Lately it seems our TV sets have been inundated with commercials that are advertising how we can get our credit scores for free. But our Money Coach, Bill Stanley, said it's not so much about how much you pay for your score but rather knowing what to do with it when you get it.
"There are many different scoring systems," he said. "The best, in my opinion, is the FICO score. Fair Isaacs and Company (FICO) has proprietary software which checks multiple credit sources and comes up with a score. The three credit bureaus have their own scoring systems. One mortgage company pays for scores from the three credit bureaus and then uses the middle score."
This means that one person can have multiple credit scores -- and that can make a difference depending on which score your proposed lender is looking at.
Stanley also said it's important to remember that our scores fluctuate, sometimes daily.
"Your credit score is a snapshot on that one day only," he said. "It changes all the time."
Knowing your score won't do you any good unless you take action to improve your score, he said.
Let's begin with the components of a credit score:
- 35% depends on whether you pay your bills on time. Easy to improve -- pay all your bills on time, Stanley said. If you happen to miss one by a couple of days, call them up and make sure they know the money is coming. Ask them not to hurt your credit.
- 30% depends on your debt levels -- that's how much debt you have versus your available credit. If your credit card has a limit of $2,000 and you have a $20 purchase, you will score high. If you have six credit cards, all maxed out, your score will suffer.
"Remarkably, two-thirds of your score is just paying your bills on time and keeping your debt level low," he said. "Concentrate on these two things which you absolutely control."
- The remaining areas: credit history, new credit applications, and credit mix have much less effect on your score.
That all being said, Stanley did find a place where we can get a free credit score: www.creditkarma.com
He said he thinks it's based on the TransUnion credit bureau.
One caveat from Stanley: You will be asked for your Social Security Number. Every agency will ask for it when you apply for a credit score as a way of identifying you, so Stanley said it's not a good idea to give it out without knowing and trusting the company or its website.
"Credit Karma provided me with a free score with helpful information on how my score compares with others," he said. "They gave me letter grades in several credit categories -- which is useful if you want to improve your score. Be careful, though, because the site will try to sell you stuff."
There is another option: You might be able to obtain your score at no cost after you have applied for a loan. Just ask the person who viewed your credit report, he said.
Bottom line is this: Yes, you should know your credit score -- but not just to see the number; your goal should be to improve how you use credit.
Bill Stanley and Money Matters airs every Tuesday on FOX21 Morning News.
If you have a question for Bill, contact him directly: moneycoachbill@aol.com
TV Station Profiles & Public Inspection Files forKXRM