On the Internet: Consumer Credit

To gauge what kind of credit risk you may be, lenders employ the FICO score. When seeking consumer credit, many people seem to know their credit score, but few understand how it is calculated. This credit scoring, which results in a number between 300 and 900, is based on a statistical model developed by the Fair Issac Corporation (hence the name FICO score).

The statistical model for the FICO score was not originally set up to be a consumer model, but it was the only available paradigm at the time. So, the banking industry quickly adopted the FICO model to numerically rank consumers. The FICO score is used by the three largest consumer credit agencies: TransUnion, Equifax, and Experian.

The mystery behind the FICO score is how it is calculated. As the Fair Issac Corporation is a for-profit company and publicly traded on the New York Stock Exchange, the FICO score is treated as their product and its method of calculation as a trade secret. However, there are a few Web sites where you can get information on the factors that contribute to your FICO score and education on using credit. These sites are described below, along with what you’ll find at the Web sites of the three main credit agencies.

Credit Information and Education Sites

Credit Infocenter

www.creditinfocenter.org

Credit Infocenter CLICK ON IMAGE TO SEE FULL SIZE.

Credit Infocenter is a comprehensive site geared toward helping consumers understand their credit options and answer questions. The credit card debt section reveals the pros and cons of debt consolidation services. A discussion board is set up to deal with questions and commentaries, and there are also various do-it-yourself debt-reduction tips.

A portion of the site is given to advice on credit score calculation and do’s and don’ts. A chart shows how points are distributed and the factors that affect the points. Credit Infocenter lists areas that are considered when arriving at your FICO score, such as whether you own or rent your place of residence, your occupation, years at occupation, and number of credit cards.

Another area of the site provides current mortgage and credit card rates. Here you can obtain information on mortgages, credit cards, and the financial costs of sending a child to school. You can access tips on getting a good mortgage, read through a Q&A section on refinancing, and learn the questions to ask a loan officer when applying for a loan or refinancing.

Credit Infocenter also addresses the issue of identity theft and offers advice on how to protect your credit—such as which documents to shred and how often to check your credit statement. It provides steps to take if you are a victim of identify theft, and information on how to protect yourself when shopping on the Internet. Credit Infocenter’s Web site is free, with some fees attached for certain services: books, CDs, and E-books range from $7 to $24; and a consulting service is available for $45/half hour.

My FICO

www.myfico.com
This site is devoted to the FICO score and offers consumers copies of their credit reports. Reports from the three large agencies range from $12.95 for a single report, to $39.95 for all three. The site also maintains a Credit Education area where consumers can learn about the FICO score and how to improve it.

Statistical information on the FICO score is provided, as well as how lending agencies view your score and what they do with it. For example, the three credit agencies vary in the information they have on credit customers; depending on how current their information is, they may have different scores for the same individual.

The make-up of the credit score is illustrated with a pie graph displaying the areas of interest for the FICO score. A listing for each area in the pie graph spells out the specific factors that can lower your score.

Another page in the Credit Education section explains the importance of credit scores and the benefits of using your credit wisely and responsibly. Tips are given to improve areas that are emphasized most—including payment history, amounts owed, length of credit history, and new credit.

The last two areas deal with the credit report itself and tips on detecting errors. You can review the sections that a typical report will contain and learn what you should be concerned about. If any errors are found, steps are given to correct them.

Federal Trade Commission

www.ftc.gov
This government Web site provides basic information on credit retrieval. From the home page, click on Consumer Protection, then Credit. Articles covering money saving ideas, credit and divorce, and how credit cards work are available in text or PDF format.

The article entitled “Credit Scoring” gives brief information on what the credit score is, how it can be used, and how scoring was developed. It covers the main factors taken into account when assigning a credit score and how you can improve those factors over time. It also explains what the lenders can and can’t tell you if they deny you credit. According to the Federal Trade Commission, the lender must give you a specific reason as to why you were denied.

Another article in this area contains information on the Equal Opportunity Act, a law requiring creditors to give you any requested information within 60 days.

529 Solutions

www.529solutions.com
529 Solutions is a full-service investment firm that specializes in investments for 529 plans. You can open an account in selected plans from 10 different states. Accounts can be opened through the Internet, mail, or over the phone.

The site provides basic education about 529 plans along with frequently asked questions. Details on each state’s 529 plans are available.

Credit Agency Web Sites

Equifax

www.equifax.com

Equifax CLICK ON IMAGE TO SEE FULL SIZE.

At the Equifax Web site, you can request a copy of your credit report as well as sign up for various other credit services.

Equifax Credit Watch monitors your credit in real-time and is available for $69.95/year (free 30-day trial). It offers E-mail alerts for changes in your credit, access to your credit report up to four times a year, identity theft insurance, a forum to dispute errors, and a customer service center.

Other services include an instant credit report and an explanation of your report. You can also purchase a copy of all three credit agency reports (Equifax, TransUnion, and Experian). Equifax offers a wide range of reports, including home insurance scores and auto insurance scores, ranging in cost from $9.00 to $29.95.

TransUnion

www.transunion.com
TransUnion provides many of the same services as Equifax, but also includes extensive fraud protection information and services.

Subscribers can get on-line access to their credit reports, sign up for weekly fraud protection E-mails/updates, and access credit specialists and fraud resolution services.

TransUnion also provides a three-in-one credit report like Experian and Equifax. These products and services range from $9.95 to $34.95.