Your Credit Score

Understanding Your Credit Score

The first step in achieving personal financial independence is understanding the basics, and the basics start with your credit score. Specifically your FICO credit score.

FICO stands for Fair Issac Corporation. The Fair Issac Corporation created the FICO score to help lenders have a better understanding of the borrower and what type of risk the borrower represents. The higher your FICO score the lower the risk you appear to be and the better interest rates you will get on car loans, home loans and credit cards. If you have a low credit score you are considered a higher risk and will therefore be offered higher rates of interest on any loans. Some companies have even started considering your credit score in their hiring practices. 

Your FICO scores considers 5 factors. 

Record of Paying your Bills on time

Total balances due versus total available credit

Length of Credit History

New accounts and recent applications

Mix of Credit cards and loans

The Classic FICO Score has scoring ranging from 300 to 850. There are other FICO score products that are available to different industries. For instance there is an automotive FICO score for auto finance companies and a NextGen Fico score that focuses primarily on consumer credit, like credit cards. 

 Since your FICO score is based off of information on your credit report, one of the most important things you can do for yourself is to make sure your credit reports are accurate. By law, you can get one free copy of each of your credit reports for free each year. You can do this by going on www.annualcreditreport.com and submitting the information they request. This will get you one copy of each of the credit bureau reports.  This means there will be 3 total reports, one from Equifax, one from Transunion and one from Experian. If you find an error you will need to contact that bureau to fix it. 

When you dispute an inaccuracy with one of the reporting agencies, they will contact the lender. The lender then has 30 days to respond. If the lender verifies that that charge is legitimate, the credit reporting agency will not remove the information from your credit report.  If there is information on your credit report that is not accurate and the agency will not remove it, you may have a cause of action under the Fair Credit Reporting Act. You would need to speak with a lawyer about the specifics of your situation. 

As you can see there is a lot of information out there about your score. If you have questions please shoot me an email at matthew@attorneywegner.com . I am happy to try and answer whatever questions you may have.