More On Your Credit Score

Last month, I suggested you visit myfico.com to find out your credit score. As I pointed out, your score can matter. The average rate charged on a 30-year fixed home mortgage recently was 5.28% for someone with a top-bracket FICO score, versus 5.94% for someone just a couple of notches down – an extra $15,000 in interest over the life of a $100,000 loan. For someone one FICO rung from the bottom, the average 30-year rate was 8.53% – an extra $80,000 in interest.

As usual, your feedback was more interesting than my original. (See, especially, Jonathan Hochman’s advice.)

Craig Wiegert: ‘I think it’s important to point out that many people can get free or reduced-free credit reports depending on their state of residence. Click here for the list of states. The downside is that the credit report is snail-mailed instead of being instantly available Online.’

☞ Click there even if you hate snail mail. Lots of useful info.

Les Rosenbaum: ‘Which of the three credit reports should I get for $12.95?’

☞ If money is no object, get all three. Otherwise, I doubt it matters much. I’d go with Equifax just because I think it’s the biggest.

Duncan Smith: ‘For the real control freaks, there’s creditexpert.com, which for an $80 annual fee lets you check your credit report and credit score any time you want. There’s even a ‘Credit Score Simulator’ that lets you play with various parameters to see how they would affect your score. One of them is ‘Total revolving credit card limit.’ As this one increases, so does your simulated credit score. This seems like the opposite of the FICO score, which you mentioned (creditexpert.com is run by Experian). I guess the bottom line is, it’s tough to get those last few score points, especially when some things will increase one company’s credit score while decreasing another one. Now that more companies (e.g., car and home insurance) are using credit scores, it would be nice if there was a bit more transparency around how these scores are calculated, and maybe even consistency between companies.’

☞ Note the free 30-day trial period.

Jonathan Hochman: ‘Credit scores are an excellent point to discuss. For most people reducing the cost of credit is their best opportunity for risk-free ‘profit.’ It is probably worth $69.95 to buy an unlimited credit report monitoring service such as My.Equifax.Com. By checking frequently one can see how every action affects the score. Equally important, one can make sure that identity theft does not occur. It is also a good idea to request an investigation of any small errors discovered – such as accounts listed as ‘open’ that really have been ‘closed’. One may also find small overdue accounts that are either mistakes or things that have been innocently overlooked.

‘For instance, I once found that somebody had opened a Discover Card in my name at a bogus address, and had taken a $100 cash advance. This debt was in collection. Discover did not bother to track me down because the debt was so small. It was just sitting in my file dragging down my score. One phone call solved the problem. Another time AT&T assessed bogus charges on a cellular phone account that I had closed long before. The past due debt was finally cleared up after a repeated phone calls and letters to AT&T.

‘People need to be aware that every charge account, both those still open and those closed, may reduce their credit score. Many merchants have a special credit come-on where they offer a 10%-discount-on-today’s-purchases if you simply open an account. This can be an extremely costly mistake. The discount means nothing compared to paying an extra 0.5% for a mortgage or car loan.

‘Somebody who applied to rent one of my apartments told me he had good credit. Actually he had a low credit score because of twelve unpaid parking tickets, about $600 total. The parking authority had reported each ticket as a separate $50 collection account! This was probably much worse for the credit score than if the whole pile of tickets had been reported as one bad debt.

‘Rather than hunting around for the best stock, or for an extra 0.25% return on a savings account, people ought to go after the big nut: reducing home and car loan interest expense. In addition, a bad credit score can be an obstacle to renting an apartment, buying insurance or getting a job.’

☞ Thank you, Jonathan!

[Jonathan asks: ‘Another topic: Why do hospitals charge two to three times higher rates to the uninsured (i.e. those who have the least money)? Why doesn’t Congress pass a law that hospitals have to charge the same fair rate to every patient? Make it illegal to discriminate against the uninsured.’ Any doctors or hospital administrators in the crowd want to tackle that one?]