YOUR GPS TO THE FICO OR CREDIT SCORE.  

What Is A FICO Score?

Trans Union (www.transunion.com)

1-800-888-4213
P.O. Box 1000, Chester, PA 19022

To report fraud, call: 800-680-7289 and write:
Fraud Victim Assistance Division, P.O. Box 6790, Fullerton, CA 92634
TDD: 1-877-553-7803 

Experian is the largest CRA, selling over 500,000 reports a day. Fair Isaac, Inc. (FICO) developed credit scoring models at all three major bureaus. Credit reporting agencies make more than 2 billion entries each month.

I. The Credit Report Itself

1. Your credit report is a computer stored database file, which will contain information regarding your personal credit worthiness and debt history repayment. This information is supplied by past and present creditors, courts, and government agencies.

A study by U.S. Public Interest Research Group found that 70% of the reports studied contained errors of some kind:

§         29% of the reports contained errors sufficiently serious enough to cause the denial of credit

§         41% contained inaccurate personal demographic information

§         20% were missing major account information

2.       The following credit information is stored as part of your credit report:

(a) Identification by name, address, social security number, date of birth, and place of employment.

(b) Information in public records (such as birth records, civil suits, judgements, etc.).

(c) Credit history of previous and past creditors as to your opening balance and date, current balance, monthly payment amount, payment history, and last date paid.

(d) List of all inquiries by all providers of credit who checked your credit report as part of the process of issuing credit.

(e) Any statement, not to exceed 100 words, which explains more accurately any derogatory credit on your report.

Remember, that there are three main credit-reporting agencies: Equifax, Experian and TransUnion. All bureaus DO NOT necessarily contain the same data or all of your credit history. 

II. Credit Scoring Is A System Creditors Use To Help Determine Whether To Give You Credit.

FICO (credit) Score Ranges

Low = 300-400

High = 800-900 (higher is better)

Scoring Breakdown:

Payment history =35%

Amount owed = 30%

Inquiries/new credit debt=10%

Types of credit= 10%

Length of history = 15%

The Scoring Models Used

   Emperica @ TransUnion

   Beacon @ Equifax

   Experian/Fair Isaac @ Experian

Fair Isaac, Inc. (FICO) developed credit scoring models at all three major bureaus.

1.       Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report.

2.       Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

3.       Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application.

4.       Why is credit scoring used? Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.

5.       How is a credit-scoring model developed?  To develop a model, a creditor selects a random sample of its customers, or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.

Again, the scoring models are: Emperica @ TransUnion; Beacon @ Equifax; Experian/Fair Isaac @ Experian.

6.      Under the Equal Credit Opportunity Act, a credit scoring system may not use certain characteristics like -- race, sex, marital status, national origin, or religion -- as factors. However, creditors are allowed to use age in properly designed scoring systems. But any scoring system that includes age must give equal treatment to elderly applicants.

7.      What can I do to improve my score?

Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.

A.   Nevertheless, scoring models generally evaluate the following types of information in your credit report:

1)       Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.

2)      What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, which is likely to have a negative effect on your score.

3)      How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.

4)      Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.

5)       How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.

B.     If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.

Remember to always pay the essential bills first, such as, mortgage, utilities, and car.  Credit cards and other unsecured loans can wait in a financial crunch.

III.    Improving Your Credit Score/Report

Quickest way to improve score is to pay off collections/chargeoffs and be sure they are reported as paid; pay down revolving accounts.

If you need a sample of a credit repair letter, please contact us at 480-217-7440 and we will send it to you for FREE.

Out of 9 million consumers who saw their credit reports in 1988 from the 3 major bureaus, 3 million had errors investigated and corrected.

1.      Under the law, both the CRA and the organization that provided the information to the CRA, such as a bank or credit card company, have responsibilities for correcting inaccurate or incomplete information in your report.  To protect all your rights under the law, contact both the CRA and the information provider if you have a dispute.

2.       Contact the CRA in writing about the information you believe is inaccurate.  Include copies of any documents that support your position.

