Improve Your Credit Rating

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Why Your FICO Score Is Crucial

Your credit score is just as important as your credit report. The score most commonly used by lenders is the FICO score (named for Fair, Isaac, the company that created it). The number indicates to lenders how likely you are to make your payments on time. The figure is computer-generated from your credit report, though it does not appear on your credit record. You may have a different FICO score for each of your credit reports (though they're unlikely to be too different unless one of your reports has a mistake or a significantly different entry) and lenders may use any of those numbers or take the middle score of the three to evaluate whether you qualify for a loan or other credit, how much they're willing to lend you, and what rate of interest they'll charge.

Your FICO score can range from 300 to 850; the higher your number, the better. For example, a borrower with a score of 760 might get a mortgage interest rate of 5.85 percent, while a borrower with a score of 620 might get a rate of 7.44 percent. The difference in monthly payments at the two rates adds up to $314 -- or close to $3,768 a year (on a 30-year fixed-rate mortgage of $216,000). The median FICO score is 723 -- you want yours to be higher.

You will probably have to pay to get your FICO score. You can obtain all three of your FICO scores (and credit reports for $44.85) at You can also order your credit score from each of the three credit bureaus for between $5 and $8 apiece. If you've recently applied for credit, though, your lender will undoubtedly have your score and may, if you ask, disclose it to you. Some lenders, like certain mortgage issuers, are legally required to disclose it.

How to Fix Errors on Your Credit Report

Your credit reports from the three bureaus may have slightly different formats, but all contain similar facts. There's your basic identifying information: name, address, Social Security number. Another section includes "trade lines," a listing of your credit accounts -- be they credit cards, car loans, or mortgages -- along with the credit limit, balance, and payment history of each. The reports also show "public records and collection," which include any actions taken against you in court and any overdue debts taken over by collection agencies. Read all of these sections carefully for accuracy.

If you find any errors, you have the right to dispute them, free of charge, by phone, mail or e-mail, with the credit bureaus. If the mistake occurs on all three reports, you must contact all three agencies.

When you point out the problem, the credit-reporting agency will open an investigation and contact the credit card company or other lender that provided the statements you dispute. The source must then check its records to verify the information and respond to the credit agency within 30 days about whether the contested item is correct or not.

If you dispute an item and the investigation finds against your claim, there's no appeal, so the information will remain, but you can write out a consumer statement and send it to each of the credit bureaus, which will add it to your credit reports. This will ensure that your side of the story is available to potential lenders. If, on the other hand, the lender agrees with your correction, the Federal Trade Commission (FTC) requires the lender to amend the error at all the bureaus to which it reports. However, you should check all of your reports to make sure all the fixes have been made correctly.

If a credit card you never applied for appears on your report, you may be the victim of identity theft. Contact the fraud department of one of the credit bureaus and request a fraud alert on your credit reports. (You have to call only one bureau -- it will notify the other two.) This tells lenders to contact you before issuing new credit or making changes, such as switching mailing addresses, to your current accounts.

Continued on page 3:  Improving Your Scores


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