, so of course your score will be just fine. And you might be right – but not necessarily.
Your credit report could contain errors – data entry is often done by hand, by people who are not very interested in accuracy. Worse, you could be the unknowing victim of identity theft. Either way, your credit scores could be destroyed and you wouldn't even know it unless you had reason to use your credit.
Keeping a close eye on your credit is a smart money move... so request your free credit report today – you won’t be sorry!
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How do you read a credit report?
Reading credit reports can be very confusing. A credit report is divided into four sections: Identifying information, credit history, public records and inquiries.
Identifying information: Well, just that—information to identify you. Here’s where you will find your name, social security number, address, date of birth, drivers license number,
employer and even your spouses name. Study it close and make sure that it’s accurate.
The next section is your credit history. Here’s where you will find the meat of the report. Your mortgage, car, credit cards, student loans, charge offs, collections and on time or late
payment history. Each account entry will include the name of the creditor along with the scrambled account number for security purposes. The entry will also include:
The type of account. Installment loans such as mortgages and auto loans or revolving accounts like credit cards and department store cards.
Date reported. This is the last date that this creditor reported activity.
Date you opened the account.
The credit limit or total amount of the loan along with highest balance.
How much you still owe.
Whether or not the payments are fixed or there’s a minimum monthly amount.
Status of the account, open, closed or paid.
Payment history--on time or number of times past 30 days.
Whether the account is in your name alone or with another person.
Public records section is where you’ll find bankruptcies, judgments and tax liens. These three bad boys are the worst of the worst.
Finally there’s the inquiries section. Here you can see who’s pulled your credit report. These are divided into two categories. Hard inquiries are those that were
initiated by you filling out a credit application. Soft inquiries are a result of current creditors pulling your report to either send promotional offers or to simply monitor your
account. The biggest rumor here is that a large number of inquiries can lower your credit score. More than likely you have nothing to worry about. The credit scoring system allows you to
shop for loans within a certain time period. For example, two hard inquiries within the same two week period are only counted as one.
After looking at thousands of credit reports over the past decade as a mortgage professional its second nature for me to scan a credit report and see it all. For the consumer that’s
looking for the first time, it can be very frustrating. Get your free credit report at Credit Score Cowboy. If you have any questions about the report shoot me an
email at john.rasor@creditscorecowboy.com Happy trails!
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How long will negative information stay on my credit report?
You know that your credit score is based on your money management history - and if you're working hard to rebuild your rating, it can be very frustrating to see the same old negative
information showing up on your credit report.
Unfortunately, there's not a lot you can do except wait it out. Your new, good habits will show up, and that will help your score, but the old stuff will remain for a while.
A bankruptcy will stay on your credit report for 10 years, which will seem like an eternity until you're looking back at it. Other negative information generally stays for 7 years, unless
you can get the creditor to give you a letter to delete an item.
A n unpaid tax lien will stay there until 7 years after the paid date.
Of course, if you've proven to the credit bureaus that an item was in error, that will be removed immediately.
What goes on the report?
Public Records – bankruptcies, court and default judgments, liens, and foreclosures.
Late payments – listed as 30 days late, 60 days late, 90 days late, and 120+ days late.
Charge offs – Accounts that are in default and which the creditor has charged off and reported as a loss.
Collections – An account that has been turned over to a collection agency.
After the "bad stuff" your credit report will list all your accounts in good standing.
We don't know the exact formula FICO uses to compute your score, but we do know that the more accounts in good standing, the better. So if your credit needs repair, keep as many accounts
in good standing as possible.
You may not recognize the names of your creditors as listed on your credit report. It will help to know that "I" stands for installment loan, "R" stands for
revolving credit, and "M" stands for mortgage.
If you get your credit report and see unusual names and can't match them up with any of your accounts, do not hesitate to call the credit bureau that reported it – in fact, do it
immediately. Only if you know who is reporting what can you address the validity of the entry.
And of course, if you find out "who" and you're not familiar with the company, you need to file a protest immediately. You could be looking at a case of stolen
identity.
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What is a FICO score anyway?
