What Is Your Credit Score?
By Storm Cattoché

What is a credit score? How does it affect me? Why should I concern myself with it? These are questions I hear in my business on a daily basis. It is often surprising how many people are still unfamiliar with the importance of a credit score.

In this article I will answer these questions and, most importantly, arm you with information that will enhance your understanding of the "big picture" when considering a real estate purchase. Your kind referrals and repeat business are my success! Please call me with any questions, or if you know someone who needs assistance with buying or selling real estate. You can be confident that the highest level of service will be delivered to you, your family, and friends.

A credit score is a number lenders use to help them calculate the likelihood they will be repaid in a timely manner if they lend money. A score is an estimate of your credit risk based on a snapshot of your credit report at a particular point in time. The most widely used type of credit scores is a FICO® score. Lenders use FICO scores to help them make millions of credit decisions every year. Fair Isaac develop FICO scores based solely on information in consumer credit reports maintained at the credit reporting agencies. You can improve your credit health by understanding how credit scoring works. More information on credit scoring can be found online at www.myfico.com.

CHECK YOUR CREDIT REPORT: You should review your credit report from each credit reporting agency at least once a year, and especially before making a large purchase, such as a house or car. By September 1, 2005, people in all 50 states will have the right to obtain one free copy of their credit report a year from each of the three major credit reporting agencies. For more information, contact the Annual Credit Report Request Service, P.O. Box 105281 Atlanta, CA 30348-52811. Phone them at (877) 322-8228. Or visit www.annualcreditreport.com.

You can buy additional copies of your credit reports from myFICO.com. You can also buy your report and dispute any errors by contacting the credit reporting agencies directly:

• Equifax: (800) 685-1111, www.equifax.com.
• Experian (formerly TRW): (888) 397-3742, www.experian.com.
• TransUnion: (800) 888-4213, www.transunion.com.

If you find an error, the credit reporting agency must investigate and respond to you within 30 days. If you are in the process of applying for a loan, immediately notify your lender of any incorrect information in your report.

HOW SCORING WORKS: A score is calculated by a mathematical equation that evaluates many types of information from your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk. In order for a FICO score to be calculated on your credit report, the report must contain enough information—and enough recent information—on which to base a score. Generally, that means you must have at least one account that has been open for six months or longer, and at least one account that has been reported to the credit reporting agency within the last six months.
If you don't have enough information in your credit report to generate a FICO score, you may still be able to benefit from credit scoring if your lender uses a FICO® Expansion™ score. This score evaluates credit risk based on a wide range of alternative credit information.

HOW A SCORE BREAKS DOWN: These percentages are based on the importance of the five categories for the general population. For particular groups—for example, people who have not been using credit long—the relative importance of these categories may be different.

The scale runs from about 300 to 850. The vast majority of people will have scores between 600 and 800. A score of 720 or higher will get you the most favorable interest rates on a mortgage.