ReAnn Rothwell’s Money Saving Ideas, Tax & Organizing Tips

Do you know what your credit score is, or if you have one at all? Especially in these hard times, we all should be paying attention and you should learn how to boost your rating and get the credit rate you deserve.

Credit Scores

Whether you left school before the Vietnam War or received your diploma yesterday, each of us is always being graded on how we handle credit. The score you get — a number ranging from 300 to 850 — is no trivial matter. That number (known as the Fair Isaac Corporation or FICO score, named for the analytical company that devised it) determines the rates you get on your mortgage and car loans, and even how much your insurance is going to cost you.

For instance, say a score of 650 gets you a mortgage rate of about 7.9 percent. Boost your score to 750 and you could qualify for an interest rate that’s 1 or even 2 percentage points lower, saving thousands over the life of a 30-year, fixed-rate loan. Yet many consumers do not know their score. In addition, some people — particularly older women — do not even have a FICO score, typically because their mortgage and credit cards are in the name of their spouses. (My mother found out that she falls in that category when my father passed away!)

You need to remember that all marriages end, even the happy ones - even if the cause is death of one of the spouses.  If the remaining spouse does not have credit in his/her name, there is going to be problems.” For instance, if the newly single spouse wants to start a business later in life or simply open a department store charge account, he/she needs to show that credit is handled well. Lenders tend to be skittish about extending credit right now - without a good FICO score; they are running far and fast.

It is relatively easy to establish a credit history, but difficult to fix your record if you have mismanaged credit in the past. Still, making there are some moves that can boost your credit score.

Your Report

Thanks to recent changes in the Federal Fair Credit Reporting Act the three (3) nationwide consumer reporting agencies (TransUnion, Equifax, and Experian) are required to provide, at your request, a copy of your free credit report once every twelve months. When you receive it, go over it carefully looking for any errors or omissions then file it in a safe place and use it to compare to next year’s. Having your prior years report and being able to compare your current report to it will make it easier to spot changes and make any corrections.

You can get those reports — although not your FICO score — from the three major credit bureaus: Experian (www.experian.com; 888-397-3742); TransUnion (www.transunion.com; 800-916-8800); and Equifax (www.equifax.com; 800-685-1111). Alternatively, you can visit the one site authorized by all three agencies to request the report. By checking out the Internet website: www.annualcreditreport.com.

Fair Isaac offers all three reports plus your FICO score (www.myfico.com). Costs vary, as does the amount of information each report provides, but any one report should give a good bird’s-eye view of your credit.

However, to get the most comprehensive overview of your credit, it is a good idea to order all three reports plus your FICO score annually. That is because some creditors may report to one bureau but not another. Or if those creditors report to every bureau, they may do so at different times of the month. Therefore, your scores with each bureau will differ slightly.

Generally, if your score is 730 or higher, you can apply for credit with some confidence.

Improve Your Score

Now that you have your score, look for ways to boost it. Make sure that the information in the report is accurate. Do you recognize all of the accounts listed? Sometimes information from someone with a similar name may end up in your file. For instance, Sue A Jones may find accounts on his report that belong to Sue B Jones, or Bob Smith may find accounts belonging to Bog Smith Jr.   If you have ever had your wallet or ID stolen, pay extra attention for years afterward.  If you see an unfamiliar account, call the creditor right away.

If you are in a dispute over a charge, bear in mind that it may show up on your report as being paid late or not at all for months, a factor that can damage your FICO score.

Next, check to see if your report contains four two-digit codes. These “reason codes” explain why your score is not higher. . For example, you may need to improve your mix of credit by adding a major credit card to a file containing mainly department store cards. Perhaps you are maxing out your limits. If you have $12,000 in credit and are using $10,000 of it, you can improve your score by paying down your debt.  

Sometimes you just have to let time pass for your score to improve. Mistakes such as paying late stay on your report for seven years. However, the older the information, generally the less damaging it is.

 If you are in serious trouble - with bankruptcy, a tax lien, or judgment - Or there is an error on your report that you cannot get fixed or are in the process of fixing, you can write a 100-word statement that the credit bureaus will include in the report. You can say, ‘I was going through a divorce and my ex was supposed to pay the bills but did not’. However, many lenders rarely if ever give such statements the consideration they deserve anymore, but it certainly cannot hurt to try.

Divorce is one the biggest causes of credit problems. A judge may state that your ex-spouse is responsible for half of the medical bills, but if your name is on the account, you are still responsible to the credit world for the entire bill. You still have a contract with the creditor and the divorce decree has nothing to do with that.  If you cannot pay off all joint accounts immediately, my advice is for both parties to take out personal consolidation loans to pay off debts. I advise totally breaking your financial tie to your ex.

The ‘No Credit’ Problem

If your credit history is a blank slate, getting credit immediately may take time and may be very difficult in these economic times. On the plus side, at least you are starting with a clean record and can begin building your history right away! Open a credit account (department store cards are generally easy to get) and keep it active for six months and one day — the length of time needed to generate a FICO score. Of course, you do not have to wait that long if you are married and can become a joint cardholder on your spouse’s account. Such piggybacking instantly taps into your spouse’s entire credit history — a smart move if it is a good record.

As you build a history, keep in mind that revolving credit — such as Visa and MasterCard — count more toward a score than installment loans such as mortgages, which have a fixed monthly payment. In short, it provides a better snapshot of how you handle money.

If you have trouble getting a card, a secured card may be an excellent choice. As its name suggests, you secure your credit with your own savings. For instance, if you stash $100 in savings with the lending institution, you can borrow up to $100. Tuck away $1,000 and the limit jumps that much. Once you have held a secured card for six months, apply for a regular credit or department store card.

Finally, the most critical thing is to keep your credit score high by paying on time!

Credit Repair Companies

You have probably noticed the ads on television or the Internet from companies that claim to “erase” bad credit or “eliminate” bankruptcies and judgments against you. For a fee, of course.

As appealing as it sounds, according to the U.S. Federal Trade Commission (FTC), there is very little that these so-called credit repair companies can do for you that you cannot do for yourself free. Moreover, some of the things such companies promise may not be legal. For example, no one can legally remove any accurate information from your credit report, whether that information is positive or not. In addition, lying about negative information in an attempt to remove it is a federal crime.

As a rule, the FTC warns consumers to avoid companies that do the following:  

• Ask for payment before they provide any service.
• Tell you to dispute all information in your credit report, even information you know is correct.
• Advise you to create a new credit report or credit identity.

If you have paid a credit, repair company and believe you have been scammed, contact your local consumer affairs office or state attorney general. For more information about legal credit services, go to the FTC Web site at www.ftc.gov.