Around the same time, a book came across my desk for review, The Road to 850: Proven Strategies for Increasing Your Credit Score by Al Bingham (Paladin Press). Many books explain credit scores, but I prefer suggesting books on complicated topics such as credit scores and reporting to be simple and easily digestible to novices. More importantly, it should allow the reader to take simple actions, although some are not easy, toward hitting their particular goal. The Road to 850 seemed like it might be that type of book.

In 1995, credit scores were made officially available, and 850 is the highest score that reporting agencies give to represent creditworthiness. The author begins the book by explaining the cost of your credit score. Nowadays your credit score can affect everything from your job and career choices to what you’ll pay for insurance. For example, a score of 680 could cost you about $20,000 more than an 850 score on your home mortgage. The same difference can add an extra $150 annually to your insurance premium.

The book mentions the three major reporting agencies, Equifax, Experian, and TransUnion, and explains what gets reported to them and what they report. It gives insight into how your score is derived. Each line is well explained to make sense out of a report that can look confusing.

Confusion of credit scores is common, and for good reason. Even if you know your score and are familiar with how to read your report, there are additional credit-scoring models that may show you one score when you’re at home and another when your lender pulls a report for you. To keep confusion to a minimum, the author recommends that you use one service for your credit-score monitoring, just to see how you much your score has gone up or down.

It’s been widely noted that inquiries from various financial institutions may affect your score. The author explains how reporting agencies classify inquiries by who made them, whether it is a bank, utility company, mortgage lender, finance company, or others. Multiple inquirers have minimal impact on your score, but when you shop for a home or car, auto and mortgage inquiries can be handled differently from other inquiries. The classic model gives fourteen days to choose financing when you are shopping for a car or home.

The author recognizes how life events may have an affect on your score. He goes into details on events such as moving, divorce, foreclosure, and bankruptcy, among others. He gives healthy caution on the use of credit-repair companies, because some can do more harm than good.

Finally The Road to 850 lists the credit score codes, the sometimes-cryptic sentences that accompany a report, and enlightens us on their true meaning. He also strongly recommends that you contact a service professional with matters that pertain to you specifically.

After heading down The Road to 850, I’ve found it is a book I’ll refer to my old friend. Take a look for yourself. It’s worth it.

Jonathan had everything going for him at an interview with a prestigious insurance company. References, his degree, and a couple of years working for a smaller firm left him feeling confident. Unfortunately, his less-than-perfect credit history would ultimately cost him this job opportunity.
More often than not, credit scores are being used as the new way to measure whether or not you can rent apartments, get preferred car and life insurance rates, have the cell phone you want; more recently, these scores are even determining whether or not you will get the job of your dreams.
Credit scores are simply a three-digit number used to measure someone’s financial responsibility. They range from 300 to 850, where higher is better.
As unfair as it may seem to use credit history to determine someone’s ability to hold a job or do a job properly, this nonetheless seems to be the trend. And who said life was fair anyway?
Undoubtedly, it is now more important than ever to make sure we as consumers check our scores and do all that we can to keep them at a decent range. The average score is 640. A score above 650 is generally a very good score, and consumers with these scores or higher have the best chance of getting preferred interest rates (and that job you want). So, when was the last time you checked your credit score?
To obtain a credit score you will first need to secure a credit report. A credit report is the document used to feed information into the formula that determines your score. There are three ways to get your credit score: over the phone, through the mail, or via the Internet. You will need a credit card or debit card to secure your credit score over the phone or Internet. The website www.annualcreditreport.com is the official website of the three credit bureaus, and it is designed so consumers can get one free copy of their credit report each year from each of the three bureaus.

For more information please contact Andrea Hardy at the CRT H.O.M.E. (Home Ownership Made Easy) Center. She can be reached at (860) 560-4210 or hardya@crtct.org.

Lenders review a variety of information whenever they need to decide whether a consumer loan applicant represents an acceptable level of risk. In this process, lenders review one or more credit scores. A credit score is typically a three-digit number that tells a lender how likely an individual is to repay a loan, and whether that person’s payments will be made on time. 

FICO Scores
The standard credit scoring system is one that was developed by the Fair Isaac Corporation (FICO). It allows the information within your credit report to be distilled into a three-digit number between 300 and 850. The higher the score, the more creditworthy the consumer is considered to be. Why is having a high credit score important? Because the higher your credit score is, the lower the interest rate that will be offered to you when you need to finance a purchase.

To calculate a credit score, each aspect of an applicant’s relevant financial information is assigned a value. This will include such items as the number of lines of credit that person has and how the individual has managed the credit. The credit score is plugged into a formula, and after some additional number crunching, an overall score is determined.

The Five Major Components of a FICO Credit Score  
Payment History: 35%
Amounts Owed: 30% 
Length of Credit History: 15% 
New Credit: 10% 
Types of Credit Used: 10% 
 
You Actually Have Three FICO Scores
There are three major credit bureaus—TransUnion, Equifax, and Experian—and each maintains separate credit files on you because different creditors report to different bureaus. A credit bureau, also referred to as a credit reporting agency, is simply a clearinghouse for credit history information. Creditors provide these bureaus with information on how their customers pay their bills. Because each of these agencies has different information on how you manage your credit, the scores that each provides to lenders vary. 

