As the slow economy continues to drag on, it seems appropriate to review the different types of credit scores and how to handle the financial challenges that are now a common part of life. Credit scores not only affect the ability to obtain a loan, it also affects the interest rate you are eligible for, and in some cases, the amount of insurance you will pay on your automobile.
There are several strategies that can be put into place to help you manage your credit score; it’s wise to communicate with a professional to help you. The first step is to obtain a current copy of your credit score.
First, a little information about the credit reports that are available and how this information will affect you and the process… The Fair Credit Reporting Act requires each nationwide consumer credit reporting company to provide a free copy of the credit report at the consumer’s request once every 12 months. Under the law, credit reports are to be mailed within 15 days of the request. The 3 largest reporting agencies, Equifax, Experian, and Transunion, have set up a centralized process for consumers to access their credit information by the internet. Go to annual credit report to get a copy of your free credit report.
You can easily go to this site and print your credit reports from all three agencies; however, they will not give you the credit score. You have to purchase that.
Once you have your reports, you will need to start the process of repairing any items that are inaccurate. If there is an item that is inaccurate, incomplete, or unverifiable, you will need to take action. You must first contact the reporting company in writing outlining the information that is inaccurate. Consumer reporting companies must investigate the items in question within 30 days. That company must contact all three agencies to correct any items that were inaccurate.
Here is an example to help you understand how a credit score has evolved over the last several years. In May of 2006, a credit score of 620 would have qualified you for the best mortgage rate. In May 2008, a credit score of 730 was needed to receive the best rate. In March 2009, you needed 760 or above to receive the best rate. Higher credit scores combined with lower home values have shut out many consumers who could have refinanced in the past.
Although FICO scores are currently being used, there is a new scoring system – referred to as Vantage Score – that is being developed by the three major credit reporting companies. This score will be consistent across the three agencies. The FICO score ranges from 300 to 850 and is calculated differently for mortgages than for car loans, as an example. The Vantage Score is graded on an A – F score.
Once you have pulled your credit report and disputed any incorrect information, now it’s time to work on repairing any damage that is causing you to have a low score. This will be covered in Part 2 of Facing and Repairing Your Credit Score.