Credit Reporting and Scoring

Based upon student comments and questions, here are a few more bits about credit reporting and scoring. 
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  • Bankruptcy
  • Tax lien
  • Civil judgments
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Fair Isaac has produced a 20-page booklet, “Understanding Your FICO Score” and states, “Public record information includes: bankruptcies, foreclosures, tax liens, garnishments, legal suits and judgments.”  We’re told that a criminal history is not included.  Of course, incarceration might lead to late payments on such as a credit card, and that would appear on a report.
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Lenders and others use a credit score, but a score is not a part of the credit report itself.  Rather, it is a calculation based upon information in a report.  The most widely known is the FICO score developed by the Fair Isaac Corporation, and ranges from 300 to 850.  Today, a score of 740 or so should qualify a borrower for the best rates on, for example, a home loan.
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In 2006, the three largest consumer (credit) reporting agencies Equifax, Experian and TransUnion, joined together and created the “VantageScore” which they claim is superior to FICO; each of the three also offers their own score from their own formula.
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The “soft” inquiries by companies that are considering offering credit are not factored in the credit score.  If you want to “opt out” of pre-screened offers, you can do so through the Office of the Indiana Attorney General.
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Money Management International recently published “Getting the Credit You Deserve”, and a very thorough article about credit scoring is “Why Your Credit Score Matters“, written by in 2011 by personal finance columnist Liz Weston.
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Some years ago before I was in the personal finance industry, I checked my own credit reports from the big three credit reporting agencies, and among them were 23 errors and a score spread of 100 points!  I found no derogatory information such as late payments or negative public records on any of the reports, and I saw no indication of attempted ID theft.  The credit reporting agency had negligently merged another consumer’s information with my own, apparently without comparing Social Security numbers, birth dates, or other information.
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If I had applied for a loan at that time I might have been turned down.  Perhaps even worse, the loan might have been approved but at a high rate of interest.  Later another person’s auto loan appeared on one of my reports; I learned that it pays to be vigilant.
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The Federal Trade Commission provides guidance about how to secure copies of your reports and how to correct errors.
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There’s an eye-opening CBS 20/20 segment from February 2013, “40 Million Mistakes: Is your credit report accurate?  The report reveals what certainly appears to be criminal activity in the credit reporting industry.  Make some popcorn, sit down with loved ones, and enjoy.  It looked like the Ohio Attorney General was planning to pursue the matter, but I haven’t heard more about it since.

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