|
    |
                      
Find the Best Loan Offer with No obligation. Apply in 30 seconds with one quick, easy form Check Mortgage rates & get a free personal loan quote. Free Loan Quote Click Here |
What's the magic number?
August 28, 2005 Jennifer Hutto said she had never so much as sneezed late when a credit card company told her in 2003 it was raising her rate from a low 7 percent to nearly 30 percent because a creditor reported derogatory information to her credit file. It was a complicated mix-up that Hutto corrected after months of phone calls, notarized copies of papers sent back and forth, and finally a lawsuit that was settled out of court. Meantime, her credit score dropped from an above- average 730 to a 600, a score that wouldn't qualify her for most loans. "I will, for the rest of my life, check my credit every three months," said Hutto, who works as a mortgage loan officer in Richmond. "I don't want to go buy a car and find out my credit is 540 because of something someone put on my credit report." Hutto's case underscores the importance of knowing what information creditors can see when they look at your credit files. Thursday, Virginians will have free access once every 12 months to credit reports the three major credit bureaus maintain in their names. Thanks to a 2003 amendment to the Fair Credit Reporting Act, consumers will be able to see the information creditors, landlords, utility companies and employers could be using to judge them. Virginia is in the final group of states where residents will get free access to their reports at annualcreditreport.com. Over the past two decades, credit information reported to the three major credit bureaus, Equifax, TransUnion and Experian, has had increasing influence on Americans' financial lives. Creditors use the information contained in the reports to determine who gets a loan and how much they pay in interest. Utilities use credit reports to say who has to pay a deposit. Employers sometimes refer to the reports when deciding whom to hire. The government-mandated Web site is confusing to use, and it allows the bureaus to pitch products to consumers they might not need, said Lisa Lee Freeman, a deputy editor at Consumer Reports, a magazine published by the nonprofit watchdog group Consumers Union. But the site is a step toward arming U.S. consumers with information they need to have before making financial decisions, she said. "The availability of free credit reports is a terrific step forward for all of us," Freeman said. "I encourage everyone to take a look at their reports as soon as they can. If you've never seen your credit report before, it's quite an experience to see how much and what kind of information lenders have access to." The best use of the free reports still involves spending money, Freeman said. That's because none of the free reports includes credit scores, the magic numbers all sorts of creditors refer to when deciding how much a person can be trusted. Those numbers, you still have to buy. Freeman recommends initially buying the scores and three credit reports from the three major credit bureaus at myfico.com, at a cost of about $45. Myfico.com is a Web site maintained by Fair Isaac Corp., the company that invented the most widely used credit scoring mathematical formula. Consumers should then order one of the three free reports every three months after that, she said. Those who can't pay the $45 should still get their free reports from annualcreditreport.com and examine them for accuracy. Even though there's a fee for finding out your credit score - and thus where you might stand with creditors - the cost of not knowing could be even more expensive, Freeman said. Experts recommend that consumers check their credit reports and credit scores several months before applying for a major loan, such as a home mortgage, so they have time to clear up mistakes or pay down debt that could be dragging the score down. A 45-point difference in a score can mean tens of thousands of dollars in interest charges on a long-term loan, Freeman said. For example, a buyer with a score of 720, about the national median, might pay around $856 per month on a $150,000, 30-year loan. Meantime, a buyer with a score of 675 might pay $920 a month for the same loan. With the report in hand, first check for errors, Freeman said. Make sure that accounts that are paid in full say so. Check to see that the bureaus haven't merged your files with those of someone who has a similar name or social security number. Look for accounts someone might have opened using information they could have stolen from you. Consumers who see a problem should write to all three of the credit bureaus and provide copies of documentation proving information in the reports is inaccurate, said Len Bennett, a Newport News-based consumer lawyer and nationally known Fair Credit Reporting Act expert. If their case is complex, they should also steel themselves for a possible drawn-out struggle to correct the record, Bennett said. "The system is set up to transform your detailed dispute into an abbreviated code," he said. That makes it difficult to dispute problems that don't neatly fit into one of the bureaus' coded categories. Problems also arise, he said, when one credit reporting bureau corrects the inaccuracy, but the others don't. Only in cases where the creditor corrects the report on behalf of the consumer, or in cases of identity theft must information be immediately stricken from the report, he said. Bennett, who represented Hutto in her lawsuit, said he also has found the dispute form provided by the bureaus to be too simplistic. He encourages consumers to establish a paper trail, and send the bureaus as much information as possible when clearing up errors. Ugly information contained on one bureau's report but not the others' can cause the three credit scores each bureau generates to vary widely, said Craig Watts, a spokesman for Fair Isaac. Many lenders look at all three scores and use the middle one, or average them. Let's say you forgot to pay a bill, and the creditor reported it to the bureaus. The effect on your score can be mighty, and the higher your score, the more points you will lose, Watts said. A late payment to a creditor could sink your score 50 to 150 points. The older the black mark on your credit, the less impact it has on your score. Quick fixes to bring up a score include correcting errors and paying down high balances. Even if you declared bankruptcy, you can have a good credit score within a few years of completing it, Watts said. Scores start at 300 and top out at 850, although there are few people who have scores that are perfectly good or perfectly bad, Watts said. Fair Isaac doesn't release its exact scoring method to the public because it is proprietary, but the company does say it relies on 22 pieces of data. They are listed at the company's Web site. Is there any use beating yourself up if you can't achieve a perfect 850? Watts said there isn't. Once your score is above 760, he said, lenders don't care if it's any higher. Watts added that if anyone with perfect credit exists, they probably haven't led a very interesting life. "You would need to have managed credit for a long time, at least a couple of decades," he said. "And to never have missed a payment, within the timeframe on the credit report. You would need to be an occasional user of credit, but keep your balances low. And you had to have been very frugal in accepting new lines of credit." Hutto said she has babied her credit in just such a way, after counseling numerous mortgage loan applicants who had no clue about the negative information contained in their reports. That didn't stop a creditor she had paid off from mistakenly telling the credit bureaus she had filed for bankruptcy. After a lengthy struggle to get the information corrected, similarly bad information appeared again on her report after the original offending creditor was sold. Then she sued. "When I pulled my credit report and saw it was back in the 620s, I just sat at my desk and cried," Hutto said. "You can't get good interest rates on anything, you can't even get financing. It screws you up." |
|
