Understand Your Credit Scores and Win the Game


I cannot over stress the importance of monitoring your credit scores annually to ensure that you pay the lowest rates on home mortgages, auto loans, credit card debts, and safeguard yourself against identity theft. In times past credit scores where used most often to develop your risk profile in consideration for a loan and to set interest rates. Today, property insurance carriers and life insurance carriers consider credit scores when setting premiums and this trend is evolving into a variety of industries.

A consumer’s credit history is archived by three service providers; Equifax, Experian, and Trans Union and their databases are often consolidated into a single report by third party credit agencies. The report is generally referred to as a credit report and it includes a credit score issued by each service provider. The scores range from 350-850 and are graded based on a set of criteria which includes payment history, account balances as compared to credit limits, amount of recently accumulated credit and inquires, among others factors.

The following generally outlines how a variety of traits within your profile may affect your credit scores and risk profile: Length of Credit History 15%, Payment History 35%, Credit Balances Owed 30%, and Recently Obtained Credit 10%. According to Colorado based Advantaged Credit of Colorado an example of a consumer’s favorable profile would include two installment loans, three revolving accounts with balances, balances on revolving debt below 30% of the high credit limit, no collections, no public records (judgments or liens), no foreclosures, no late payments.

My advice would be to obtain a copy of your credit report annually. This can be done by contacting each of the three credit service providers directly, or by accessing free online resources such as http://www.annualcreditreport.com/ . Once you have obtained your report, review it carefully for discrepancies including inquires made against your credit files. Report inaccurate information directly to the associated credit service providers; keep in mind that the information retained by the three providers may vary and the data is often 30-60 days delayed, so some information such as account balances may not be accurate. The law provides consumer protection and false information must be removed by the reporting entity.

Bottom Line: To safeguard yourself against identity theft or credit fraud review your credit report annually, immediately report any discrepancy; ask your property and casualty insurance agent if you are eligible for premium discounts for high credit scores. It is also important to make lenders aware that you understand that interest rates are a reflection of risk and that your good credit should be rewarded with the appropriate interest rates. If you have legitimate credit problems, seek the advice of a qualified credit consultant and develop a strategy to restore your credit profile. Beware of anyone who promises that they can remove negative information from your report for a fee, legitimate information cannot be removed and you will be disappointed.

Resources: Here is the contact information for the three credit service providers: Equifax 1-800-685-1111 http://www.equifax.com/, Experian 1-888-397-3742 http://www.experian.com/, and Trans Union 1-877-322-8228 http://www.transunion.com/