Gails Blog

Credit score! Credit Score! CREDIT SCORE! OMG! Everyone is so creeped out, wary of, obsessed with their credit score. I must get 40 or 50 emails a month on credit score: from what makes it tick to how to improve it.

Your credit score is a number that is calculated based on a bunch of factors that lenders use to decide whether or not to lend to you. Way back when I started in the biz, lenders used their own credit scoring software. They’d plug in your info and out would pop the score they’d use to decide whether or not to lend to you, and what interest premium to charge. With the growth in popularity of the FICO score, lots of lenders have given up their own credit scoring tools in favour of The Biggie.

The FICO score is a credit score developed by Fair Isaac & Co. which began its pioneering work with credit scoring in the late 1950s. The point of the score is consolidate a borrowers credit history into a single number. While Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed, there are a number of factors that affect the score you receive.

The “Credit Scoring System” is a numbers game: The more “points” you score, the better you do.  People are sometimes surprised at the reasons they’ll be declined. I’ve received a ton of letters from people who want to know why they’ve been declined for a credit card because they don’t have a land line. Read on and you’ll see why.

While you may be tempted to lie about your age especially if your boy-toy is looking over your shoulder, don’t. If a creditor catches you in a lie, they aren’t going to trust the rest of the information you provide either, and you won’t get the loan. Hey, that’s character, right? Of course, vanity isn’t the only reason people lie about their age. If you’re under 21 you might be tempted to lie because you’re afraid they won’t like your tender age. And you’d be right. Under 21s score zero points. Between the ages of 24 to 64 years give yourself a point. You’re probably working. Over 65? Zero points… you’re old!

Creditor’s think people who are unmarried are a higher risk. If you are married, give yourself one point. Now you’d think that being divorced might work against you (all that spousal and child support), but most creditors don’t give a whit.

No dependents? Score zero. You’re probably still drinking your money away like a teenager since you haven’t yet “settled down.” And with no “ties that bind” you could skip town at a moment’s notice. Not good for collections. One to three dependents? Score one point. You’re a solid citizen. More than three dependents? Score zero. Have you no self control! And don’t you know you that with all those mouths to feed you could get in debt over your head?

Home address? Live in a trailer park or with your parents? Oooops. Bad risk. Score zero points. You’re showing no stability and could skip town with nary a look over your shoulder. Rent an apartment? Give yourself one point. Own a home with a big fat mortgage? Good for you. Score three points. Someone has already done some checking and you qualified for a mortgage, so you can’t be all bad. Own your home free and clear? Even better. Take four points. You’ve proven you can pay off a sizable debt and now you have a pile of equity that the card company would loooove to help you spend.

Previous Residence? Zero to five years (some applications only go to three years), score zero points. You move around too much! Over five years? You’re stable so score one point.

Years on Job? The longer the better. If you have less then one year at your present employer you’ll earn no points at all, which explains all the whining from the newly working who can’t get approved for a credit card. One to three years on the job will earn you one point. Four to six years is worth two. Over seven years at the same company and you’re probably bored out of your mind but you’ll score three points.

It’s pretty obvious, but the more you make, the better.

Most creditors belong to at least one reporting agency and share their information liberally with each other. Of course they’re more likely to believe their own information than somebody else’s. So if you paid off a loan with them, give yourself five points. Good record with other creditors should earn you two or three points.

Having a savings and/or checking account with a balance over $500 will earn you a couple of points providing you didn’t open up the account last week.

Having a landline in your own name earns you a couple of points because creditors have a way to contact you if you fall behind in payments. Since they can’t use your cell phone to actually locate you physically, it doesn’t count. (See, I told you if you were patient you’d get your answer.)

I don’t have the best credit score going. Does that surprise you? The main reason is that I’m determined to pay off my credit cards in full every month so I incur no interest. Hmmmm. Not very profitable, am I? And that’s why my score is lower. If I made my minimum payment every month, my score would be higher. No wonder people who are over-extended are going further into the hole all the time. Credit card companies love minimum payment people and keep throwing higher limits and more cards at them. 

And no wonder the economy is in such a mess right now. What do you think would happen if all the people with credit card balances Just Said NO! and stopped making their payments? Hmmmm.

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I’ve been getting a ton of questions about credit recently. People, I can’t believe y’all have been using these products to beat the band without having the basic information you need to use them WISELY. Perhaps it’s because credit was just so dog-gone easy to get. Remember when lenders were throwing credit at us? Well, times are tougher (there’s an understatement) and so is the credit world. With all the bruhaha on sub-prime mortgages, and the meltdown in the financial sector in the U.S., a lot of people are wondering if a meltdown in the credit card world can be far behind. And since credit card debt is “callable” – they can demand their money back in full at any time – that could mean a real run on installment credit.

You stand a much better chance of qualifying for any loan and getting a good interest rate if you have a sky-high credit score. If your credit score is not as high as you would like it to be, TODAY is the day to start doing something about it.

First step, get a copy of your credit history and make sure that the information in your credit report is correct. Review your report with a highlighter to identify the factors are most likely having a negative influence on your score, and then work to improve them. Here’s a good explanation of what the various ratings mean.

If you’ve been late with payments, you need to stop doing that. While many utility bills, such as phone, cable and electricity, are not recorded in your credit report, some cell phone companies do report late payments and that will affect your score, as will late payments on your credit cards.

While I constantly tout the importance of not charging anything you can’t pay for, you must, at the very least, pay the minimum amount shown on your monthly credit card statement. To not do so sends a BIG signal that you’re a HIGH RISK borrower.

If you’ve gone over your limit on your credit card, make it a priority to get under your limit. No one will raise your limit while you’re over, and on top of paying a hefty over-limit fee on some cards, you’ll certainly affect your credit score negatively. In fact, you should keep your balance to about 60% of the limit. The closer you are to your limit, the more impact it has on your credit score.

Have you been applying for credit like a mad fool? If too many lenders ask about your credit in a short period of time, it’ll affect your credit score negatively. (Your score doesn’t change when you ask for information about your own credit report.)

If you’re desperate and thinking of hiring a company to repair your credit, don’t. Their ability to change the information on your credit file is no different than yours, so save money you’d pay them and put it toward your debt.

A credit bureau won’t remove accurate negative information from your credit report before the legal time period has expired so don’t buy the bull that there are loopholes credit repair companies can use to remove negative info.

The only way to rectify a poor credit rating is to adopt sound credit practices for a period of time.

BTW: A few people have been asking why they can’t get credit if they don’t have a land line. Simple: it means the lender can’t find you if they need to harass you for payment. Since a cell is mobile, you could move without their records being triggered. Then you’re out of reach and they’re left holding the bag!

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