Next to your blood pressure and your cholesterol
level, the most important number to track is your FICO score.
To answer the question – who is FICO? FICO is an acronym for the Fair Isaac
Corporation, established in 1956 to provide credit information to lenders. The
name was changed to FICO in 1989. Your FICO score is your credit score based on
information provided by the three major credit reporting companies – Experian,
Equifax and TransUnion. All three score differently and the final score provided
by FICO is calculated using their input and other factors known only to FICO.
The term “FICO” and “credit score” are used
interchangeably. I’ll use the term “credit score” for the rest of this article.
Your credit score is important because it not only influences whether or not
you may be given credit, it also influences what interest rate you will pay.
Whether you pay 4% or 16% on a car loan depends on your credit score.
What affects your credit score? Glad you asked. The factors that hurt your
credit score are: high balances on your accounts; low credit limits; total of
all card accounts is too high; inquiries on your credit report and delinquent
payments. What helps your credit score is paying all debts on time, keeping
your debt low and not carrying a balance on credit and bank cards. In other
words, pay off any credit card balance every month.
Getting your credit
score is not as simple as getting your credit report. It is law that you must
be provided a free credit report annually from all three companies – Experian,
Equifax and Transunion. Go to : annualcreditreport.com but be cautious because there are a lot of dotcom
companies trying to look like annualcreditreport.com who will charge you for
what is free. Be careful where you
click.
While you must be provided a free credit report,
your credit score is not included. If you go straight to the companies, you may
have to pay. But your credit score may be available from others. My credit union provides a score from Equifax.
A credit card I use provides a score from Experian.
What does your credit or FICO score look
like? It is a number between 300 and
850. Higher is better.
As I am conscious of the potential for identity
theft and credit card fraud, I check my credit union account daily. Since I am also provided my credit score, I
check that also. Not to brag, but my
score was so high that I considered tattooing it on my bicep, but I dislike
needles and don’t have much of a bicep.
So imagine my surprise when one morning I looked
at my credit score to see it had dropped 141 points, taking me from “excellent”
to “good”. What happened?
Here is what happened. I was a customer of one of the satellite TV
companies since 2015. In early July, 2019 the company stopped carrying two of
the major networks, cutting me off from local news as well as some good
programs.
I spoke with a company representative, closed the
account, and returned the equipment the company had provided. As I had quit in mid billing cycle, I did not
expect a full bill, but I was wrong. The
company charged me the full $100. I
replied with a letter, and an email, that since I did not get a full month’s
service due to their dropping two networks, I asked them to pro-rate the charges
and I would pay what I owed which I figured was about $50.
The company continued to bill me. I called and was
put on hold and ignored. The company continued to bill me and I continued to
ignore the bill.
The bill went to a collection agency. A debt going
to collection has a severe impact on a credit rating, as I learned – 141 points
worth. I also learned that a collection
stays on a credit report for seven years.
What to do? I appealed to all three companies,
Experian, Equifax and TransUnion, giving them the same facts I have
related. Experian and TransUnion deleted
the collection from my credit report. Equifax showed the debt as paid. Both
Experian and Equifax provided my adjusted score and I am reconsidering that
tattoo. TransUnion insisted I pay for
the score which I did (reluctantly), but was glad to see that it was back up in
the excellent area.
What I want you to take away from this reading is
to avoid collections. If you have a bill
or debt that is overdue, work with the company. If Covid-19 Has impacted your
ability to pay a debt, or any bill, check with the company to see if they offer
any kind of hardship option. Avoid a collection action in any way possible
short of armed robbery. If the company
sends a debt to a collection agency they will only get a percentage of the
amount owed so it is in their best interest to get the full amount from you.
Also, choose your lender wisely. A local credit union can offer personal
service and be more patient and understanding than a national bank. Shop
carefully for a credit card. For a very detailed report on credit cards and credit
scoring see the U.S. News article “Find The Best Credit Card for you”. Go to: https://creditcards.usnews.com/ and scroll
down to “What Is My credit Score?”
The other thing I want to emphasize is to take
advantage of the free annual credit reports.
You can get all three at once, or space it so you get one every four months.
Also, check if any institution you use might provide a free score. Challenge anything on your credit report that
you believe to be wrong. All the credit reporting companies have a way to
initiate, and resolve, a dispute.
Had I known the consequences of not paying the
full bill, I would have held my nose and paid, even though I felt I did not owe
for a service I did not receive. I would
never advise anyone to ignore their principles, but if you find yourself in a
similar situation, know the potential consequences.
Bottom line – do not let a financial obligation go
to a collection agency. End of story.