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Your Credit Score

Much of the institutional loan industry is driven by credit. While having spotless credit is not a necessity, it is certainly a good asset, if used wisely. Your credit history is maintained primarily by three large companies, known as the credit bureaus: Equifax, TransUnion, and Experian (formerly TRW). Your credit report has “headers” that contain information about your addresses (every one they can find), phone numbers (even the unlisted ones), employer, Social Security number, aliases, and date of birth. This information is usually reported by banks and credit card companies that report to the credit bureaus (be careful about giving your unlisted address or phone number to your credit card company—it may end up on your credit file). Some information comes from public records, such as court filings and property records. Your credit report also contains a history of nearly every charge card, loan, or other extension of credit that you ever had. It will show the type of loan (e.g., installment loan or revolving credit), the maximum you can borrow on the account, a history of payments, and the amount you currently owe. It will also show information from public records, such as judgments, IRS liens, and bankruptcy filings. Some debts are reported by collection agencies, such as unpaid phone, utility, and cable TV bills. Your credit report will also show every company that pulled your credit report within the past two years (called an “inquiry”).

How long does information stay on my credit report?

In theory, information stays on your credit report indefinitely. However, federal law—the Fair Credit Reporting Act (FCRA)—requires that any negative remarks be removed upon request after seven years (except for bankruptcy filing, which may remain for ten years). If you don’t ask, however, negative information won’t always go away.

How do I get negative information removed from my credit report?

You may find some information on your report that is just plain wrong. Accounts that are not yours, judgments against people with similar names, and duplicate items are very common. Some items are more subtle, such as the fact that a debt is listed as still unpaid when in fact is was discharged in your bankruptcy. Ask the credit bureau in writing to reinvestigate the information. Under federal law, the bureau must reinvestigate and report back within 30 days. In some states, the law requires a shorter time period. If the bureau does not report back within the requisite time period, the item must be removed. If you have “bad” items on your credit report, such as late payments, charge-offs, judgments, or a bankruptcy, the credit bureaus can legally report this information. However, if the information is stated in an incorrect or misleading format, you can still ask the bureaus to reinvestigate the information. Sometimes you will get lucky and the bureau does not report back within the required time period. In this event, the information must be removed.

What things affect my credit?

Credit reports are based on a computer model, called a FICO score, developed by Fair Isaac, and Co. (FICO, www.fairisaac.com). Although the FICO formula is not generally known to the public, certain things tend to improve your score, such as the following:

• Installment loans (e.g., home mortgage, automobile) that are paid on time

• A few open credit lines with low balances

• A history of living at the same address

• Owning a home Beyond the obvious late payments, judgments, and bankruptcy, there are certain subtle things that lower your score, such as the following:

• Too many revolving credit card accounts

• Too many inquiries

• High balances on credit cards

• Too many recently-opened accounts

How can I improve my credit?

A good credit score is generally above 660. Some loans are so stringent that they require a FICO score above 700. If your score is above 700, you have excellent credit. The bad news is, if you keep borrowing, your score will fall, even if you are current on all payments. So, in short, use your credit wisely. You can check your own FICO score at <www.fairisaac.com>. If you do not have late payments but want to improve your credit score, you should

• stay away from multiple department store cards—too many open accounts;

• bring a copy of your credit report when shopping for a loan— car dealers may run your credit a dozen times in one day of shopping, leaving damaging “inquiries.”

• separate your credit file from your spouse’s and remove each other’s names from your credit cards; if you have authorization to use your spouse’s card, it ends up on your credit file, too.