HOW TO IMPROVE YOUR CREDIT SCORE

WHAT IS A CREDIT SCORE?

A credit score is a number computed by a credit bureau and used to indicate how likely a consumer is to pay back a loan. Your score is computed by a computer program (also referred to as a mathematical or computer “model”) that takes certain data from your credit bureau file and uses that data to calculate your score.

Each of the three credit bureaus computes your score using a similar computer model. The model was created by the Fair, Isaac and Company, Inc., (hence the term “FICO” score) and is sold to the three major credit bureaus for their use with their data. If the information about you at all three credit bureaus is the same, then your score from each of the three bureaus should be essentially the same.

However, the information about you can be different at the three bureaus.

WHAT TYPE OF INFORMATION IS USED TO DETERMINE MY CREDIT SCORE?

Your credit score is based on credit-related information-both positive and negative-in your credit-bureau file, including:

          Payment history

          Outstanding debts

          Credit history

          Inquiries and new account openings

          Types of credit in use

WHAT INFORMATION IS NOT USED TO CALCULATE MY CREDIT SCORE?

Your credit score is not based on information about your race, color, national origin, religion, gender, marital status, or age. It also doesn’t use information about your income or assets. However, income, assets, and other factors are used in other ways by lenders to help them decide whether to lend you money.

WHY WOULD MY INFORMATION BE DIFFERENT AT THE TREE CREDIT BUREAUS?

Different lenders-such as credit-card companies, stores, finance companies, landlords, utility companies, etc.-report to different credit bureaus. Some report to all three; some to only one or two. So it’s possible that each of the three bureaus might have different information about you. It’s also quite possible that one or more of the three bureaus has incorrect information about some of your accounts. You should periodically (about once a year) get a copy of your credit report from each of the credit bureaus and check them for accuracy. If you find an inaccuracy, you should immediately request that it be corrected. Your credit report should have information about how to request corrections.

Or, you can contact the credit bureaus at the addresses and telephone numbers below:

Equifax Information Services, LLC
PO Box 740241
Atlanta, GA 30374
800-685-1111
www.equifax.com

Experian
701 Experian Pkwy.
PO Box 949
Allen, TX 75013
888-397-3742
www.experian.com

TransUnion LLC
Consumer Disclosure Center
PO Box 1000
Chester, PA 19022
800-888-4213 800-916-8800
www.tuc.com

WHO USES CREDIT SCORES?

Lenders, including credit-card companies and mortgage companies, use credit scores to help them decide whether lending you money would be a good risk for them. They also use other information about you, such as your income, assets, debt-to-income ratio, employment information, etc., to help them make a decision.

WHAT IS CONSIDERED A GOOD CREDIT SCORE?

The number that is considered “good” varies from lender to lender and from loan “product” to loan product. However, most lenders consider a score below about 620 to be bad and a score above 800 to be very good. These designations are based in part on the following data from Fair, Isaac and Company.

Consumers’ Credit-Score Range Number of Good Loans (paid on time) to Bad Loans (not paid on time or defaulted on)

          Below 600- 8 good for every 1 bad

          700-719- 123 good for every 1 bad

          Above 800- 1,292 good for every 1 bad

WHAT CAN I DO TO IMPROVE MY CREDIT SCORE?

So, how do you improve your credit score? While there is no “guaranteed” formula for doing so, obviously the better your payment record, the better off you’ll be. Let’s look at some things you can do:

First, get a copy of your credit report from all three credit bureaus. Because your score is based on the data in your files, you should make sure that the data is accurate. Request that any incorrect data be corrected. Then follow up by getting another copy of the report to make sure that it has, indeed, been corrected.

Request that all three bureaus not accept unauthorized inquiries. Many credit card companies, finance companies, etc., inquire about your credit history. That’s why you get those “pre-approved” credit card and home equity offers in the mail. However, those inquiries can hurt your credit score. Similarly, you should not apply for a bunch of credit cards or credit lines, especially if your credit history is not good or you have a lot of debt and are likely to be turned down. That can also hurt your credit score.

Be sure to have established a credit history-a good one! If you can, you should have about three credit cards that you pay the minimum on-on time-every month. If you don’t have any credit cards or loans, that can hurt your score, too. So can too many. If you don’t quality for a regular credit card, apply for a “secured” card. With a secured card, you put money in an account and get a credit card with a limit based on a percentage (sometimes 100%) of that amount. Your payment history on the card is reported to the credit bureau and helps you establish a payment history. NOTE: Debit cards do not help you establish a credit history because they work like checks drawn against your checking account.

Minimize finance-company loans. It’s better not to have any.

Keep up your good payment record. Don’t slack off. The longer you pay on time, the more points you get. Your payment history and current payment pattern are important.

If you have derogatory public information (bankruptcy, foreclosure, collections, etc.) in your file, the more time that has passed, the better. Better yet, don’t do anything that will result in that type of derogatory information in your file.