Getting credit nowadays depends on your scorecard


Dollars & Sense

April 21, 2002|By Eileen Ambrose

MISS CREDIT payments frequently and it may cost you more than interest charges and late fees.

It can hurt your scores.

Using credit reports, companies have designed many types of ratings that try to predict a consumer's behavior. Mortgage lenders and credit-card companies are among those that use scores to help decide interest rates or other terms they may offer you.

There are scores to predict if you'll pay your debts. Scores that assess the likelihood of bankruptcy. Scores that indicate if you'll generate fees and interest for credit-card companies. Even scores on the chances you'll pay off your balance and jump to another credit card.

Consumers are learning there is an insurance score, which forecasts the chances one will file an auto or homeowner's claim. Insurance scores have become a hot issue, after many motorists and homeowners complained that scoring caused their premiums to skyrocket, although they had never filed a claim.

Though insurers defend the use of credit information as an accurate predictor of the future, some states have limited the use of insurance scoring.

Maryland's General Assembly just passed legislation that would prohibit the use of scores to decide if residents are sold auto and homeowner's policies. A score also can't be a factor in setting premiums for homeowner's policies, although it can be used to decide customers' rates for auto insurance when they first apply for coverage.

The score that most likely affects consumers is the credit score. Not only do lenders look at it to decide whether to approve an auto loan, mortgage or credit card, but landlords may view it to decide whether you'll be a tenant or not, experts said.

"Some consumers don't even know they have a score," yet in the past five years it's become the dominant measure by which they are judged, said Chris Larsen, chief executive of E-Loan Inc., an online lender. "It's really become a generalized risk meter of consumers, almost a tattooed thing on a consumer's forehead."

For years, credit scores were kept secret from consumers. After pressure from legislators and others, companies now provide consumers their scores.

Fair, Isaac and Co., which created the most widely used credit score, FICO, has joined with credit bureau Equifax to sell a credit report and score online for $12.95 at

Experian (888-397-3742 or sells its credit report and its score for $12.95. And TransUnion offers its score for free if you order a credit report, usually for $9 ( or 800- 888-4213).

Marylanders can receive a free copy of their credit report once a year from the three major credit bureaus. With TransUnion, Marylanders can get a report and a score for free upon request.

E-Loan offers a free credit score at, although you may get promotions for the company's services later unless you opt out.

Consumer advocates say the scores remain too much of a mystery and should be free. Still, because of the score's importance, people should get their score to see how they are viewed by a creditor, consumer advocates said.

The FICO score ranges from 300 to 850. The higher the number, the better credit risk you are expected to be.

Half of consumers score 720 or higher, said Craig Watts, consumer affairs manager for Fair, Isaac in California. Generally, mortgage lenders will take a harder look at applicants scoring below 620, he said.

Some suggest using a high score to your advantage.

"If you have a good credit history and a good score, you can negotiate a loan" and get a better rate, said Michael J. Mazzola, president of CreditXpert Inc., a Towson company that developed the credit score offered by E-Loan. Getting, say, a half-point trimmed off the interest rate of a mortgage can save tens of thousands of dollars with a 30-year loan, he said.

But if your score is less than stellar, you can improve it. "Credit scores change constantly," Mazzola said.

Here are some suggestions by experts on how to boost a score:

Check your credit reports from the three major credit bureaus and make sure the information is correct. This information shapes your score. A U.S. Public Research Group study found that about a third of reports have errors serious enough to lead someone to be denied credit or charged a higher interest rate, said PIRG's Ed Mierzwinski.

Pay bills on time because even being a few days late periodically can hurt your score.

Reduce your debt.

Don't open too many credit-card accounts. That will lower your score, even if you don't use all the cards, because you have the potential of racking up as much debt as the cards' credit limits allow.

Be careful of consolidating debt and closing credit accounts, because you can raise your level of debt in relation to available credit. Say, you owe $3,000 on two cards with a total credit limit of $7,000. Close one of those cards without reducing your debt, and you'll end up owing $3,000 on one card with a $3,500 credit limit, making you nearly maxed out.

Avoid frequent applications for credit, which can trigger many inquiries by lenders into your credit report. Lots of inquiries can hurt your score because it may be a sign you're having money problems and trouble getting credit.

Sometimes, lots of inquiries over a short period won't hurt because it's assumed that for mortgages and auto loans people shop around for the best loan deal.

To suggest a column idea, contact Eileen Ambrose at 410-332-6984 or by e-mail at

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