NEW YORK -- More than ever, you need to check for errors in your consumer-credit report. In traditional use, your report is used to predict how promptly you'll pay your credit card bills. But users are taking it far beyond this narrow sphere -- employing it to pass judgment on your insurability, your fitness for a mortgage loan, even your character.
They do it by reducing your credit history to a single-number "score." That score distills everything that credit bureaus know about your debts, such as how many years you've had credit cards, how much credit you use and how many times you've paid bills late.
You don't know your score. It's released only to people who inquire about you. The most commonly used system, created by Fair, Isaac & Co. in San Rafael, Calif., puts your number anywhere from 300 ("bounce the bum") to 800 ("borrow money from us, please"). Scores change as new information comes in. You may get different scores from different bureaus, because of an error in your file.
When you apply for a credit card or auto loan, a computer dials up your score to see if it makes that particular lender's cut. If not, you're probably dead.
In general, credit scoring is a clear consumer plus, because there's no waiting while a lender checks us out. Most of us have acceptable credit, so we get an instant "yes" in department stores and auto showrooms. Snap approvals for good risks will also become more common among mortgage lenders. Next up: quick small-business loans, based on the owner's personal credit.
But scoring is moving in controversial directions. Take mortgages, for example. Increasing numbers of mortgage lenders will be checking your score when deciding whether to give you a loan. Eventually, they will probably lower interest rates for borrowers with high credit scores and raise them for those with lower scores.
But what does this do to the marginal borrower? By using credit scores to pick the loans it checks for quality, the Federal Home Loan Mortgage Co. (Freddie Mac), which buys mortgages from lenders, rejected 50 percent more mortgages in the year ending last September.
Freddie Mac's Michael Stamper says human loan officers will investigate marginal cases, and may turn up pluses that outweigh an applicant's poor score.
Still, there's a powerful message here: Don't count on Freddie Mac for much help with nontraditional loans.
Another controversy boils around using scores to judge applicants for auto or homeowners insurance policies. Fair, Isaac, which sells a special screen to nearly 200 insurers, says low scores indicate people who might make insurance claims -- so it's harder for them to get insured.
Too many cards, too much debt and persistent late payments all will hold down your score. But some not-so-obvious things can also cut you off. For example, if you carry only one credit card you may be rated a higher risk than people who carry four. If you have a lot of department-store cards, you may be ranked lower than people with bank-issued cards. A finance-company loan might drag you down, even though you pay on time.
You're also suspect if you recently ran up a lot of debt.
If the content of your character will be summed up in a credit score, you need two things: disclosure of what goes into your score and legislation to make it easier to fix errors in your credit report.
You can write to Jane Bryant Quinn at: Newsweek, 444 Madison Ave., 18th floor, New York, N.Y. 10022.
Pub Date: 3/11/96