- Understanding Credit Score
Considering how much we hear about the importance of credit scores, surprisingly few people understand just how a credit score is calculated. The sooner you know and understand your score, the sooner you can start building better credit.
Calculating Your Score
The exact calculation of a credit score is kept secret, considered proprietary information of credit scoring companies, (not Capital Bank). Among the three nationwide consumer credit bureaus—Equifax, Experian and Trans Union—scores can vary. But here are some general guidelines:
Payment History: 35% of your credit score is based on your consistent payment history (negative history only includes payments later than 30 days past due)
Availability of Credit: 30% of your credit score is based on the percentage of credit that you have available; that means the difference between the amount you're allowed to borrow (your credit) and the amount you owe (your debt).
Length of Credit: 15% of your score is determined by the length of time you've had credit accounts (for example, having a credit card and a mortgage for years that you've been paying responsibly).
Types of Credit: 10% is based on the types of credit you have—installment (car payments, student loans, or a mortgage where loans are paid off by a set amount over a calculated number of years or months); revolving (credit cards or lines of credit with debt that can be carried over from month to month); and consumer finance loans (loans to individuals with terms that vary depending on the lender).
New Credit: 10% is based on recent searches of your credit and/or the amount of credit you've recently gotten.
Annual Free Credit Report
The Fair Credit Reporting Act (FCRA), enforced by the U.S. government Federal Trade Commision, promotes the accuracy, fairness and privacy of information in the files of the nation's consumer reporting companies. Credit bureaus are bound by the FCRA to use fair and accurate reporting—but that doesn't mean that mistakes don't happen. Millions of people find inaccuracies on their credit reports each year.
It's a good idea to check you credit report at least once a year with a report from each of the three major consumer credit bureaus. Be aware that each credit bureau report may be slightly different from the others depending on which buereau(s) your creditors report to. You're entitled to get a free report every 12 months from each of the three major credit bureaus at www.annualcreditreport.com, the official site authorized by the federal government.
When checking your credit report, first make sure your credit report contains only items about you. Then, look for information that is inaccurate or incomplete, such as your accounts, employers and places of residence, as well as information that should no longer be on your credit report (such as bankruptcy that is more than ten years old). Specific items that can show up are incorrect late payments, accounts that should have been closed, other people's debt information mixed with yours and more.
You have the right to challenge wrong information. Report mistakes as soon as you find them and work with the credit bureaus to correct them; errors can lower your credit score, costing you money.
Contact each credit bureau individually with quesions or to correct mistakes:
Report Order: 1-800-685-1111
Fraud Hotline: 1-888-766-0008
Report Order: 1-888-397-3742
Fraud Hotline: 1-888-397-3742
Report Order: 1-800-888-4213
Fraud Hotline: 1-800-680-7289
As a word of caution, people with poor credit histories are often targeted by unethical companies. Watch out for companies that claim to "fix" your credit problems for a fee. Before you do business with any company that will have access to your financial information, check it out with your local consumer protection agency and the Better Business Bureau in the company's home location.
Protecting Your Identity
Identity theft is when someone steals your personal information and uses it for their monetary gain, leaving you responsible for their debts (it's in your name!). Identity theft can potentially ruin your finances and your credit. More than 13 million Americans fall victim each year—you don't want to be one of them. Protect your information that can be used to open or access accounts such as your Social Security Number, bank account numbers and PIN (Personal Identification Number) numbers, and passwords to online accounts where payment information is stored.
Follow these 3 easy steps for greater security and peace of mind:
Get your credit reports. As mentioned in the "Annual Free Credit Report" section, you can get a free report from each of the three nationwide consumer credit reporting companies—Equifax, Experian, and Trans Union—once every 12 months. The official site is www.AnnualCreditReport.com. You can request your reports online, by phone, or by mail.
Check the facts. A big red flag of identity theft is a flurry of activities at one point in time—multiple searches of your credit related to credit checks for loans or cards that you did not initiate, new charge cards or loans that you do not own and did not apply for. Also look for accounts you never opened that are listed as paid late or never paid.
If you find errors, contact the credit bureau whose report contained those errors as well as the source that provided the information (called the "furnisher"). The copy of your credit report will include information about how to dispute inaccurate or incomplete information.
Protect yourself. If you suspect that the error on your report is a result of identity theft, visit the Federal Trade Commission's "Fighting Back Against Identity Theft" website at www.consumer.ftc.gov for steps you should follow.
Your credit card comes with multiple layers of security to prevent, detect, and resolve any unauthorized use of your card information. Tools like real time fraud monitoring and security codes help ensure your identity is safe, whenever and wherever you charge.
In the unlikely event fraud does occur, you're still protected thanks to the Visa Zero Liability protection, a guarantee that you won't be held responsible for fraudulent charges made with your card or account information.
- Building Credit History
- Considering Joint Credit
- Debt Management
- Managing Your Finances