 Realtors and lenders are almost as bad as computer
tech people at tossing out words and phrases you don't understand. The funny part is, sometimes even they don't know what those words really mean. FICO is one of them. It's not really a
word, but the initials that identify the score given to your credit rating. A few Realtors and a few lenders have some idea of how those scores are reached, but they probably can't tell
you what the letters stand for. Nothing. They're just the initials of the Fair Isaac Corporation. So now you're wondering what or who a Fair Isaac is, right? Bill Fair was an engineer,
and Earl Isaac a mathematician. In 1956 they formed a consulting and decision management service, and in 1981 devised the credit scoring system now known as FICO.
Under their system, each of a set of details about an individual's financial history is scored and given a weight, based on the past performance of others whose financial history is
similar on that particular detail. Among other things, the system gives a score to: The length of time an individual has had and used credit The Existence of bank accounts The number of
recent credit inquiries Debt to income ratio Debt to available credit ratio Bill paying history Lenders believe that by applying this compiled score, they know the statistical likelihood
that a person will pay his or her debts. It must work, because FICO has become the standard, and this publicly traded company is a giant in the world of finance. With over 3,500 employees
on 5 continents, FICO has an annual revenue of over $800 Million.
Contrary to what some might believe, FICO is not associated with the government. In addition to providing credit scoring, FICO still provides consulting and management services. If your
FICO score is over 720, you'll have an easy time getting a loan – or at least you would have before the current financial crisis. Right now that threshold may have been raised. If your
score is under 600 you'll be considered a poor risk, and in today's climate probably will not qualify for a mortgage loan. If you do, you'll be charged a higher rate of interest and will
likely need a larger down payment. So it really does pay to take the steps to raise your credit rating as high as possible. The first step is to know your current score. You can purchase
the report from FICO, or you can get a free credit report, right here at Credit Score Cowboy.
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Are You On The Credit Bureau's Blacklist?
Let’s say you are what most people would consider a good person. You help out in the community, volunteer to help others and even show up on the front row for church every Sunday. You
recently applied for a home loan and to your surprise were denied. How could this be? You’re a good guy or gal, and deserve this loan, right? Could you be on the credit bureaus blacklist?
 Since there is no such thing as a “blacklist” within the
credit scoring system the answer is no. You are not on a blacklist. Your credit score and credit history are based on nothing more than factual data that lenders have provided about your
pay habits.
Your credit report and credit scores have absolutely nothing to do with your age, marital status, race, sex, nationality or religious beliefs. Your occupation and
length of time on the job also have nothing to do with how your credit score is calculated. Only information present on your actual credit report make up your credit score.
Pretend for a moment that you are an underwriter working through a mortgage loan application. What would be of the most importance to you? Ironically, underwriters look at the same thing
that the credit bureaus do in figuring your credit score.
1. Payment history is a biggie. This tells the tale of whether or not you can handle what you currently have on your plate. If you are consistently 30 days late on your car payment, why
would you think you are worthy of a home loan?
2. Credit history is also important. The age of your accounts reveals your experience with credit. Multiple accounts like credit cards, student loans, car payments with several years of
history, especially with perfect payment status will surely pass the test for an approval.
3. Your debt load makes a difference in how you handle available credit. If all or even a few of your credit cards are maxed out a red flag pops up. People in control of their finances
typically use credit cards sparingly or always pay them off in full each month.
4. Recent inquiries can wreak havoc if you’ve had too many. Multiple credit card applications make it look like you are in desperate need of more credit, or just credit in general. Its ok
to have a few inquires with multiple mortgage companies within a 14 day window. The bureaus only look at these as one inquiry since most people will shop around for the best home loan.
It always makes sense to obtain a copy of your credit report either before you make a mortgage application or if you
are declined credit as a result of a low credit score. There are several arguments for this statement. One is identifying potential errors and fixing them before your lender pulls their
copy. Another is having the upper hand when applying for a mortgage. If you have a great credit score use it as leverage and tell the lender up front. Request terms based on it and make
that lender wait to pull your actual credit report until you have received multiple offers.
Getting a copy of your free credit report is easy. To view your personal credit information that lenders are currently basing their credit decisions on you can choose from several options
right here for free. We are currently offering a 30-day free trial for Identity Guard Monitoring Service which not only allows you to keep an eye on what is happening on your credit file
but is also useful at protecting yourself against Identity Theft, something which is a growing problem. Get the upper hand on your credit today.
