Understand the impact of your credit score

This was originally published on Monday, September 23, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

Knowing how your credit score is calculated is the first step in repairing your credit.

The second step is understanding your credit score and how it affects you. By understanding your score, you will know how it can rise and fall and take the appropriate actions to repairing it.

• What is not recorded on your score?

Your payment history, your account balances, the length of your history and the type of accounts you have. The information can be both positive and negative.

Many people feel that once you receive a poor score, it will follow you forever.

That is not true.

Depending on what type of negative information is on your report, it usually takes between seven to 10 years to clear.

Late payments, Chapter 13 bankruptcies, foreclosures, collections and public records will take about seven years to clear.

For a Chapter 7 bankruptcy, it takes ten years to clear your report. Unpaid taxes or tax liens can stay indefinitely. Older negative information does not impact your score as much as something that has happened more recently.

Being 30 days late on a payment can hurt your score by as much as 100 points and remain on your report for many years. That is why making timely payments is crucial.

• What is not recorded on your score?

Your age, sex, marital status and race aren’t reported on your score. How much you make, your occupation and employment history also aren’t recorded on your score and does not have any effect on it.

Although your balance on your credit cards or loans are reported on your score, the interest rates are not.

Likewise, child support, alimony and rental agreements aren’t considered on your score.

• What is a good credit score?

There are several different credit scores besides just the three credit bureaus and FICO. Even among these four scores the ranges vary.

Most lending institutions and the three credit bureaus use the FICO score model to calculate your credit score. The FICO score ranges from 300 to 850.

Most people have a credit FICO score between 650 and 750. A FICO score of 700 and higher is considered very good to excellent, 620 to 699 is considered fair to good, while a score below 620 is consider poor to bad.

• How my credit score affects me?

Having a good credit score can help you get a loan with lower interest rates. But it also can impact other aspects of your life.

It can affect future employment. Under the Fair Credit Reporting Act, future employers with your permission can look at your credit report to make hiring decisions.

If your job requires a security clearance, a poor credit score could have your clearance revoked or, worse yet, have your employer let you go.

Federal law also allows landlords to look at your credit report with your permission. Utility and cell phone companies also may take a look.

A low score might cause you to put a heftier deposit to acquire their services. Your credit score can interfere with home or car insurance. If your score is low, it could reflect that you aren’t a responsible person.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com



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