A Side Note About Credit Cards and Credit Reports

As featured in: Performing Songwriter Issue #72, September/October 2003.  Visit performingsongwriter.com to order back issues or subscribe.

Did you know that until the year 2000 you could not get your credit score? According to the book The Complete Idiot’s Guide to Managing Your Money, by Robert K. Heady and Christy Heady, it was a number that was hidden from you by a company call Fair, Isaac and Co.

Let me back up. There are three giants that have been compiling information on you since you got your first credit card. Equifax, Experian, and TransUnion are all watching how you pay your bills, who and when you pay, and probably much more.

“In the late 1980’s, the three outfits got together with a company named Fair, Isaac and Co. in San Rafael, Calif., and worked out a system to predict the probability of individual consumers paying--or not paying-- their bills based on the characteristics in their credit report. Using this as a model (called FICO after Fair, Isaac and Co.) each credit bureau came up with a credit “score” on each person. With a little weighting, juggling and tweaking, they’re able to compare any bureau’s score against the others. It’s sort of like working with three bathroom scales to get a comparable answer.” (The Complete Idiot’s Guide to Managing Your Money, p. 154.)

FICO scores range from 300 to about 900, with the majority of people falling into the 600-700 range. There are a lot of markers that contribute to each score: previous delinquencies (if you pay late once, the chances of you paying late again are high); how you use your credit (if you max out cards, you’re a higher risk than the guy who uses only a small portion of his credit line); how long you have had credit (new credit is worse than long-term credit); the number of requests (a multitude of requests for credit is a huge red flag); and your credit mix--is it all unsecured credit cards (riskier), or an installment loan, like a car note, that you keep paying monthly until it’s paid off (safer)?

It is this credit score that all lenders look at to determine how much and at what rate you will be able to borrow money, either through credit cards, term loans, car loans, mortgages or whatever. There are several ways to find your credit score; just searching on the Internet produces the websites for the big three. However, I also discovered www.creditreport.com, which allows you to get all three reports, plus the credit score. There is a fee of $29.95 for all three, but it looks like it’s the best deal at the moment.

Taking the time and making the investment in reviewing your credit report puts you in the driver’s seat of your financial score. First, review the report for any errors in your personal information-- incorrect social security numbers, addresses or name spellings.

Second, review the report for accounts that are still open, but not being used. Have you ever signed up for a credit card because you could get a 10-percent discount on that day’s purchase? You may never have used that card again, but if your account is still open, it’s on your credit report. Take the time to close all those unused accounts. It may take three or more months for the information to hit your credit report, but getting those accounts closed now will save time and explanation later when you’ve found the house of your dreams and are applying for a mortgage.

Third, look for any credit listed that is not yours. In my profession as a business manager, I have been added as authorized user (or non-user) on many a client’s credit card accounts. We do this so I can call the credit card company if there is ever an issue with the account. Credit card companies will not talk to anyone who is not listed on the account. However, because I’m listed on the account, they also have my social security number, and my credit report lists all of those credit cards that are not mine. When I purchased my house, I had to write a lengthy letter to my mortgage company explaining each and every one of those accounts. If you work for a company who has issued a credit card in your name, but the company pays the bills, it’s possible that this account is listed on your credit report as well. I know this is very common in the touring business for tour accountants and road managers who are responsible for hotel bills of the touring entourage. If you discover items listed on your credit report that are not your accounts, each of the credit agencies has a protocol to follow to get the erroneous items off your report. Contact each one directly to dispute any errors. Remember to keep a paper trail of every telephone conversation and copies of all the correspondence you send: Documentation is the key.

Fourth, look at the section of the report about Inquiries. Guess what--the credit bureaus sell this information! That’s why you get so many credit card offers in the mail each week. Last Friday, I had six in one day. Those unsolicited offers for credit show up on your credit report as “soft” inquiries. The soft inquiries are not counted against you. “Hard” inquiries are applications for credit you have made, or potential employers pulling credit history on you. If you have numerous hard inquiries in a short period of time, the red flags go up, and you may be turned down for loans. Do not apply for credit just because it’s offered, especially if you never intend to use it--it can hurt your credit score.

HERE ARE SOME TIPS TO MAINTAINING GOOD CREDIT:
1. Pay your bills on time, all the time.
2. Don’t max out your credit cards.
3. Close accounts that you don’t use.
4. Annually review your credit report and
correct errors.
5. Keep inquiries to a minimum.

CREDIT AGENCIES:
EXPERIAN (formerly TRW)
P.O. Box 2104
Allen, TX 7513-0949
800-682-7654
www.experian.com

EQUIFAX
P.O. Box 740241
Atlanta, GA 30374-0241
800-685-1111
www.equifax.com

TRANS UNION CORPORATION
760 W. Sproul Road
Springfield, PA 19064-0390
800-888-4213
www.tuc.com

FAIR, ISAAC & CO.
200 Smith Ranch Road
San Rafael, CA 94903
415-472-2211
www.fairisaac.com

CREDITREPORT.COM
www.creditreport.com