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Experian, Equifax and Transunion
The Credit Bureaus address and phone numbers are listed below. We have also listed the online dispute links as well. We are your one stop shop for all three of your credit scores and free credit reports.
Bureaus Addresses and Phone numbers:
Equifax
P.O. Box 740256
Atlanta, GA 30374
(800) 797-7033
Experian
NCAC
P.O. Box 9595
Allen, TX 75013
(800) 583-4080
Trans Union
P.O. Box 2000
Chester, PA 19022-2000
(800) 916-8800
On-line dispute for each bureau:
Equifax
Dispute online
Experian
Dispute online
TransUnion
Dispute online
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Debt Strategies to Improve Your Credit Scores
Paying down your debt is a great way to stay on track financially and boost your credit scores. Which accounts should you pay down first? Where do you put your extra money each month to
make the most difference? Here are a few ideas that we think make the most sense financially.
 Priority #1: Pay down the highest interest rate accounts first.
Doesn't’t matter what the amount is. I’m sure you would rather be paying down a debt than applying money to interest each month. Start with the accounts that have the highest interest rates
and tackle them first. Then move on to the next one. Keep in mind the 50% rule. Keep revolving account balances at no more than 50% of the total credit limit. In this economy that’s
easier said that done but doing so will produce a better credit score. Regardless, pay off the highest interest rates first. Then tackle the rest of your debt
accordingly.
Priority #2: Don’t add any more debt.
Probably the most important part of the plan to raise your credit scores. Old habits die hard, emergencies pop up that swallow money that otherwise would go towards reducing your debt.
Credit cards that should be used sparingly can quickly add up. If you can’t afford it, don’t buy it.
Priority #3 Negotiate better terms with your credit cards You’ll never know unless you ask. Often times credit card companies will reduce your interest rates if you ask.
I recently received some convenience checks in the mail from one of my credit cards companies offering a lifetime rate of 3.99%. I quickly called and asked if I could simply have my
current balance lowered and they obliged. Wow. All I did was pick up the phone.
Priority #4 Pay extra on secured debts
Secured debts are things like your home, car, boat or other assets that secure your loan. Credit cards are not secured and therefore not tied to any particular asset. Secured debts are
usually for large amounts and as a result take longer to pay for. The interest charges on a $100,000 mortgage over 30 years at 6.75% is 133,493.82. Making extra payments on a secured debt
such as your mortgage has the potential to really work in your favor. You’ll pay your loan off sooner and free up extra
money for the finer things in life.
All of this is easier said than done. Watch and track all of your cash expenditures. Be mindful of how much you are spending on things like groceries and dining out. You’ll be amazed to
see just how much you can save.
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Credit Score Myths
Most of us don’t understand or know what makes up our credit score. Your credit score is the most important piece of information in your financial life. Landlords, lenders, insurance
companies, electric companies and potential employers all have your credit score under the microscope.
 With that being said, you
should probably check your credit scores on a regular basis. Check it for errors, potential identity theft and improve your scores over time. The secret to a
better credit score is to pay your bills on time and keep your available lines of credit as low as possible.
Do not fall for any of these common credit score myths:
Myth 1. Checking my own credit will lower my score. You can check your own credit report as many times as you want. These are considered soft pulls and do not have any
impact on your score.
Myth 2. Shopping lenders will lower my score. No doubt each lender you make application with will have to check your credit to accurately make a decision. The credit
bureaus realize and understand that most people are going to get multiple quotes when buying big ticket items like homes and automobiles. As a result all of these type inquiries made
within a 14 day period are counted as one inquiry.
Myth 3. There’s only one credit score. There are three credit bureaus. Experian, Equifax, and Transunion. Each bureau generates a score therefore you will have three
credit scores. Each score will vary so its good to know all three scores.
Myth 4. Age, income, sex and race will affect your score. None of this information has any impact on your credit scores. Your age and employer may be listed on your
credit report, however it has no impact on the score itself.
Myth 5. A simple dispute letter will remove bad credit. Sorry, but this one cracks me up. If it’s a legitimate account, being reported accurately it will not be removed
regardless of how many letters you submit disputing it. If you do see errors on your credit report you should by all means dispute it. The credit bureaus have 30 days to reply and are
quick to remove inaccurate data.
