Ask Karen Gibbs

Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to AskKaren@mpt.org and post your comments below.

3

September

What You Need to Know about Credit Scores and Credit Reports

Karen Gibbs

Hi Karen, I know I can get my free credit report from the three credit reporting agencies once a year, but how do I get my FICO credit score without paying?

- Nicole, Howard County

Credit ReportThanks Nicole for a great question.  FICO credit score, created by the Fair Isaacs Corporation, is a score that is used in most lending transactions and can make the difference between a low auto and homeowner’s insurance premium, or could be the determining factor when you apply for a secure job with the government.


A FICO credit score is different from the free credit reports that you can get from Experian, TransUnion or Equifax, but it is calculated using the information in your credit report:  how much debt you carry, how diverse your credit mix is, the length of time you’ve carried credit, whether you pay on time and/or if you are delinquent.  FICO scores can range from 300-850, with 300 being the worst credit score and 850 being the best.  A credit score of 750 will be good enough for you to get most lenders to agree to loan you money.


About a year ago, the Fair Isaacs Corporation tweaked the way it calculates scores, making allowances for medical debt, and offered those lenders the ability to pass along those scores to their credit customers and loan holders.


Some credit card issuers have adopted the new way of calculating FICO scores and are offering their card holders free access to their FICO scores, either on the monthly billing statement or when you log on to your online accounts. 


Some of the cards that offer free FICO scores are American Express, Bank of America, Barclays Bank, Chase, Citibank and Discover.  It is wise to check your score monthly as you can track changes month over month and see what’s affecting your credit.


This new and improved visibility will help consumers compare the factors that may hurt your credit score, such as opening a new account – which accounts for 10% of your FICO score.  The amount of credit you use accounts for 30% of your score, while your payment history accounts for 35% of your score.
Knowing what your credit score is today will help you take steps to improve it before you apply for a car loan or a mortgage.  The higher your credit score, the lower your interest rate will be, as you will be considers by a lender to be a “good risk” candidate for a loan.


If your score is low, you can take steps to improve it, such as paying more than the minimum due.  Always pay your bills on time to avoid late charges, a notation on your credit report and a ding on your FICO score.  This is a smart way of thinking about your money and will put you on the path to financial success.


Good luck!

 - Karen

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