http://donotcall.com/

https://www.optoutprescreen.com/?rf=t

http://www.dmachoice.org/consumerassistance.php

https://www.annualcreditreport.com/cra/index.jsp

Carver Communications - Index

Carver Communications - 4.15.08 - Index

Vol.XXVI, No.8 © Carver Communications, Inc. April 15, 2008
The Credit Scoring Puzzle
By Barbara Coker
Credit scores control more aspects
of our lives every day. Few people understand
them, and many people are afraid of
them. Television commercials tell us that
we should monitor them so we don’t end
up working in restaurants, wearing funny
costumes.
Computer technology has turned
our patterns of current and past financial
behavior into bits of data which are analyzed
to predict our future likelihood of
repaying debts, making insurance claims,
and even performing satisfactorily on our
jobs. We may not like it, but as the saying
goes, “It is what it is.” Besides paying all
of our payments on time, what other steps
can we take to keep our scores up?
Scoring systems are based on
“algorithms.” In fact, there are different
algorithms used to predict mortgage
behavior and credit card behavior. What
is an algorithm anyway? The American
Heritage Science Dictionary defines it as
“A finite set of unambiguous instructions
performed in a prescribed sequence to
achieve a goal, especially a mathematical
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rule or procedure used to compute a
desired result. Algorithms are the basis for
most computer programming.” Don’t you
hate math?
Mortgage companies use scoring
systems to search out people most likely
to repay their mortgages on time.
However, credit card companies search
for people who will pay on time, but never
pay them completely off. Minimum credit
card payments perpetuate revolving balances
and interest charges, often not even
covering accrued interest. The remainder
is just added to next month’s balance. You
pay them interest on interest. But that’s a
topic for another day.
As people begin to think about
applying for their mortgages, they often
try to get their financial houses in order.
So they pay down, and even close some of
their credit cards. They pay off old, small
collection accounts. Other people accept
many of the credit card offers which come
to them, thinking that more and more
credit will improve their scores.
However, these common steps actually
lower their credit scores.
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There are approximately 34 characteristics
or “adverse action codes” measured
and weighed in the well-known Fair
Isaacs scoring method. One of the most
misunderstood one goes like this:
“Proportion of balances to credit limits is
too high on bank revolving or on revolving
accounts.” Think of it this way: Two
borrowers each owe $1,000. One person
has one credit card with a high limit of
$1,000 which he has charged to the limit,
but the other person has 5 cards, and owes
$200 on each card. The person who is at
his limit will have the lower score, even if
he pays on time. The exact amount of
score difference is a trade secret, and other
characteristics of their total credit picture
will also affect the score.
Another way people trip themselves
up over the “proportion of balances”
code is by closing revolving
accounts that they have paid off. Their
remaining balances will actually represent
a higher percentage of their lower available
credit, since they closed those other
accounts.
So the proper way to manage open
revolving accounts, if your goal is to raise
your credit score, is to keep your total balances
below 30% of total available credit.
However, you can improve your score
somewhat at the 49% or 75% level. And
for heaven’s sake, don’t be over your
limit! You definitely lose points for that.
Another “code” reads “Time since
derogatory public record or collection.”
When paying off old collections (more
than 3 years old), the borrower actually
will lower his score because the “date of
last activity” will be updated to the current
year, and recent derogatory remarks lower
scores more than old derogatory items.
However, if a borrower pays off collec-
tions placed within the last 3 years, his
score will drop in the short run, but recover
to a higher level after 3-4 months.
They also must obtain and save for their
records a letter that their payoff will be
reported to all three bureaus.
One other confusing fact about
credit scores is that they can change on a
daily basis, depending on what information
has been received by the particular
bureau (there are 3 of them). And creditors
might not report to all of them.
So the best defense is a good
offense! Keep an eye on your credit score
by ordering your annual free report at
www.annualcreditreport.com. The
reports are free, but your scores will come
with a fee. Shred all junk offers you
receive, and open all of your mail to make
sure you aren’t receiving bills from
accounts which were fraudulently opened
in your name.
There are 3 ways to slow down the
deluge of credit offers and phone solicitations,
and maybe protect your identity:
• www.optoutprescreen.com Use
this site to remove yourself from the consumer
reporting companies’ lists of potential
borrowers. You can also call 888-5-
OPTOUT.
• Direct Marketing Association.
Send a letter to them at Direct Marketing
Association, Mail Preference Service, P.
O. Box 643, Carmel, NY 10512, telling
them to remove you from their lists. They
also have a “Deceased Do Not Call List.”
This site has great consumer information:
http://www.dmachoice.org/consumerassistance.php
• Do Not Call Registry.
www.donotcall.gov to stop those annoying
calls, or you can phone them at 888-
382-1222