Myth 6. Marriage will merge both reports. Credit information never gets mixed. Accounts are either opened individually or jointly. Don’t think marrying someone with good
credit is going to raise your credit score.
We recommend checking your credit quarterly. Refer to myth number one, a soft pull will not lower your score. It is to your benefit to keep an eye on your credit, protect it and
constantly improve it.
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How to Reduce Your Exposure to Identity Theft
There are several things you can do to reduce the possibility of identity theft .
BUY A SHREDDER
You can find a small easy to store shredder for less that $20 at almost any office supply store. There is no reason not to have one of these. Any document that includes personal
information or your Social Security number should be shredded before you throw it away.
KEEP YOUR FINANCIAL DOCUMENTS HIDDEN AND SECURE
You would think that most people are perfectly trustworthy but some are not. Is it possible that an appliance repair man, handy man or even a guest in your home could access your personal
financial documents? Not if they are under lock and key!
PROTECT OUTGOING MAIL
Think of everything that goes in your mail. Checks give potential thieves your name, bank account number and routing number. Credit card account numbers are listed on the very coupons
they mail each month to send your payments in. You do not want this stuff to get in the wrong hands. If you haven’t graduated to the great convenience of on line bill paying you should
consider dropping off your bills at the nearest post office rather than leaving it out in your mail box where anyone can get it. Make sure your online bill pay offers encryption and other
security measures to keep your transactions safe from criminals.
BE CAUTIOUS OF SOLICITORS
Don’t give out your credit card number, Social Security number, or any sensitive financial information by email and don’t do it by phone unless you initiated the contact. Make sure you
trust the business before divulging any information.
OPT OUT OF CREDIT CARD AND JUNK MAIL SOLICITATIONS
The three major credit bureaus have a toll free number (888-5OPT-OUT) that allows you to take your name off marketing lists that are sold to credit card companies. Registering will not
eliminate all credit card solicitations, but will cut down the volume quite a bit. The less offers you get in the mail means less chances thieves will have to steal them.
MONITOR YOUR CREDIT REPORTS
Once a year was considered sufficient to get your free credit report but experts say you should check your credit at least once a quarter. Our research has led us
to believe that Identity Guard is one of the best tools to monitor your credit. Identity Guard not only provides you with credit reports and scores from all 3 bureaus for free, but also
includes 3-bureau monitoring and protection against identity theft for only $14.99. This complete coverage includes the top-rated Zone Alarm ® Internet Security Software, daily scanning
of public records and internet black markets for misuse of personal information, a free public record report and ongoing monitoring, and identity theft insurance. You also get quarterly
updates to your credit report with all three scores. There’s no contract and you can cancel at anytime.
There was a reported 10 million cases of identity theft last year alone. Don’t let it happen to you. Reduce your exposure by following these simple tips and for added piece of mind
seriously consider signing up for the Identity Guard protection. At the very least you'll get your free credit report.
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About Equifax
Equifax empowers businesses and consumers with information they can trust. A global leader in information solutions, we leverage one of the largest sources of consumer and commercial data, along with advanced analytics and proprietary technology, to create customized insights that enrich both the performance of businesses and the lives of consumers.
Customers have trusted Equifax for over 100 years to deliver innovative solutions with the highest integrity and reliability. Businesses - large and small - rely on us for consumer and business credit intelligence, portfolio management, fraud detection, decisioning technology, marketing tools, and much more. We empower individual consumers to manage their personal credit information, protect their identity, and maximize their financial well-being.
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About Experian
Experian® is a global leader in consumer and business credit reporting and offers analytical tools for consumers to help manage the risk and reward of financial decisions. Experian promotes greater financial health and opportunity among consumers by enabling them to understand, manage and protect their personal information, helping them control financial aspects of key life events, and make the most advantageous financial and purchasing decisions.
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About Transunion
TransUnion is a global leader in credit and information management. For more than 30 years, transunion has worked with businesses and consumers to gather, analyze and deliver the critical information needed to build strong economies throughout the world. The result? Businesses can better manage risk and customer relationships. And consumers can better understand and manage credit so they can achieve their financial goals. Our dedicated associates support more than 50,000 customers on five continents and more than 500 million consumers worldwide.
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