Goodbye to Debt
The new American status symbol and how to achieve it
Credit scoring was invented by Fair, Isaac & Co., of San Rafael, Calif. Fair, Isaac's risk scores generally range from 300-950. The higher the score, the safer the borrower.
Checking your report Credit reports are free to anyone denied credit, insurance, or a job within the past 60 days. Otherwise, they cost $8 in most states. To get a copy, contact:
Equifax (800) 685-1111; http://www.equifax.com
Experian (888) 397-3742; http://www.experian.com
Trans Union (800) 888-4213; http://www.transunion.com
Taking pre-emptive action If your credit history is spotty, you should try to improve it before you apply for a loan, particularly a mortgage. Fannie Mae's HomePath Hotline can refer you to a local nonprofit agency in your area that can provide counseling. Visit http://www.homepath.com or call (800) 732-6643.
Settling disputes Accurate negative entries stay on your credit report for seven years (bankruptcy, 10 years). By law, if you tell a credit bureau in writing that an item is incorrect, it must investigate within 30 days. The Federal Trade Commission's brochures "Fair Credit Report" and "How to Dispute Credit Report Errors" explain your rights. Visit http://www.ftc.gov or write to: Consumer Response Center, FTC, Washington, DC 20580.
What counts most in your score? 1. Previous payment performance. The most predictive factor for credit risk is payment history. How severe is a delinquency? A single 30-day late payment is not as serious as a single 90-day late payment. How recent is the inquiry? A 30-day late payment last month is worse than one three years ago. How frequent are the bad payments? Missing a couple of payments within the past two months is a lot worse than a severe delinquency that occurred several years ago. 2. Outstanding debt. The more debt you carry and the higher the ratio of balances to credit limits, the more risky you are. Credit-card debt, which is unsecured and can easily increase is considered more risky than secured debt such as mortgages and car loans. 3. Age of credit history. The shorter the credit history, the higher the risk. But that can be offset by factors such as low balances and a lack of deliquencies. 4. Inquiries and new accounts. When you apply for credit, the credit grantor pulls your credit report--this is called an "inquiry". Inquiries mean you are shopping for credit, which is viewed unfavorably. But don't worry about inquiries for account-monitoring purposes or for prescreened solicitations, which aren't counted. Any inquiries made by a car dealership in a 14-day period are considered one inquiry; with mortgages, any inquiries made within a 30-day period count as one. Recently obtained credit is viewed more negatively than long-established accounts. 5. Type of credit. A broad range of credit types can be health. It's not good to have too many credit cards--more than five may bring the score down. But having zero credit cards can also be a minus. And use them normally; you can get points knocked off for never using your credit. People who get finance company loans are riskier than those who don't, as finance companies are viewed as lenders of last resort.
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