Protecting your credit

How important is your credit score? If you want to borrow money, it can mean the difference between an affordable option and no option at all. If you buy a house or a car, or your child is applying for a credit card for the first time, chances are a lender will request a credit score before making a decision.

A credit score is a number, based strictly on credit history, created to help creditors weigh the risks they take when they loan money. Your credit score determines whether you can get credit and your interest rate. Higher numbers look better to lenders and many times, those with higher scores get lower interest rates. Your score plays a vital role in most borrowing situations, so it's important to understand what goes into it.

How does it work?

• Credit scoring is a statistically based prediction of how likely it is that a borrower will repay a loan. It can either show lenders that you are low risk or raise red flags that you are a high-risk borrower.

• When you manage your credit responsibly, your credit score goes up over time. A strong credit history will give you a strong credit score.

• Your income does not directly affect your credit score, but it does affect your ability to qualify for a loan. You could have a low income and a high credit score, or a high income and a low credit score. It just depends on your credit history.

What are common scores?

Credit scores can range from 300 to 850, according to Fair Isaac Corporation (FICO®), the developer of today's most commonly used scoring system. Most people score in the 600s and 700s, and scores break down along these lines:

What Are Common Credit Scores?

Don't assume that just because your score falls in a certain range, a lender won’t talk to you. Everyone’s rules are different: one lender may approve only customers with the highest numbers, while another may offer a lower interest rate depending on your score.

No credit score lasts forever

It changes over time as your credit maintenance changes. Depending on a variety of factors, your score can go up or down at any time. In fact, every time you apply for, use, make or miss a payment on a loan or credit card, you add on to your credit report and either raise or lower your score.

What goes into your score?

A variety of factors in your credit report make up your credit score:

• Your payment track record.

• The amount of debt you owe.

• How long you've used credit.

• The number of recently opened accounts and inquiries made by creditors.

• The types of credit you currently use.

Protecting your credit 

Raising your credit score and improving your credit history go hand in hand, so it's important to know what's on your credit report and take responsibility for monitoring it. Thanks to the federal Fair and Accurate Credit Transactions (FACT) Act, you are entitled to a free copy of your credit report once every 12 months from each of the three credit bureaus – Equifax, Experian and TransUnion. You can get your free reports by going to annualcreditreport.com or by calling 877-322-8228. You also can write:

Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281

If you review your credit report and something seems unusual, be sure to check with your credit card company or lender as soon as possible. Roughly 7 million to 10 million Americans are victims of identity theft each year, and the last thing you need is to be a thief’s next victim.

What can you do? Be vigilant, as you would be with any type of theft. It can be as easy as doing the following things:

• Call 888-5-OPTOUT or visit optoutprescreen.com to be removed from credit bureau marketing lists to reduce the number of offers you receive via phone and by mail.

• Shred all old bills, new credit card or loan offers, or financial papers you no longer need. This way, “dumpster diving” thieves will have fewer opportunities to get your information.

• Be alert when asked for personal information on the phone, through the mail or via the internet unless you are absolutely sure you know who you're dealing with.

• Review financial accounts and billing statements regularly to look for unfamiliar transactions.

• Keep your purse and wallet secure at all times.

• Protect your Social Security number.

• Be mindful of people at ATMs and in line at the bank or grocery store.

• Learn more about the warning signs and specific steps you should take to gain a greater level of protection from identity thieves – to help guard against becoming a victim.

Contact your financial advisor 

If you're concerned about your credit history, your local financial advisor may be able to help. Schedule a meeting to discuss how your credit history (and spending) may impact your long-term financial goals.