Understanding Your Credit Score

You may have no idea who they are, but Bill Fair and Earl Isaac have tremendous power over your life - and the financial health of every adult American. They are the founders of Fair, Isaac and Co., and every credit agency in the country uses their FICO scoring system to determine if you deserve credit.

Most people know their credit score is important, but many don't know how the credit reporting bureaus arrive at that score. They may even think they have little control over their score. They may be unaware they have the legal right to dispute questionable negative items on their credit reports.

The experts at Lexington Law, a law firm that focuses on helping consumers clean up their credit reports, advise that consumers can and should take control of their credit scores. By understanding how credit bureaus arrive at your score, you can ensure you have the best possible score given your accurate credit history.

Here are some basic facts everyone should know about credit scoring:

1. Credit agencies, including the three big bureaus - Experian, Equifax and TransUnion - are for-profit companies who employ the FICO system to assign you a three-digit credit score between 300 and 850. The objective is to predict how likely you are to repay a loan under the lender's terms, or default on it.

2. Your credit score is based on a number of factors, including: the length of your credit history (from the day you applied for your first credit card), the number of accounts open in your name, and your payment history.  Things that will negatively impact your credit score include collection items and public records such as bankruptcies, lawsuits, liens and wage attachments; a large number of open accounts, even with low balances; and how close you are to "maxing out" your available credit.

3. If your credit score exceeds 680, you are considered a "prime" borrower and will have no problem securing credit at a good rate. If your score is below 680, but above 560, you are considered "sub-prime." You will probably still have no trouble getting credit, but at a much higher interest rate.

Scores below 560 make you undesirable to creditors. You can probably still get a credit card, but at a very unfavorable rate and probably with a large security deposit or acquisition fee. It's unlikely you will find someone willing to give you a car or home loan.

4. Your credit score will change every time your reports change. This means you can positively impact your credit score by having incorrect or questionable negative information removed from your credit report.

Some people may believe it is illegal to challenge negative items on their credit reports, the Lexington experts note. However, the Fair Credit Reporting Act guarantees you the right to challenge the credit bureaus regarding your score. Fighting them on your own, however, may be a long, difficult process. Intervention by legal counselors can produce speedier, positive results.

To learn more about how you can improve your credit score, visit www.lexingtonlaw.com.

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