THE COLOR OF MONEY
Making more money won't get you a higher credit score
By Michelle Singletary
WASHINGTON — Anyone who uses credit ought to know what a credit score is. And surveys show that most people do.
How would you answer this question: True or false, a married couple has a combined credit score? It's false. You might be able to marry for money, but you can't marry your way into a good credit score. Debt that is jointly owed can affect your credit score as an individual. However, couples don't have a combined credit score.
But many still don't know what information is used to come up with their credit scores, according to a new survey by the Consumer Federation of America (CFA) and Fair Isaac Corp., developer of the FICO credit score used by most lenders to evaluate consumers looking for credit.
If I were to tell you that as your income goes up, your credit score will increase, would you agree?
If you answered "yes," you need to do some credit score basic training.
And you wouldn't be alone.
Nearly one-half of consumers questioned in the CFA and Fair Isaac survey didn't know that increasing one's income will not increase one's credit score.
The fact is, credit scores reflect only your own past credit history and not your income, marital status, occupation or other personal characteristics.
"Despite all of the news coverage about credit scores over the past year, many consumers still do not understand important facts about these increasingly influential numbers," said Stephen Brobeck, CFA's executive director.
To help consumers learn more about credit scoring, CFA and Fair Isaac have produced a brochure that is being distributed at no cost by the federal government's Federal Citizen Information Center.
To get a copy of "Your Credit Scores," contact the center at (888) 878-3256 or write to: Credit Scores, Pueblo, CO 81009. The brochure is also available online at www.pueblo.gsa.gov. Click on the link for "Your Credit Scores Publication."
What should you know about credit scoring?
• FICO credit scores range from 300 to 850. A score above 700 indicates you are a relatively low credit risk and will likely qualify for the best interest rates. Consumers with scores below 600 are typically charged higher loan rates. A low credit score can cost you not only thousands of dollars in additional finance charges, but also might result in you being denied insurance, telephone service, an apartment or a job.
• You don't have just one credit score. Each of the three major credit bureaus — Equifax, TransUnion and Experian — generates a credit score on you.
• Not all lenders use all three credit scores. Some may grant you credit or approve your auto loan, for example, based on a single bureau's score or all three. Mortgage lenders typically consider all three scores. In the case of a home loan, lenders often use the score that falls in the middle.
• The two most important factors in determining your credit score are your payment history (do you pay your bills on time?) and how much you owe.
• The fastest way to raise your credit score is to pay bills promptly and keep your credit card balances low. Want a better score? Then pay off debt rather than moving it from one credit card to another.
The brochure includes hypothetical examples of how certain credit usage can change one's credit scores over time.
In one example, a woman starts out with a credit score of 780. However, she divorces and her ex-husband agrees to make the payment on two joint credit cards (she doesn't realize her name is still on the cards). The ex-husband then nearly maxes out the cards and fails to make payments on time. As a result, the woman's credit score drops 180 points to 600.
When the woman gets her former husband to roll over the balances on both cards to a new card that he opens in his name only, paying off the two accounts improves her score by 80 points (in just one month).
"We hope this new brochure can clear up a lot of confusion about credit scores," said Cheri St. John, vice president of global scoring and consumer solutions for Fair Isaac.
Michelle Singletary writes for the Washington Post.
