Here I am at Eskimo Joe's in Stillwater, Oklahoma with a few classmates from Texas A & M. Whoever has my purse, I'm watching my credit report regularly!
I receive a lot of questions from clients regarding credit scores. I think a primer on FICO’s would be appropriate.
There are three credit reporting agencies (“CRAs”): Equifax, Experian, and TransUnion. I recommend reviewing your credit report annually from each of the three CRAs from www.annualcreditreport.com (as opposed to freecreditreport.com which actually charges you to obtain your credit report instantaneously). You can review each credit report once per year so I suggest putting this in your calendar every four months (I use Things to remind me to run my report). These credit reports do not show you a “FICO” score — instead, it shows all the accounts that it has in your file (both open and closed accounts) along with any history of late payments. Interestingly, different companies report to different CRA’s (some report to all three) so it is important to review all three reports periodically. Additionally, not all creditors report to CRA’s.
Even though you can obtain your credit report for free (on an annual basis) you must pay for your FICO. Fair Issac Corporation uses the information in your three credit reports to calculate a “FICO” score using a sophisticated model based on payment history (35%), amount owed (30%), length of credit history (15%), type of credit (10%) such as installment (mortgage, car loan, student loans) vs. revolving credit (credit cards) and secured vs. unsecured, and new credit inquiries (10%).
Equifax’s score range is from 300 to 850; Experian’s range is from 330 to 830; Transunion’s score range is from 150 to 934. Fair Isaac divides the scoring range into five categories:
780 – 850: low risk
740-780: medium-low risk
690-740-: medium risk
620-690: medium-high risk
620 and below: high risk
I suggest reviewing your FICO score on an annual basis.
Monitoring your credit report may prevent identity theft. Around 10 years ago I had my purse stolen in Stillwater, Oklahoma. I had my social security card in my purse (a reason to never carry your SSN with you) and this person has subsequently applied for several credit cards in my name. So far, I have been able to close all of these accounts due to my vigilance in monitoring my credit reports.
Correct errors on your credit report. I have been able to correct employer and residential information on my credit reports by contacting each of the CRA’s individually. In a 2004 survey with 200 adults by the U.S. Public Interest Research Group, around 79% of the credit reports had a mistake. Be cognizant of what is available in your credit report and correct any errors.
Good credit should be revered. If you have good credit, protect it. Do not miss any payments. If you have bad credit, time is your friend and eventually your FICO will rebound.
As an aside, I joke with my friends about how I will never marry a man who wouldn’t show me his credit report and FICO. As a divorce attorney, I strongly believe in financial transparency. Finances can tear couples apart. Perhaps some of you should make a quiet candle lit dinner and reveal your FICO’s to your significant other to get financially naked.