FICOlogy: Credit Scores and You

ficologyCraig Briskin, a consumer and anti-trust class action attorney with Mehri & Scalet, PLLC, wrote this expert’s perspective on FICO exclusively for DailyWorth.

Times are tough for that thing we call money. Jobs are disappearing, credit is drying up, and no one seems to know when things will turn around. Part of the problem is how credit reports and scores are calculated. Now more than ever, it’s important to avoid any blemishes on your record. People with good credit scores not only qualify for credit, they can also get better rate offers on mortgages and car loans.

Our system outsources most credit rating to three major, private credit bureaus, which are known for mixing up the files of people with similar names and Social Security numbers. The U.S. Public Interest Research Groups (PIRG) and Consumers Union found serious errors in 25% of credit reports.

Fair Isaac Corp. developed the FICO (short for Fair Isaac Corp., get it?) score, and claims that it’s based on five major categories of factors – payment history is the most important. But they don’t publicly disclose the remaining factors are or how they’re calculated. FICO scores range from 300 to 850; 720 is the average score, and that’s what you should shoot for.

The Fair Credit Reporting Act (FCRA) gives you the “right” to dispute errors in your credit report, but it’s not nearly as easy as it should be.When you call to challenge a report, the credit bureau and the creditor may do a lousy job of “investigating”— they are known just to check the sparse electronic information in their files, without really looking into whether you really are responsible for a particular report from a creditor.

If you want to raise your score, start by paying your bills on time. Here are few more things you can do to boost your score and keep it high:

  • Maintain and use several credit cards. To have a credit score, you need to have a credit history. Just don’t use more than 10-20% of your limit.
  • Request a higher credit limit on a credit card, even if you never plan to use it.
  • Don’t open multiple accounts at once. It will lower the average time your accounts have been open, which is a factor in your score. If you just received a credit card, try to wait at least six months before applying for another.
  • Don’t close unused credit card accounts. Cutting up your credit cards may seem like the responsible thing to do, but that’s not how this game works.
  • If you’re married, make sure joint accounts are listed on your credit report. If the account is in good shape, adding it should help your score.

Disputing inaccuracies in your credit report may be a pain, but it can also pay off. Here are a few pointers:

  • You want a letter from the creditor, on its official letterhead, instructing the credit reporting agency to make a deletion or correction.
  • Disputing inaccurate information may help you. Someone checking your credit may ignore your score if they see a report is in dispute.
  • Make sure your account is listed only once. If it’s listed twice, it will look like you owe double what you really owe.
  • If you agree to pay off an old debt, make sure the creditor agrees to request its removal from your credit report. Otherwise, that debt will look “current” to anyone checking your credit.