GOOD CREDIT, BAD CREDIT – BOY, IS THERE A DIFFERENCE!
Your credit history is like a photograph of your financial habits and discipline. If it is marred, you are likely to be denied credit, or you'll invariably have to incur higher costs to obtain credit. We at Abo and Company recall reading a prior analysis of the credit scores of more than 500,000 consumers and 1,700 credit reports maintained by the three major credit bureaus - Experian, Equifax and TransUnion - had revealed that 29% had differences of at least 50 points in the credit scores being reflected. Alas, with so much "data" floating around, one can hardly expect much different today. That's why it is important to guard your credit history carefully and to periodically determine that the information it contains is accurate.
In general, when referring to your "score", lenders and other users of credit want to know the risk they are taking by lending you money. FICO scores are the credit scores that most lenders use to determine your credit risk (you will receive one from each of the three major credit bureaus named above) with such scores ranging from 300 to 850 and the higher the better. In general, a "good" credit score range is considered 700-850, while a score between 680 and 700 is deemed to be "average," reflecting perhaps a few late payments in your credit history. A score below 620 is deemed to be "poor," indicating a history of payments that were more than 60 days late. A "bad" score will probably indicate liens against your property because of irresponsible use of credit.
Of course, the lower your credit score the higher interest rates will be if you want to obtain a mortgage or another type of loan. Conversely, a higher score can help get you lower car and home insurance premiums, a deposit waiver from utilities or a better service package from the cell phone company. Prospective employers and even landlords factor in their decisions based on your score. Unfortunately, you can't eliminate negative information if it’s accurate. Only incorrect information can be eliminated but accurate information remains on your record for 7 years from the time it’s reported and for 10 years for bankruptcy. Any delinquent items will remain on your credit report for this 7 (or 10) years even if the bills have been paid.
With Abo and Company's involvement in the divorce arena, one thought may be noteworthy. A "joint" debt is not necessarily eliminated by a divorce. While a divorce decree may state which spouse gets which asset (and which debt), unfortunately, the creditor does not participate in how the obligations are divided. The divorce, in and of itself, will not nullify that contract and, thus, the payment history remains on the reports of both spouses. If your ex-spouse is past due on an account, it will show as such on your account and so affect your credit. At one time, co-signing a credit application may have been advantageous in that both spouse's income and assets were jointly considered. That said, you should have specific discussions with your attorney in this arena and consider the all of the ramifications of your credit and accounts (i.e. consider removing a spouse as an authorized user of your account; consider removing you as an authorized user of your spouse's account; consider obtaining your credit report and make sure your own credit is in order and then so monitor it; carefully assess any joint debt; if a joint mortgage, consider refinancing into one person's name; consider establishing/improving your own credit, etc.).
As mortgage broker Aaron Denker of Oak Mortgage Services or the hundreds of lender friends we have reading this same article, how many “good deals” become tainted, held up or totally sunk by bad credit reports (especially in the eleventh hour when it hurts the most).
As an aside, The Fair and Accurate Credit Transaction Act was enacted in 2003 which provides some protection for consumers and imposes certain restrictions on credit bureaus which are intended to reduce the possibility for identity theft, another topic for another day. Still, you should know that, under this law, consumers can:
- Obtain one free credit report per year from each of the three credit bureaus (If you were denied credit because of information in your credit report, you also have the right to request a free copy).
- Be notified if a merchant reports missed payments to credit bureaus.
- Restrict how the credit bureaus share sensitive information with businesses.
You can correct mistakes on your credit report yourself. It doesn’t cost anything to question or dispute items in your report and all you need do is follow the instructions provided by any or all of the major bureaus: Equifax, 800- 685-1111,www.equifax.com; Experian, 800-682-7654, www.experian.com; and TransUnion, 800-916-8800, www.transunion.com. Contact all three, as the information each has may vary.
