11/28/16

For the 12/12/12 folks...

Meanwhile...

Shopping frenzy time is here,


A Credit Score Guide for Beginners


Basically, it is not a pretty picture. Unfortunately, credit scores don't just affect interest rates on loans and credit lines; not to mention being outright refused for credit altogether.
  • Insurance companies also use your credit score as one of the factors in determining the premium amounts for your life, home, and auto policies.
  • Landlords use your credit score to decide whether to rent to you or not.
  • Cell phone and cable companies use it to decide whether to accept you as a customer or not.
  •  Other utility companies use it to decide if an advance security deposit is required.
  • Many companies (sometimes illegally) will refuse to hire you, if you have a low credit score.
It's as if the whole system was designed to mimic nature's law of the jungle, i.e.; once you are down, it "conspires" to keep you that way or outright "kill" you altogether.

Table of Contents

  1. How Your Credit Score Is Calculated
  2. Things That Affect Your Credit Score and How to Protect and Raise Your Credit Rating
  3. About Credit Score Numbers and What Each Range Means
  4. Consumer Credit Bill of Rights and Other Federal Information Resources

How Your FICO Credit Score Is Calculated

FICO is the most commonly used credit reporting system used by lenders, insurance companies, landlords, employers, utility companies, etc.

Percentages and Components of the FICO  (formerly known as Fair Isaac) Credit Reporting System
  • 35% Payment History
  • 30% Amounts Owed
  • 15% Length of Credit History
  • 10% Types of Credit Used
  • 10% New Credit
These are the components and numbers Fair Isaac have publicly claimed. However, it is reasonable to suspect there are proprietary, additional factors behind the scenes; debt ratios, unused credit, employment history being primary examples.

What Affects Your Credit Score and How to Protect and Improve Your Credit Rating

  • Pay your bills on time, this one is an absolute necessity. To do otherwise signifies financial problems or irresponsibility, both of which are major red flags.
  • Keep your debt as low as possible, relative to your credit-lines. Maxed-out credit-lines are death.
  • Unfortunately, the opposite is also true. Having an excessively large, unused credit-line available will lower your score. Excessively large credit-lines tend to eventually be used and potential creditors are leery of that.
  • Don't suddenly close most of your credit lines and/or card accounts. This will mess up your debt-to-limit ratio and lower your score significantly.
  • Moderately used, active credit lines and accounts seem to be what lenders like to see.
  • Apply for credit as seldom as possible and avoid department store credit cards.
  • Co-signing loans is a very bad idea,"Top 10 reasons not to co-sign on a loan" from Bankrate.
  • Student loan debt can hurt your credit score.
  • The IRS reports delinquent taxes, unknown if that includes those under dispute.
  • Cities and counties report unpaid parking tickets and unpaid library fines. And it is a pretty good bet that includes any that are disputed.
  • Cities and counties also report what you owe when you are unable to retrieve your car from impound.
  • Reconcile your credit card statements every month. Inaccuracies, invalid charges, overlooked-no-longer-needed monthly charges, and outright ID theft happen much more often than you might think.
  • Check your credit report at least once a year. Fatal inaccuracies occur often in these reports. In fact, credit reporting agencies are famous for it. You are legally entitled to one free credit report a year from each of the credit reporting agencies.
  • Pretty much all of the reputable consumer-related-advice websites recommend annualcreditreport.com as the place to get your free credit reports. The site will subject you to a lot of advertising pitches along the way, but eventually you'll get the free reports unscathed. 
  • Credit card companies and banks generally rob their customers blind when it comes to cash advance fees; so don't do that. There is also the possibility that your willingness to pay those high fees might be interpreted as a sign of desperation by the lending institution.
  • Likewise, avoid those loan places you see in the mini-malls like the plague. Having one of those places showing up on your credit report would be 10 times more destructive than any mentions of department store credit cards could ever be.
  • An Update. Credit bureaus now report to prospective mortgage lenders as to whether an applicant pays their credit card bill(s) in full each month or only makes the minimum payment(s), etc.

About Credit Score Numbers and What Each Range Means

Depending on which credit bureau is dong the rating, credit scores range approximately from 300 to 850.

The credit score sub-ranges listed below are likewise approximations, but they will give you a good idea as to where you stand. There is a small overlap in the ranges. This has to do with the fact that some loan officers will look beyond just the number and actually read the report; but unfortunately, there are many lending institutions who don't.

Some aspects of this segment are of a "humorous" nature, but there is seriousness behind the "humor".

Credit Scores at 300 Something, or in the 400 Range, or at 500

If your credit score is at or below 500, you are basically dead in the water. If you are in this category, then as far as society is concerned, you are not worthy to live. Not only does society classify you as unworthy/poor/destitute; it will do everything in its power to keep you that way.

Want a job? Forget it. Employers don't hire people with credit scores at and under 500. As far as society is concerned, you have no right to be employed. [Update: Some states have changed their laws in order to fight this practice. In California, for example, it is now supposedly illegal for a prospective employer to use your credit score as a factor in their hiring decision.]

Want to rent an apartment? Forget it. Apartments aren't rented to people with credit scores at and under 500. As far as society is concerned, you deserve and should be homeless.

Want to buy a car, get a checking account, or get a debit or credit card? Forget it. Forget it. And forget it.

Do you think there just might be something wrong with this system? Many people will agree with you.

Credit Score Range Between 500 to 600 and up to 620 Inclusive

Attempting any kind of credit related or other business transaction when your credit score is in the 500 to low 600 range is extremely difficult. If you are able to get a credit related account or successfully initiate any other sort of business transaction, you will be subjected to the worst possible interest rates, fees, and security deposit amounts.

Credit Scores Ranging Between 600 to 700 and up to 719 or 720 Inclusive

In this range society doesn't consider you a credit risk, but entities you attempt to do business with will pretend they think you are. Negotiation is possible here. Sometimes, just say no. It might work. It might not. You have the option to walk away and try somewhere else.

Here is the classic story when someone is in the 600 to low 700 credit range and they attempt to buy a car...

You: “I love this car and think you are giving me a good deal. I'll take it.”

The Car Dealer: “With your credit rating, we will have to charge you 50% more than the usual interest rate.”

You: “Why?”

The Car Dealer: “Because we consider you a credit risk.”

You: “So you think I can handle the higher monthly payment, but that I can't handle the lower one?”

The Car Dealer: “Exactly.”

- end of story -

Although told in  a "humorous" light and different words would be used in the actual situation, the description of the results is dead on accurate. And on an even more serious note, one should never get an auto loan from a car dealership or used car lot anyway. If/When you are in the market for your next car, this How to Get a Car Loan article will save you much grief and money.

Credit Scores at and Above 720 - And in The Land of 850

When your credit score is in the 720 to 799 range, better interest rates on loans and credit lines start becoming available to you. Getting a house or car loan at favorable rates is usually a routine matter.

And if your credit score is actually in the 800 range,you are a Living God and can do no wrong. Creditors follow you around, scattering flower petals in front of you wherever you go. Little angels hover around and protect and nurture you. Rainbows are visible at every corner.

A Bookmarks Reference List of Consumers Credit Bill of Rights Resources

Here's a list of resources as to the rights consumers are legally supposed to have when dealing with credit and credit scores. All listed websites are government or other well-known, reputable sources. All links go directly to the website's consumer credit rights page. This list is just starting out and may be added to from time to time.