Checked Your Credit Score Recently?

About the time this issue of Spotlight is available, you will be able to learn your credit score and gain some insight into how it is calculated. Credit scores are widely used in granting consumer credit and residential mortgage loans. Fair, Isaac & Company (FICO) calculates the scores using data from Equifax, a leading credit bureau. For many years, credit scores have been kept secret. However, under pressure from government agencies and consumer groups, the industry has established a system whereby consumers can use the web to learn their scores and consequently trace changes in their scores as their patterns of credit use change. At the moment these score disclosures are voluntary on the part of the participating firms, but bills are pending before Congress and various state legislatures that would mandate score disclosure.

FICO scores range from about 300 to 800 and are particularly important in obtaining home mortgage loans. According to an excellent article by Kenneth Harney in the Greenwich Time, many lenders "wouldn't consider you for a mortgage at the prevailing market rate if you didn't hit some benchmark: a 620 FICO or a 680, for instance." Over time, consumers will discover that their management of credit can have significant effects on their credit scores. For example, it might seem sensible to pay off balances and close several credit card accounts that you have had for many years and consolidate the balances on a single card. However, by closing out those accounts, you have destroyed the historical information showing how well you have been paying your bills. Consumers with several credit cards may score better than those with only one or two, or none, because they have demonstrated their ability to pay their revolving credit accounts promptly.

When the system is up and running, consumers can access the Web site for the new service at: www.MyFico.com. The cost of the service has not been determined, but it will be "moderate." Equifax credit reports are available at a cost of $8.50 (and are free if you have been recently turned down for credit). Since the scores are based on the statistical analysis of data from Equifax's credit report, they will differ from scores based on credit data from the files of the two other major credit reporting agencies, Trans Union and Experian.