Credit Score is Key to Your Future
Most people know that a credit score is important when it comes to getting a mortgage.
"The credit score is really the key to your financial life, and we’re not just talking about getting credit," said Travis Plunkett, legislative director of the Consumer Federation of America.
Credit scores are used by a host of people and businesses, including lenders, employers, insurance agents, landlords and utilities.
That’s why it’s so important to maintain your creditworthiness — even when you are in your 20s and 30s, have launched a career and are still paying off student debt.
There are several scoring methods, but the most common is the FICO score, developed by Fair, Isaac and Co., a leading credit analysis and risk management firm.
Half the population scores above 720, while 15 percent come in below 600, according to Andy Jolls, vice president for Fair Isaac’s MyFICO.com, which sells credit-monitoring products and provides information on scoring.
Simple mistakes, such as missing a single bill or a loan payment or charging to the limit, stay on your record for years and can cost you in many ways, including tens of thousands of dollars in higher interest rates over the life of a loan.
The score is based on your credit report, which lists all your debts — including credit cards, car loans, mortgages and student loans — and your repayment history.
Some factors, such as whether you pay your bills on time and how much debt you have, carry special weight.
The best way to achieve a good score is to establish credit by having a few credit cards and loans, then paying your bills on time and keeping your debts at a minimum.
Don’t ignore doctor bills, library charges or phone bills, either.
These can be sent to collection agencies, and that can really hurt your creditworthiness, said Gerri Detweiler, author of The Ultimate Credit Handbook: How to Cut Your Debt and Have a Lifetime of Great Credit.
"Missing a bill payment on a credit card doesn’t amount to just a $5 or $10 finance charge," said Matt Fellowes, a Brookings Institution scholar who has studied credit scoring. “It can amount to a world of roadblocks going forward.”
Although delinquencies stay on your report for seven years, you can start raising your score in as little as six months. Here’s how to begin:
First, it’s important to review your credit reports to see what’s listed there and to make sure it’s all accurate. You are entitled to a free report from each of the three main agencies, TransUnion, Equifax and Experian, once a year. You must go through the Web site AnnualCreditReport.com to obtain the reports without charge. Scores cost extra, usually $5 to $10, but they are worth the price, experts said.
If there are mistakes in your report, dispute them in writing or online with the agencies, said Luci Duni, director of consumer education with TransUnion’s TrueCredit.com.
The credit bureaus must respond within 30 days.
Meanwhile, try to stay on top of your bills, pay down your debts, close unnecessary lines of credit and refrain from opening new accounts.
- Source: Tami Luhby, Credit score is key to future, Newsday, via the Orlando Sentinel, Dec. 3, 2006