Under this system, credit-reporting agencies used their own proprietary formulas, based on the FICO model, to generate their own scores. Equifax called its FICO-based score the “Beacon Score,” Experian used the more descriptive “Experian/Fair Isaac Risk Model Score,” while TransUnion referred to its as the “Empirica Score.”

No matter the name of the resulting score, the numnrt is only as accurate as the data being used in the equation. If the information were identical at all three credit-reporting agencies, their scores would generally be within a few points of each other. Unfortunately, this is not the case. Lenders generally report to one of bureaus, at tops two, but not to all three. That’s why your file at one bureau may vary significantly from your file at the others; they haven’t received the same data about you. To further complicate matters, the reporting agencies may also report the same information in different ways, resulting in slight fluctuations in each of the scores. 

Your Score Can Change Daily!
Every time you make a payment to your creditor, use your credit card for a purchase, or open a new line of credit, you affect your score. This is because the FICO scoring model considers a variety of circumstances when calculating your score. If any of these circumstances changes, so will your score. Therefore, your credit score today can vary greatly from your score tomorrow, or a week from now.

Reviewing Credit
The Fair and Accurate Credit Transactions Act (FACTA) of 2003 allows consumers to receive one free copy of each of their credit reports each year from each of the three major credit bureaus. You can receive your copy by contacting them directly at the numbers listed below, or by visiting www.annualcreditreport.com. Beware: There are many other websites claiming to offer free credit reports, but they usually include some stipulation that you must sign up for one of the services they offer.   
 
Equifax 
PO Box 740241, Atlanta, GA 30374-0241
800-685-1111
Website: www.equifax.com

Experian
PO Box 2002, Allen, TX 75013-2002
888-397-3742
Website: www.experian.com

TransUnion
PO Box 2000, Chester, PA 19022
800-888-4213
Website: www.tuc.com

 
Thom Fox is a public speaker and personal finance author who has helped to develop numerous programs for both young people and adults. As an expert in the field of personal finance, Mr. Fox has served as a guest lecturer for the Bruce Wells Scholarship Upward Bound program at Clark University and a panelist for both the Nichols College “Cycle of Debt in America” student Q & A and the California JumpStart Coalition “Innovative Financial Literacy for Youth” conference.

When you’re developing a long-term strategy to improve your credit, you need to focus on two main areas: the accuracy of your credit reports, and paying down credit card debt. By ensuring that the information contained in your credit profile is correct and by maintaining minimal debt, you reduce the amount of risk you present to lenders. The less risky a candidate you are, the lower the interest rates you’ll be offered.

Ensure your credit reports are accurate
It has been reported that close to 40% of all the credit reports in our country contain errors. This figure translates to roughly 190,000,000 incorrect reports. To ensure that your report is accurate, order a copy of each of your credit reports from TransUnion, Experian and Equifax. When you receive your reports, review the information closely. Be on the lookout for accounts that may not be yours, and check to be sure that your creditors have reported your payment history correctly.

If you find inaccurate or incomplete entries, you can take steps to correct them. You can file a dispute with the credit-reporting agency, listing the inaccurate information. Your dispute should be in writing and contain:

1. your complete name and address

2. a clear identification of each item in dispute

3. an explanation as to why you’re disputing the information

4. a request that an investigation be initiated

Be sure to include copies (not originals) of documents that support your claim. Send your letter by certified mail, return receipt requested, so you have proof that your claim was received. Also, keep copies of your dispute letter and enclosures for your records.

By law, the agency must investigate the item, usually within thirty days. During its investigation it must communicate with the information provider regarding the item in question so the provider can determine whether or not the dispute is valid. The information provider must conduct a review of the claim and report its findings to the agency. If the information provider finds that the disputed information is inaccurate, it must then notify all three credit-reporting agencies so your reports can be updated.

If the investigation does not resolve your dispute, you also have the right to add a one-hundred-word statement to your file, which must be included in future reports. At the conclusion of the investigation, the agency must provide you with a written account of the outcome. If the investigation results in any change, agencies are also required to provide an updated copy of your report.

Reduce your debt
While you’re in the process of reviewing your credit, develop a plan to pay down your debt. The following suggestions show how you can approach this task.

1. Stop using credit cards
Credit cards usually charge high rates of interest. Learn to pay by check or cash for things you want or need and stop increasing your credit card debt.

2. Request lower interest rates
If you have a good repayment history, you may be in a good position to negotiate an interest rate lower than the one you’re currently being charged. You can inform the creditor about lower offers you’ve received from other lenders and request that the creditor match or even beat those offers. Even if you’re able to get your interest rate reduced by just two percentage points, you’ll experience substantial savings over time.

3. Move high-interest-rate credit card balances to low-interest-rate credit cards
If, for example, you’re being charged 21% on one card, move the balance to a credit card charging 12%.

4. Target high interest cards
Continue to send more than the minimum payments to all of your credit cards while putting the bulk of your funds toward the card with the highest interest rate. When this account has been repaid, apply those funds to the card with the next highest interest rate. Continue this process until all of your cards have been repaid.

5. Make extra payments on credit cards
When you make your credit card payments, send an additional $5.00 or $10.00. Your debt will be paid off quicker, and you’ll save on interest charges. When using this method, your creditors may recognize that you have been sending extra payments and offer you a “payment holiday.” Stay committed to your plan and continue to make payments every month, even if the debtor claims no payment is due that month.

Thom Fox is a public speaker and personal finance author who has helped develop numerous programs for young people and adults. He can be reached at thomjfox@comcast.net