Your Credit Score How to Improve the 3-Digit Number That Shapes Your Financial Future

Today, a good credit score is essential for getting decent terms on credit--or for getting credit at all. But that's just the beginning: You're now being judged on your credit score by everyone from employers to cellphone carriers. Now, MSNBC/L.A. Times journalist Liz Pulliam Weston has thoroughly updated her best-selling guide to credit scores, with crucial new information for protecting (or rebuilding) yours. Your Credit Score, Fourth Editionthoroughly covers brand-new laws changing everything from how your credit score can be used to how you can communicate with collectors. This edition also adds simple graphics revealing exactly how much skipped payments, bankruptcies, and other actions will lower your scores, and how long it takes to rebound. You'll find new information on "FAKO" alternative scores& expanded coverage of short sales, foreclosures, the new FICO 8 Mortgage Score, and when to "walk away" from a mortgage& guidance on protecting yourself against new credit risks from social networking and mobile banking& expanded coverage of credit scoring by insurers& and an all-new chapter on safeguarding against unethical or illegal use of credit scores by employers. Weston updates her expert guidance on using FICO 08 to raise your score& fighting lower limits and higher rates... maintaining the right mix of cards and balances... bouncing back from bad credit... choosing credit "solutions" that help, not hurt& and much more!

Liz Weston is a personal finance columnist whose twice-weekly columns for MSN Money reach more than 10 million people each month. She writes a money column, “My Two Cents,” for AARP the Magazine, the largest circulation magazine in the world with 22 million subscribers, and authors the question-and-answer column “Money Talk,” which appears in the Los Angeles Times and other newspapers throughout the country.

Liz is a regular commentator on American Public Media’s Marketplace Money and has contributed to NPR’s “Talk of the Nation” and “All Things Considered.” She has appeared on Dr. Phil, Today Show, and NBC Nightly News, and was for several years a weekly commentator on CNBC’s Power Lunch.

Her advice on credit and finance has been featured in Consumer Reports, Marie Claire, Parents, Real Simple, Woman’s World, Woman’s Day, Good Housekeeping, Family Circle, and many other publications.

Formerly a personal finance writer for the Los Angeles Times, Weston has won numerous reporting awards, including the 2010 Betty Furness Consumer Media Award by the Consumer Federation of America, designed to honor individuals who have made “exceptional progress in American consumerism.”

Her other books include The 10 Commandments of Money, which the New York Times praised as “a wonderful basic personal finance book…[with] enough counterintuitive ideas to keep even people who know a bit about personal finance reading further.” She is also the author of Deal with Your Debt and Easy Money, both published by Pearson.

Weston is a graduate of the certified financial planner training program at University of California, Irvine. She lives in Los Angeles with her husband and daughter. She can be reached via the “Contact Liz” form on her Web site, AskLizWeston.com.

Introduction     xxii

Chapter 1  Why Your Credit Score Matters     1
How Your Credit Score Affects You     1
What It Costs Long Term to Have a Poor or Mediocre Credit Score     3
How Credit Scoring Came into Being     6
How Credit Use Has Changed over the Years     7
Consumer’s Fight for Truth About Credit Scores     8
Credit Controversies     9
    Credit Scoring’s Vulnerability to Errors     9
    Credit Scoring’s Complexity     10
    Credit Scoring’s Use for Noncredit Decisions     11
    Credit Scoring’s Potential Unfairness     11

Chapter 2  How Credit Scoring Works     15
What Is a Good Score?     17
Your Credit Report: The Building Blocks for Your Score     18
How Your Score Is Calculated     19
The Five Most Important Factors     20
    Your Payment History     20
    How Much You Owe     21
    How Long You’ve Had Credit     22
    Your Last Application for Credit     22
    The Types of Credit You Use     23
Your Credit Scorecard     24
Your Results Might Differ     25
How Do I Get My Score?     26
What Hurts, and for How Long     31
New Versions of the FICO Score     33

Chapter 3  FICO Versus “FAKO”--Competitors to the Leading Score     39
The VantageScore Scale     40
How VantageScores Are Calculated     42
Comparing the Scoring Systems     43
Some Rules Remain the Same     44
So Which Is Better?     45
VantageScore’s Future     45
Other Scores Lenders Use     47

Chapter 4  Improving Your Score--The Right Way     51
Step 1: Start with Your Credit Report     51
    Check the Identifying Information     52
    Carefully Review the Credit Accounts     53
    Parse Through Your Inquiries     54
    Examine Your Collections and Public Records     54
    Dispute the Errors     55
Step 2: Pay Your Bills on Time     56
    How to Make Sure Your Bills Get Paid on Time, All the Time     57
Step 3: Pay Down Your Debt     60
You Need to Reduce What You Owe Rather Than Just Moving Your Balances Around     61
    You Might Need to Change Your Approach to Paying Off Debt     61
    You Need to Pay Attention to How Much You Charge--Even If You Pay Off Your Balances in Full Every Month     62
    How to Find Money to Pay Down Your Debt     64
Step 4: Don’t Close Credit Cards or Other Revolving Accounts     65
Step 5: Apply for Credit Sparingly     65
    How to Get a Credit Score if You Don’t Have Credit     66
Credit Scores Without Credit     70

Chapter 5  Credit-Scoring Myths     71
Myth 1: Closing Credit Accounts Will Help Your Score     72
Myth 2: You Can Boost Your Score by Asking Your Credit Card Company to Lower Your Limits     73
Myth 3: You Can Hurt Your Score by Checking Your Own Credit Report     74
Myth 4: You Can Hurt Your Score by Shopping Around for the Best Rates     75
Myth 5: You Don’t Have to Use Credit to Get a Good Credit Score     76
Myth 6: You Have to Pay Interest to Have a Good Credit Score     77
Myth 7: Adding a 100-Word Statement to Your File Can Help Your Score if You Have an Unresolved Dispute with a Lender     78
Myth 8: Your Closed Accounts Should Read “Closed by Consumer,” or They Will Hurt
Your Score     79
Myth 9: Credit Counseling Is Worse Than Bankruptcy     79
Myth 10: Bankruptcy Hurts Your Score So Much That It’s Impossible to Get Credit     80

