Wednesday, April 28, 2010

Checking Your Credit Report is a Critical Priority

From the Counselor’s Corner….

Checking Your Credit Report is a Critical Priority

By Toby Smith

“Have you checked your credit report?” This may become one of the most important questions for a consumer in years to come.

Never before have credit scores played such a pivotal role in key areas such as obtaining employment or housing, selecting insurance, renting a car, and establishing a bank account. The world of credit, once shrouded in mystery, is slowly, very slowly, beginning to de-cloak. Last November, the folks at Fair Isaac, FICO, provided specific details about the impact of negative actions on credit scores. Liz Pulliam Weston, a highly regarded financial literacy and credit expert broke the story by highlighting the impact a maxed-out credit card, a 30-day late payment, and debt settlement on credit scores of 680 and 780.

If you have a credit score of 680, the maxed-out credit card costs between 10 and 30 points; the 30-day late payment dropped the score between 60 to 80 points; and settling the debt resulted in a range of lost points between 45 and 65.

If you have a credit score of 780, the results are more drastic. The maxed-out credit card cost resulted in 25 to 45 points loss; the 30-day late payment cost anywhere from 90 and 110 points, and settling the debt would mean a loss of 105 to 125 points. Yikes! Do you see why checking your credit report is so important?

Here are 10 credit basics that everyone should be familiar with.

1. The three big credit bureaus are Experian, Equifax and Transunion.

2. The most popular credit scoring scale ranges from a low of 300 to a high of 850.

3. Consumers are entitled to one free credit report per year at annualcreditreport.com. Scores may be purchased as well, and they cost less than $10.00.

4. Consumers need not worry about checking their own reports; however, pulling credit for the purpose of establishing credit results in a “hard” inquiry, which can deduct three to five points from your current credit score.

5. Credit scores have several components: 35% of the score is based on repayment history; 30% is based on the amount of debt owed; 15% is based on the length of credit history; 10% is the type of credit used; and the remaining 10% is for new credit.

6. The past 24 months of your credit life are the most important. You can actually do harm reopening old issues.

7. Generally speaking, credit recycles itself every seven to 10 years. The 10 years relates to a Chapter 7 bankruptcy—it will remain on the credit report for 10 years.

8. Opening a local department store credit card, getting a secured loan, or a secured credit card are all ways of establishing credit.

9. “Challenged” credit usually always results in more money spent over the long term; good to great credit will result in less money paid.

10. There are many steps you can take to work toward improving your credit score. Call Family Services Inc, at 843-735-7862, to register for a Credit Cents class. If you prefer, you can have a one-on-one session with a licensed credit counselor. Call today or visit our website, www.fsisc.org for more information.