Understanding Your Credit Score

Written by: George Smith


A credit report, also called a FICO Score, is a report by private agencies available to check your credit history. Your creditworthiness is generally determined on the basis of
your payment history, your level of indebtedness, they types of credit you have had, the length of those credit arrangements and any fairly new credit agreements you have entered into.
Altogether, your FICO score could be as low as 350, indicating very poor credit to 850 indicating your credit is stellar. People with FICO scores less than 620 have difficulty getting credit at good interest rates, but nothing prevents a future creditor from taking into account other factors such as graduation from college, a new, high-paying job, etc.

Your FICO score is a strong indication of your creditworthiness, but it is a guide, not a rule.

How long do negative factors stay on my credit report?

Under Federal law, with the exception of chapter 7 bankruptcies, negative reports on your credit history drop automatically after 7 years, and chapter 7 bankruptcies after 10 years. Which means, for example, that if you were in college and evicted from your apartment 8 years ago, that eviction should drop in the calculation of your credit score within 7 years, barring a bankruptcy.

Who makes reports on your credit score?

There are a number of smaller credit bureaus, but the four main ones used by most businesses to determine your creditworthiness are FICO, Equifax, Experian, and TransUnion.

Credit bureaus obtain their information from reports by business, by buying public information such as bankruptcy lists or government tax liens, or through information shared among all three credit bureaus such as fraud alerts.

Do different credit reports vary according to the credit bureau?

Yes. Both positive and negative information can be weighed differently among the credit bureaus, and one bureau may have information the other two do not. Therefore, it’s possible that your credit score may fluctuate as much as 30 points or more between credit bureaus.

What if there are inaccuracies in my credit history

Incorrect information does appear frequently. In fact, a CNBC report in 2017 showed that one in five consumers had inaccuracies on their credit report. And from the credit bureau’s point of view, it’s up to you, the consumer, to make challenges concerning your credit report.

Examples of mistakes include:

  • Outdated information, such as payment problems over 7 years old.
  • A delinquency still showing which you have paid off.
  • Credit information on another individual

To dispute the information, first, contact the creditor first, to see if you can quickly identify the problem and resolve it. Once corrected, get a letter from the creditor agreeing it is a mistake and monitor the reports on credit bureaus to make the necessary correction.

If the company does not agree or refuses to change the information, then contact the individual credit bureaus. The Federal Trade Commission Disputing Errors on Your Credit Report even offers a sample letter of exactly what information you should include in your letter.

In your dispute letter, send copies of court documents or payment details, and consider sending a copy of your credit report with the inaccuracy highlighted.

Be sure and send your letter certified, with a return receipt requested so that you have proof that the letter was delivered.

Once you’ve sent your letter and dispute payment or court record copies, the credit bureau will contact the creditor to investigate, which typically takes around 30 days or so. If you are right, the credit provider must contact the major credit bureaus to have the information received. And by law, you are allowed a free credit report so you can verify for yourself the incorrect information is removed.

What if neither the company nor the credit bureau are unwilling to admit there is a mistake?

You can ask the credit company to put a brief notation of your side of the dispute in your credit history. Also for a small fee, most credit bureaus will send a copy of your new credit information to anyone who recently requested your credit report.

How can you build up your credit

There are two aspects to a higher credit score, basic maintenance, and rebuilding credit.

The number one rule of getting a high credit score in the first place is to pay all of your bills on time. Always! Nothing will knock your credit score down like reports of late payments.

The next thing is to limit your credit utilization of credit cards. Say you have three credit cards, with a total credit limit of $1,000 on each card. You want to keep the amount of credit you have used to a maximum of around 30 percent. Which means, no paying just the minimum balance.

Besides keeping the balance owed low, you can tip the credit scales in your favor by periodically asking for (but not spending) a card increase. Remember, what counts here is the amount owed versus available credit.

Once you’ve paid off the total balance on a credit card, consider leaving it open, as  even if you won’t use it, as again the key is the amount owed vs available credit.

Finally, consider your credit mix. You are fundamentally appreciated with higher credit scores by proving you can handle responsibly a mix of credit opportunities.

What about rebuilding my credit?

First of all, be aware that scam advertising be damned, there are no quick fixes to repair your credit. It may take as long as two or three years for a noticeable improvement.

That being said, there a number of things to consider.

First, check your credit report and see how bad it is. Then see if anything is on there that should have been dropped.

Secondly, get current as quickly as possible on all past-due accounts, and pay-off everything possible. If it’s not possible to pay everything off, ask your creditor for a payment plan and stick to it.

You can also consider the services of a legitimate credit counseling agency to help you do this and make payment arrangements, but be very selective and do your research on who you choose.

Next, pay your bills on time, every month, from now on. It may be difficult, but you can’t afford and more late payment knocks if you want to rebuild your credit.

Finally, obtain first a small credit card, and a small installment loan. These may be difficult to come by if your credit is small, but be persistent. Securing a small line of credit and paying on time can boost your credit score significantly.

Everyone needs credit

In this day and age, everyone needs at least a little credit to get by in emergencies, and of course the higher your credit is, the more easy life becomes. Treat it wisely and carefully.


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