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You and Your Credit

By Rod Davis, CEO BBB serving Southeast Florida and the Caribbean

Your credit score has a direct impact on your ability to get loans and how much you pay for loans and credit. According to the Federal Trade Commission, “[c]reditors use credit scoring systems to figure out if you’d be a good risk for credit cards, auto loans, and mortgages. Phone companies and companies selling auto insurance and home insurance also use credit scores along with other factors to decide whether to sell you a policy or service. Credit scores also can affect the terms of the credit you’re offered. Having a higher credit score means businesses see you as less of a financial risk, which means you’re more likely to get credit or pay less for it.”

A credit score is a number that represents a rating of how likely you are to repay a loan and make the payments on time. Lenders calculate your credit score using information in your credit report, like your history of repaying money you borrowed, the types of loans you’ve had, how long you have had a particular line of credit or loan, and how much total debt you owe. Credit scoring systems calculate your credit score in different ways, but the scoring system most lenders use is the FICO score. Many different kinds of businesses use your credit score to help decide whether to give you credit and what the terms will be. That includes what interest rate you’ll pay to borrow money.

How do you find out your credit score?

Federal Law permits consumers to obtain a copy of their credit report from the website annualcreditreport.com once a year.  Since your credit score is based on your management of credit and payment history, routinely monitoring and correcting errors on your credit report is essential. After you check out your credit reports, the next step to take is to fix any errors. Contact each of the three reporting agencies to report the errors, and begin the process to correct them. This often requires sending in a letter, including your name and address, exactly which items you’d like to dispute and why. Include copies of supporting documentation and a copy of your report with the errors circled or highlighted. Also contact the provider of the incorrect information and have it fixed on their end, so the problem does not reappear in the future.

 The Consumer Financial Protection Bureau shares this advice to obtain your credit score. 

 There are four main ways to get a credit score. First, check your credit card or other loan statements. Many major credit card companies and some auto loan companies have begun to provide credit scores for all their customers on a monthly basis. The score is usually listed on your monthly statement, or can be found by logging in to your account online.

Second, talk to a non-profit counselor. Non-profit credit counselors and HUD-approved housing counselors can often provide you with a free credit report and score and help you review them. Third, use a credit score service. Many services and websites advertise a “free credit score.” Some sites may be funded through advertising and not charge a fee. Other sites may require that you sign up for a credit monitoring service with a monthly subscription fee in order to get your “free” score. These services are often advertised as “free” trials, but if you don’t cancel within the specified period (often as short as one week), you could be on the hook for a monthly fee. Before you sign up to try one of these services, be sure you know what you are signing up for and how much it really costs.

Finally, buy a score. You can buy a score directly from the credit reporting companies. You can buy your FICO credit score at myfico.com. Other services may also offer scores for purchase. If you decide to purchase a credit score, you are not required to purchase credit protection, identity theft monitoring, or other services that may be offered at the same time.

There are ways to evaluate and improve your credit score. Investopedia provides a breakdown of credit scores by state and the range of scores to help you determine if you need to work to improve your score. It can take time to improve a credit score, but it can be done. Pay your bills on time and keep your debt as low as possible.

Even if you pay off your credit cards monthly, a lower balance to approved limit will help your score. Keep the number of credit lines and applications to a limited number. A long credit history with a positive record is a good thing.

Too many inquiries on your credit can also have a negative effect, so be careful about generating too many inquiries by exploring multiple credit opportunities.

If you are needing assistance with your credit, find a trustworthy counselor. The Consumer Financial Protection Bureau offers tips on their website: ConsumerFinance.gov.

You can also check out any option you are considering at BBB.org.