Credit Scoring 101 – How does it all work?

TIP #11 Your credit report is a record of your past and current credit obligations including your debts and payment history. It includes records of bankruptcies, foreclosures, liens, judgments, delinquencies and charge-offs. In general, account information, including late payments and other adverse information, is kept o­n your credit reports for no longer than seven years. However, there are certain exceptions to this rule, such as Chapter 7 Bankruptcy, which can last 10 years. Erroneous information can be disputed, and usually resolved 30 days after you trigger an investigation.

In the state of Georgia, you can get two free copies of your credit report from each of the three main bureaus each year. All states will be eligible for o­ne free report per bureau per year starting in December 2005.  Contact Equifax at 800-685-1111; Experian at 888-397-3742; TransUnion at 800-888-4213.

The information in your credit reports is used to calculate your credit score, often referred to as a FICO score, named for the originator of scores, Fair Isaac Corporation. The score runs from 300-850, and the higher the better. Within an intricate formula, there are five main factors that make up your score:

1) Your payment performance history (35%)
2) Indebtedness – how much you owe (30%)
3) The age of your credit history (15%)
4) Your pursuit of new credit (10%)
5) Your credit mix -- the type of accounts in your credit report (10%)

How do you raise your score and keep it high?

• Always pay your bills o­n time
• Keep balances low o­n credit cards, and ideally pay them off every month
• Don’t open new credit cards or accept higher credit limits that you don’t need
• Don’t open a lot of accounts rapidly, but keep cards you’ve had a long time
• Do all your rate shopping for a car or mortgage loan within a two week period
• Re-establish your credit history if you have had problems