3.      When you contest a billing error, include your name, account number, the dollar amount in question, and the reason you believe the bill is wrong.

4.       If in doubt, request written verification of a  debt.

5.       Typically investigations of inaccurate information take 30 days, unless they consider it frivolous.  The CRA will contact the creditor (information provider) about the dispute.  Disputed information that cannot be verified must be deleted from your file.

A.     If your report contains inaccurate information, the CRA must correct it.

B.     If an item is incomplete, the CRA must complete it.  For example, if your file showed you were late making payments, but failed to show that you were no longer delinquent, the CRA must show that your payments are now current.

C.     If your account shows an account that belongs to another person, the CRA must delete it.

When requesting CRA’s to correct inaccurate information it is a good idea to send correspondence via certified mail.  This way they cannot say the information was never received.

6.      When the investigation is complete, the CRA must give you the written results and a free copy of your report if the dispute results in a change.  If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the information provider verifies its accuracy and completeness, and the CRA gives you a written notice of its intent to reinsert the items that includes the name, address, and phone number of the provider.

7.      If you request, the CRA must send notices of any correction to anyone who received your report in the past six months.  You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.  If an investigation does not solve your dispute, ask the CRA to include your statement of dispute in your file and in future reports.

8.      Accurate negative information

A.     When negative information in your report is accurate, only the passage of time can assure its removal.  Accurate negative information generally can stay on your report for seven years.  There are certain exceptions:

1)      Bankruptcy information may be reported for 10 years.

2)  Default information concerning U.S. Government insured or guaranteed student loans can be reported for seven years after certain guarantor actions.

3)       Information about a lawsuit or an unpaid judgement against you can be reported for seven years or until the statute of limitations runs out, whichever is longer.

Tax liens report 7 years after the payment date.

B.     There is a standard method for calculating the seven-year reporting period.  Generally, the period runs from the date that the event took place.

C.     With regard to any delinquent account placed for collection – internally or by referral to a third-party debt collector, whichever is earlier – charged to profit and loss, or subjected to any similar action, the seven-year period is calculated from the date of the delinquency that occurred immediately before the collection activity, charged to profit and loss, or similar action.  For example, assume that your payments on a loan were late in January, but that you caught up I February.  You were late again in May, but caught up in July.  You were again late in September, but did not catch up before the account was turned over to collection in December.  You made no more payments on the account, and it is charged to profit and loss in July of the following year.  Under the FCRA, the January and May late payments each can be reported for seven years.  The collection activity and the charge to profit and loss can be reported for seven years from the date of the September payment, which was the delinquency that occurred immediately before those activities.

Agencies may report favorable info beyond 7 years, this includes neutral information such as past addresses and employment.

D.  Adding accounts to your file

1.      Your credit file may not reflect all your credit accounts.  Although most national department stores and all-purpose bank credit card accounts will be included in your file, not all creditors supply information to CRA’s.

2.      If you have been told that you were denied credit because of an “insufficient credit file” or “no credit file” and you have accounts with creditors that do not appear in your credit file, ask the CRA to add this information to future reports.  Although they are not required to do so, many CRA’s will add verifiable accounts for a fee.  However, understand that if these creditors do not report to the CRA on a regular basis, the added items will not be updated in your file.

Alternative credit: payment history from utilities, rent, insurance, services, an individual, pawn shop, etc.

BONUS…

TIRED OF GETTING CHUNK MAILS?

Call 1-888-567-8688. If you do not use the pre-screened credit card offers you receive in the mail, you can opt out by calling 1-888-5-OPTOUT (1-888-567- 8688). Please note that you will be asked for your Social Security number in order for the credit bureaus to identify your file so that they can remove you from their lists and you still may receive some credit offers because some companies use different lists from the credit bureaus’ lists.

Sara McLlenan, Founder, Designated Broker®, Realtor®, GRI, CNE
Bachelor of Science in Marketing

Graduate Realtor® Institute

Arizona Real Estate Relocation Expert

Certified Negotiation Expert