Keeping Score
When was the last time you paid serious attention to a score? Was it in the final minutes of a recent NFL playoff game? Or over the holidays, during your family’s annual board game marathon? Like it or not, we can become fixated on achieving the best score; for the winning score can change the future sequence of events – a Super Bowl appearance, possession of coveted bragging rights, and more. It’s surprising then that so few people take notice of scores that have a direct impact on their personal lives – their credit scores. If we could only impassion Americans to care about their credit scores the way they care about their sports teams…we, financial planners, can only dream!
Have you seen your credit report lately? Do you know your credit score?
You are entitled to receive one free credit report, per year, from each of the three major credit reporting companies – Equifax, TransUnion, and Experian. You can gain access to these reports via www.annualcreditreport.com. We recommend obtaining your credit report every four months, alternating the reporting company each time. Each spouse should obtain his or her own report. Review your credit report for completeness and accuracy. Are all credit cards, mortgages, car loans, and other debts listed? If so, are the approximate balances and payment histories correct? Pay careful attention to any accounts listed on your report that you cannot readily identify or those denoted as “not in good standing.” If you believe there is an error on your report, each reporting company outlines the appropriate follow-up steps that can be taken to rectify any issues appearing on your credit report.
Once you’ve obtained and reviewed your credit report, each credit reporting company will provide you with the opportunity to purchase your credit score for a small fee. While it’s not necessary to receive your score every four months, we encourage you to do so on a periodic basis, especially if you’re anticipating the need for an upcoming loan. The FICO score, created by the Fair Isaac Corporation, is the standard credit score used in the industry today. With scores ranging from 300 – 850, the FICO score calculation weighs the following factors: a person’s payment history (35% of the score), current outstanding debt relative to one’s total credit limit (30%), length of credit history (15%), types of credit used (10%), and the most recent application for additional credit (10%). Higher, desirable FICO scores are a result of timely payments, modest debt levels, and long credit histories with a diversity of debt types used.
Why should you want a high credit score? A higher credit score translates into more attractive interest rates on mortgages, car loans, and credit cards. Less widely-known, credit scores can have an impact on homeowner’s, auto, and life insurance rates, as well as the ability to obtain utilities and services. Prospective employers and landlords can also request a credit report. If so many other interested parties are watching your credit, shouldn’t you?
Numerous companies now exist to help consumers monitor their credit. While we do not endorse a specific company or service offering, we believe that these services are best used in conjunction with your own periodic review of your credit report and score, as described in this Viewpoint.
Perhaps you’ve already heard this message and have taken steps throughout the years to achieve an outstanding credit score. If so, continue to protect it through regular review of your credit reports. In addition, encourage friends or family members to review their credit reports and credit scores. Help them to understand the true importance of a solid credit history. Encourage them to visit www.ftc.gov/credit for more information. Share your experiences and knowledge. It will make a difference.
