2007-12-28 / Columnists

Notes On Consumer Affairs

Commentary By Assemblywoman Audrey Pheffer

Do you know what your credit score is? Did you know that your credit score can affect your ability to obtain a mortgage, rent an apartment, or get a cell phone? Unfortunately, consumer knowledge regarding credit scores continues to remain low, even as their use has become more widespread.

A credit score is the number that many businesses use as a benchmark of creditworthiness. Credit scoring models are designed to estimate the probability that a credit applicant will fail to repay a loan. Scores are based mainly on information in your credit report. Fair Isaac's FICO score - the credit scoring model used by most lenders - assigns credit applicants a number between 300 and 850. The higher your credit score, the better. Consumers with high scores often pay less interest and receive more favorable terms on loans than those with low credit scores. For example, financial experts estimate that a score of 700 is the lowest score likely to qualify for a low-cost mortgage.

Who uses credit scores? Credit card issuers, insurance companies, mortgage companies, car loan originators, telephone companies, and landlords, among others, use credit scores to help determine an applicant's creditworthiness. What information is used to calculate a credit score? Your bill payment history, especially whether you pay your bills on time, is an important piece of information. The number and type of accounts you have open is also a factor. Most credit scoring models also take into account any outstanding debts you may owe and any judgments obtained against you by debt collectors.

Some consumers mistakenly believe that certain personal information, such as race, sex and education level, are used as a factor in credit scoring models. The use of these factors, along with marital status, national origin, religion, and income, are prohibited by the federal Equal Credit Opportunity Act.

Financial experts recommend that consumers take several steps to increase their credit score. However, following these suggestions is not guaranteed

to increase your score. First and foremost, check your credit report every year for errors. You are entitled to one free report every 12 months from each of the three major credit reporting agencies (Equifax, Experian, and TransUnion). If you find errors, be sure to dispute them with the credit reporting agencies. Make sure you pay your bills on time. Pay down credit card and other debt balances. Do not apply for several new accounts in a short period of time. If you have numerous credit cards (five or more), consider closing ones you don't use. While maintaining some credit accounts is generally good for your credit score, too many accounts can hurt your score.

If you are turned down for credit, or do not get good terms, ask the creditor for the reasons behind the refusal. If it was because of credit report information, ask which reporting company provided the information. Do the same if you are offered poor terms. Under federal law, if you are refused credit or are offered unfavorable terms based on your credit information, you have the right to request a free copy of your credit report.

Be sure to check it carefully for any errors, and dispute any that you find. To get better terms, you may ask the creditor if there is any way to improve your application.

If your report indicates a history of late payments, or other negative behavior, be sure to avoid that behavior in the future to give yourself the best chance at improving your credit score.

To get more information, you may contact the Federal Trade Commission at www.ftc.gov, or toll-free at 1-877- FTC-HELP (1-877-382-4357); TTY: 1- 866-653-4261.

To get your free credit report, go to www.annualcreditreport.com, call 1- 877-322-8228, or complete the Annual Credit Report Request Form available at www.annualcreditreport.com and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

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