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| Sholeh Patrick |
Know your credit score
Offers to buy now, pay later are everywhere, proliferating nearly as much as the national debt. Even for consumers who are careful to limit borrowing to the necessaries like cars, homes and refrigerators, a good credit score is a must-have.
What it is: A credit score is a risk assessment -- a number that tells lenders how likely you are to pay back the money you're loaned, and to pay it on time. Lender requirements vary, but a good score generally hovers near 700.
How they get it: The number is calculated from a snapshot -- a one-time look -- of your credit report: credit type (10 percent), how much you've already borrowed (30 percent), whether or not on time (35 percent), and how long you've had credit history (15 percent), and how much is new (10 percent).
Who creates it: FICO (Fair Isaac Credit Organization) is a private corporation and the most widely used credit scorer. They get the information from the three most common credit bureaus (who make credit reports): Experian, Equifax and TransUnion.
Why it exists: Credit scores have sped up the loan application process, providing quicker risk evaluation for lenders who otherwise would compile credit reports themselves. Some still do, but credit scores can provide fast "pre-approval" and offer better interest, more money, and other terms while negotiating with you. It also cuts costs for the lenders, who may pass on the savings in lower fees.
Past mistakes: the older the credit problem, the less it counts in scoring. Late payments lower your score, and bankruptcy quickly plummets it and for longer. Recency and frequency count. Checking on your score six to 12 months before applying for a big loan can give you time to fix problems with the credit bureaus.
Only one factor: Lenders also use debt to income ratios, job security/time in job, and other factors to determine loan risk.
Tips: Pay on time and don't let missed payments go too long. Know that paying after collection notices, while helpful, doesn't remove it from your report. If you lose a job or know you won't keep up, call your creditors and make arrangements, or call a credit counselor; this may lesson the credit damage.
Know too that pay-for-repair services, despite misleading claims, can not "remove" accurate, bad history from your report. Don't apply for too many cards; this can lower your score.
One final warning: Private companies and the three credit bureaus sell their own "credit scores," not to be confused with the official one. Each may score differently, and have different information, not necessarily worth paying for.
If you've been turned down for credit, the law entitles you to know why within 30 days, and a free copy of your credit report (877) 322-8228 within 60 days. FICO can be contacted at www.fico.org.
Sholeh Patrick is an attorney and a columnist for the Hagadone News Network. Send e-mail to sholehjo@hotmail.com.