Chapter 6  Coping with a Credit Crisis     83
Step 1: Figure Out How to Free Up Some Cash     86
Step 2: Evaluating Your Options     89
    Task 1: Prioritize Your Bills     89
    Task 2: Match Your Resources to Your Bills and Debts     91
    Task 3: Figuring Out a Repayment Plan     92
The Real Scoop on Credit Counseling     94
Debt Settlement: A Risky Option     97
Should You File for Bankruptcy?     100
The Effects of Bankruptcy Reform     101
The Type of Bankruptcy That You File Matters     102
Should You Walk Away from Your Home?     104
Step 3: Choose Your Path and Take Action     106
    Option 1: The Pay-Off Plan     106
    Option 2: Credit Counseling     107
    Option 3: Debt Settlement     107
    Option 4: Bankruptcy     107

Chapter 7  Rebuilding Your Score After a Credit Disaster     109
Part I: Credit Report Repair     111
Scrutinize Your Report for Serious Errors     112
Know Your Rights     113
    Organize Your Attack     115
    What You Need to Know About Unpaid Debts and Collections     116
    What You Need to Know About Statutes of Limitations     119
    Should You Pay Old Debts?     122
    “But You’ve Got the Wrong Guy!”     125
Part II: Adding Positive Information to Your File     126
    Try to Get Positive Accounts Reported     126
    Borrow Someone Else’s History     127
    Get Some Credit or Charge Cards if You Don’t Have Any     127
Part III: Use Your Credit Well     128
    Pay Bills on Time     129
    Use the Credit You Have     129
    Keep Your Balances Low     129
    Pace Yourself     129
    Don’t Commit the Biggest Credit-Repair Mistakes     130

Chapter 8  Identity Theft and Your Credit     133
New Options That Might Help     137
How to Reduce Your Exposure to Identity Theft     139
    Buy a Shredder     139
    Get a Locking Mailbox     139
    Protect Your Outgoing Mail     139
    Keep Track of Your Receipts     140
Keep Your Financial Documents Under Lock and Key     140
    Get Stingy with Your Social Security Number     140
    Know What’s in Your Wallet     140
    Ask About Shredding Policies     141
    Don’t Let Your Debit Card out of Your Sight     141
    Opt Out of Credit Card Solicitations, Junk Mail, and Telemarketing     142
    Don’t Use a Cell or Cordless Phone to Discuss Financial Matters     143
    Be Wary of Telephone Solicitors and Emails Purporting to Be from Financial Institutions     143
    Be Smarter About Social Media     143
    Safeguard Your Social Security Number     145
    Monitor Your Credit Reports     145
    Consider a Credit Freeze     147
What to Do if You’re Already a Victim     148
    Keep Good Notes of Every Conversation You Have Regarding the ID Theft     148
    Contact the Credit Bureaus by Phone and Then with a Follow-Up in Writing     149
    Contact the Creditors by Phone and Then Follow Up in Writing     149
    Contact the Police or Local Sheriff     149
    Contact Bank and Checking Verification Companies     150
    Contact the Collection Agencies     150
    Get Legal Help     151
    Don’t Give Up     151
What to Do if the Credit Bureau Won’t Budge     153

Chapter 9  Emergency! Fixing Your Credit Score Fast     157
Repairing Your Credit in a Matter of Hours: Rapid Rescoring     158
Boosting Your Score in 30 to 60 Days     161
    Pay Off Your Credit Cards and Lines of Credit     161
    Use Your Credit Cards Extremely Lightly     162
    Focus on Correcting the Big Mistakes on Your Credit Reports     162
    Use the Bureaus’ Online Dispute Process     163
    See if You Can Get Your Creditors to Report or Update Positive Accounts     163
What Typically Doesn’t Work     163
    Disputing Everything in Sight     .164
    Creating a “New” Credit Identity     164
    Closing Troublesome Accounts     164

Chapter 10  Insurance and Your Credit Score     167
History of Using Credit Scores to Price Insurance Premiums     169
But What’s the Connection?     171
What Goes into an Insurance Score     175
Keeping a Lid on Your Insurance Costs     176
    Start Thinking Differently About Insurance     177
    Raise Your Deductibles     178
    Don’t Make Certain Kinds of Claims     178
    Be a Defensive Driver     180
    Use the Right Liability Limits     180
    Drop Collision and Comprehensive on Older Cars     181
    Shop Around     181
    Protect Your Score     182

Chapter 11  Can Bad Credit Cost You a Job?     183

Chapter 12  Keeping Your Score Healthy     189
The Do’s of Credit Health     190
    Pay Off Your Credit Card Balances     190
    Have an Emergency Fund     192
    Have Adequate Insurance     194
The Don’ts of Credit Health     195
    Don’t Buy More House Than You Can Afford     195
    Don’t Overdose on Student Loan Debt     196
    Don’t Let Your Fixed Expenses Eat Up Your Income     197
    Don’t Raid Your Retirement or Your Home Equity to Pay Off Credit Cards     198
Your Score     199
    Get Your Credit Reports     200
    Take Action     200
    Don’t Be Late     201
    Dealing with Mortgages, Car Loans, and Other Secured Debt     201
    Consider a Fraud Alert or Credit Freeze     202
    Look for Lenders Who Aren’t FICO-Driven     202
In Conclusion: The Three-Year Solution     203

Index    205