Spring Cleaning for your Credit Report

Finding out that you need to pay thousands of dollars more in interest on a new car or home due to a low credit score can be worse for your smile than finding out you need a root canal. Like visiting the dentist on a regular basis, taking the time to review your credit history once or twice a year can have huge long-term benefits.  Two websites allow you to monitor both major parts of your credit history – your credit report and your credit score – at no charge.

Experian, Equifax and TransUnion are the three credit reporting bureaus that keep track of your credit card and loan balances, your payment histories, how often you signed up for new credit, and any public records relating to you such as bankruptcies, judgments and foreclosures.   Each credit bureau uses software provided by Fair Isaac Corporation to calculate your FICO score based on the information it has collected about you.  Each bureau also uses its own proprietary scoring models to augment the FICO model.

The Fair Credit Reporting Act entitles you to a free copy of your credit report once per year from each bureau.   The only website that offers you access to all three free reports under this law (with no strings attached) can be found at www.annualcreditreport.com.

You should avoid using a publicly available computer to access this website because you will have to enter detailed personal information, including your social security number.   Once you have verified your identity, you can choose to receive just one bureau’s report or all three reports at once.  If you find an error on one or more of your reports, you can make a report to all three bureaus through their respective websites.  If you find negative information (late payments, charge-offs, bankruptcies, etc.) in your report, you might want to take a look at the book “Credit Repair,” by Robin Leonard.  Details and reviews of this book can be found at www.amazon.com/Credit-Repair-Robin-Leonard/dp/1413314201.(By the way, there is one copy available at the KSU library through OhioLINK.)

Unlike your credit report, there is no law mandating free disclosure of your credit score.  When accessing your free credit reports at the above website, you are usually given the option to access your FICO score for around 5 or 10 dollars.  Even in the absence of a law, some companies will provide you with a credit score, similar to your FICO score, at no charge (and with no strings attached).  The most reputable among such companies, Credit Karma, can be found at www.creditkarma.com.

Credit Karma allows you to access your credit score as frequently as you wish at no cost.  There is a catch:  The main credit score you are provided with is not a FICO score, it is a TransRisk score.  Your TransRisk score is provided by TransUnion and is calculated using a proprietary scoring model that is very similar to the FICO model.  In the industry, the TransRisk score is referred to as an “educational” credit score.  To the best of my knowledge, TransRisk scores track FICO scores very closely.  Therefore, Credit Karma is a great tool to monitor your credit score on a regular basis and spot trends.  However, since most lenders use your FICO score to measure your creditworthiness when you apply for a loan, I recommend that you pay one of the bureaus to access your actual FICO score before you  apply for a large loan.

A more detailed discussion of the relationship between TransRisk and FICO scores can be found at:

http://money.msn.com/saving-money-tips/post.aspx?post=5f6f6067-d9db-4f2c-b4d5-f3451b06e358

A report that explains the factors that determine your FICO score in detail can be found at:

www.myfico.com/Downloads/Files/myFICO_UYFS_Booklet.pdf

Finally, the Federal Reserve provides more general information about credit reports, credit scores and consumer protection laws at:

www.federalreserve.gov/creditreports/default.htm