Q. What Is a credit score, and how does it affect my ability to get credit?
A. Credit scoring is a system, creditors use to help determine whether to give you credit, and how much to charge you for it. Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report.
Using a statistical formula, creditors compare this information to the credit performance. A credit scoring system awards points for each factor. A total number of points = a credit score, helps predict how creditworthy you are.
Improving Your Credit Report
- Both credit reporting company and the information provider (the person, company, or organization that provides information about you to a credit reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under the FCRA, contact the credit reporting company and the information provider if you see inaccurate or incomplete information.
- Tell the credit reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. State the facts and explain why you dispute the information, and request that the information be deleted or corrected.
- Credit reporting companies must investigate the items in question usually within 30 days unless they consider your dispute frivolous. After the information provider receives notice of a dispute from the credit reporting company, it must investigate, review and report the results back to the credit reporting company.
- When the investigation is complete, the credit reporting company must give you the written results and a free copy of your report if the dispute results in a change. The credit reporting company also must send you written notice that includes the name, address, and phone number of the information provider. If you request, the credit reporting company must send notices of any correction to anyone who received your report in the past six months. You also can ask the credit reporting company to provide your statement to anyone who received a copy of your report in the recent past. Expect to pay a fee for this service.
– Developing a Budget
The first step toward taking control of your financial situation is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, list your “fixed” expenses those that are the same each month like mortgage payments or rent, car payments, and insurance premiums. Next, list the expenses that vary like entertainment, recreation, and clothing. Writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest. The goal is to make sure you can make ends meet on the basic needs.
– Contacting Your Creditors
Contact your creditors immediately if you’re having trouble making ends meet. Tell them why it’s difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don’t wait until your accounts have been turned over to a debt collector.
– Dealing with Debt Collectors
The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or while you’re at work if the collector knows that your employer doesn’t approve of the calls.
– Credit Counseling
If you’re not disciplined enough to create a workable budget and stick to it, can’t work out a repayment plan with your creditors, or can’t keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are non-profit and work with you to solve your financial problems. But be aware that just because an organization says its “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate.
Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
– Auto and Home Loans
Your debts can be secured or unsecured. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage. If you stop making payments, lenders can repossess your car or foreclose on your house. Unsecured debts are not tied to any asset, and include most credit card debt, bills for medical care, signature loans, and debts for other types of services.
Most automobile financing agreements allow a creditor to repossess your car any time you’re in default. No notice is required. If your car is repossessed, you may have to pay the balance due on the loan, as well as towing and storage costs, to get it back. If you can’t do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You’ll avoi