#1 – What Is a Credit Score and Does it Really Matter?

If you have a social security number, a bank account, and pay bills, then you have a credit report on file at the major credit bureaus, at your bank, your utility companies, and other places you may never even suspect. The information in your credit report is used to compute a credit score, a three-digit number between 300 and 850, which will have a large and often unfair effect in determining what kind of lifestyle you have for the rest of your life.

Your credit score may be called many things, including your FICO score, a credit rating, a FICO rating, or a credit risk score. All these terms refer to the same thing: the three-digit number that gives lenders, insurers, and employers an indication of how financially responsible you are and how likely you are to repay your bills on time and in full.

People with credit scores below 620 are considered poor credit risks, and those with scores above 680 are considered acceptable credit risks. The median score in the USA is 732 – half the people are above 732 and half are below it. Typically, the higher the credit score the lower the interest rate you will receive on any kind of loan. The difference in actual out-of-pocket cash that a low credit score person will pay to creditors over his adult life is staggering. If you need the motivation to fix your credit report – do the math. It can get worse. In a tight credit environment high risk borrowers may be entirely shut out from all conventional credit sources.

A Low Credit Score Will Cost You Big

The greatest and most immediate impact of your FICO score will come when it’s time to buy or refinance a house. A higher credit score will get you a lower rate on your home loan, usually 2% lower or more. Particularly in these days of tightening credit, banks are likely to demand an even higher FICO score for the best rate when you apply for a home loan. Just a 2% reduction in the interest rate for a 30 year fixed mortgage on a $200,000 house will mean that you, instead of the bank, get to spend nearly $100,000 “extra” cash over the life of the loan!

But credit scores are not just about mortgages and car loans. Your credit report can be seen by any client of the credit reporting bureaus. Everybody requesting a credit report is supposed to have a legitimate business need to do so but, as you can imagine, that’s a very open concept, and the credit bureaus are not likely to soon curb the size of their paying customer base.

For example, most large apartment complexes check credit scores and will not rent to you if you do not meet their minimum credit score requirement. Telephone and electric utility companies may require much larger cash deposits before providing service. Some public libraries may not issue you a library card. Many large and small employers look at your credit rating as an indicator of your personal sense of responsibility and whether or not you will be reliable. Some people will not hire a lawyer or an accountant, or other solo practice professional without checking their credit score as a stand-in for conscientiousness and reliability.

Everybody Can Benefit From a Higher Credit Score

If you are a college student, or a “new” adult just starting out (especially if you are just starting out), or a middle age executive looking to help out your children and grandchildren, you must know your credit score, all the information contained in your credit reports, and exactly what you can do to increase your credit score. Even if you have never had credit problems in the past, a higher FICO score can mean, at the minimum, lower premiums on life, health, and auto insurance. It always comes down to the same thing – your credit score will determine who gets to spend your money – will it be you or somebody else you don’t know and will never meet?

How to Get A Copy of Your Credit Reports For Free

By law, you are entitled to one free copy of your credit report from each of the major credit reporting bureaus (TransUnion, Equifax, and Experian) each year.

There are three ways you can get your copy:

Online. The three credit reporting bureaus jointly sponsor a website specifically for the purpose of providing copies of your credit report. Well, actually the real purpose is to sell you additional services. More about that in a minute. Go to AnnualCreditReport.com, and click on the Request Report button. You’ll have to provide a little personal information, but you’ll be rewarded with a copy of your credit report instantly. A note of caution: there are many other websites with similar names that will try to sell you a copy of your report.

AnnualCreditReport.com is the only “official site” sponsored by the credit bureaus. Yes, they will try to sell you credit monitoring services, and a variety of other “services,” but you don’t have to buy them in order to get a free copy of your reports. They will try to sell you a credit score. You are going to need your credit score but do not buy it yet. Wait until after you have seen all three reports and then you can buy a FICO score for only the worst report so you can know the worst case situation. We show you how a few paragraphs down.

By phone. You can also call the credit reporting bureaus to request a copy of your report. The number is 877-322-8228. They will take you through a verification process over the phone. But don’t expect to see your report any time soon. In fact, they say they will “mail the report within 15 days. Allow 2-3 weeks for delivery.”

By mail. The third way to request a copy of your credit report is by mailing a form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. They ask that you use a specific form available on their website (AnnualCreditReport.com), and once they get your form it will take a month or so before you get your report. Since you have to go to the website to get the form, you might as well request the reports online – it is certainly a lot faster.

Since you can get one free copy each year from each of the three credit bureaus, if you space out your requests (one request every four months), you can monitor your credit reports over the period of a year, all for free. That’s a good strategy for next year. For now you want all three reports so you can see what’s on them.

You will get your credit reports for free this way but you will not get your credit score. You have to pay extra for that. Fair Isaac will sell you your FICO score on a specific credit report for $15.95 from myfico.com. You need your FICO score to find out where you’re starting from and how much work there is ahead. You want to put off a decision about subscribing for credit monitoring until you finish this course. You can do it for much less than they are asking.

We recommend the Suze Orman’s FICO® Kit Platinum because it is the best value available. You see your credit scores from all three credit reporting bureaus
(very important). The data is accessible for a full 12 months as compared to only 30 days for all the other plans. And last, but not least, you can input variables about loan payment amounts or adding a credit card, among other things, to get instant feedback on how those things would change your credit score. A word of caution – DO NOT use any of the tools to attempt to fix a credit report error or remove a negative item.

Your credit report will look like gibberish when you first see it. FreddieMac has a decent tutorial about deciphering your credit report. Further down on the page they have a link to PDF examples of credit reports you can use in the tutorial.

There is a forth credit reporting bureau, often called the “secret credit bureau” that also collects information about your financial history. This credit bureau is Innovis. Their web address is:

http://www.innovis.com/pers_personalServices.html

Innovis flies under the radar because they do not sell consumer credit reports. You can get a copy of the credit report they have on you by visiting the website and following the instructions. In most cases it’s going to cost you $10.50.

What You Will Accomplish With This Course

By the end of this course, you will be able to:

• Define a credit score, a credit report, and other key financial terms
• Develop a personalized credit repair plan that addresses your unique financial situation
• Repair your credit effectively yourself using some of the same techniques used by credit repair experts
• Contact professional resources and people who can help you increase your credit score
• Form the strategy you need to build the financial habits that will help you keep a high credit risk rating

Be prepared to start taking small but powerful steps that can have a dramatic impact on your financial life and help you to start enjoying an improving lifestyle!

In # 2 you will learn where you credit score comes from, how it is calculated, and how you can immediately use this knowledge to boost your credit score.