One Thing You Can Control: Your Credit Score

Saturday, October 11, 2008

It’s been nearly impossible to think about much other than retirement, college or other savings in recent days. The pain has been all too acute and, unfortunately, the damage is not contained. Lurking beyond the devastation in the markets are other problems, like the fact that consumers are having an increasingly hard time getting loans.

I know it seems odd to think about your own creditworthiness at a time like this. Isn’t borrowing what got the world into this mess in the first place?

Your credit score, however, is something that you have a fair bit of control over, since it reflects your behavior as a borrower. Right about now, focusing on something within your control may feel like real progress. Last week, we started down that road with a look at budgets and spending, and there’s more to come.

Credit matters if you need a new mortgage because you have to move for your current job (or a new job if you lose your old one). It matters for many of the loans you may use to send a child to college. And it matters if you need to use credit cards for a time because your income has fallen or disappeared and there is no other option.

You don’t always know ahead of time when your creditworthiness will be a factor. But if an immediate need to borrow emerges, which it may for any number of people in the coming months, there will be no time to fix any problems. That’s why it’s a good idea to focus on it now.

Lenders are already rendering harsher judgments, and they’re likely to get even tougher. The Federal Reserve Board survey of senior bank loan officers in July, the most recent such survey, showed tightening lending standards across every major loan category.

“It’s a 10,000-decibel wake-up call and a slap in the face to people who viewed credit as a right rather than a privilege,” John R. Ulzheimer, the author of “You’re Nothing But a Number.”

That number he wrote about is the almighty FICO score. A company called Fair Isaac supplies the formula that generates the score. The three major credit bureaus, Equifax, Experian, and TransUnion, create their own versions of the FICO score using data from the credit reports they keep on you. They also, confusingly, create their own alternative credit scores, but more about those another time. For today’s column, the term “credit score” is synonymous with FICO score.

If you want to see the credit history that serves as data for the score, you can get a free copy of your credit report free each year, once from each of the bureaus, at annualcreditreport.com. If you want to see the FICO scores themselves, you can pay $47.85 for the three of them at myfico.com. Click “products,” then select the “FICO Credit Complete” package.

Source: http://www.nytimes.com