13
Chapter 1: Assessing Where You Are Financially
Book I
Taking
Charge
of Your
Finances
Knowing why your reports matter
The credit report you get is the same one that your current creditors and
potential future creditors use to make decisions about you. The more nega-
tive information is in your credit histories (such as past-due accounts,
accounts in collection, accounts that your creditors have charged off as
uncollectible, tax liens, and so on), the worse your finances are.
Your existing creditors may use the information to decide whether to raise
the interest rates you are paying, lower your credit limits, or even cancel your
credit. And whenever you apply for new credit, the creditors review your
credit record information to decide whether to approve your application, how
much credit to give to you, the interest rate you must pay, and so on.
Many insurance companies, landlords, and employers also review your credit
record information. If they find a lot of negative information, insurance com-
panies may not agree to insure you or may charge you higher-than-normal
premiums; landlords may refuse to rent to you; and employers may not want
to hire you or to give you the promotion you applied for.
The federal Fair Credit Reporting Act says that most negative information
remains in your credit reports for 7½ years and that a Chapter 7 liquida-
tion bankruptcy and a Chapter 13 reorganization of debt linger there for ten
years. However, the three credit reporting agencies have a policy of report-
ing completed Chapter 13s for only seven years. A tax lien sticks around until
you pay it.
For more detailed information about credit reporting, including advice on
understanding your credit reports and correcting problems in them, pick up
a copy of Credit Repair Kit For Dummies, by Steve Bucci (Wiley).
Finding Out Your FICO Score
A growing number of creditors, as well as insurance companies, employers, and
landlords, use something called a FICO score together with (or even instead of)
your credit history to make decisions about you. Your FICO score is a numeric
representation of your creditworthiness and is derived from your credit history
information. Like your credit history, the score is a snapshot of how you've man-
aged credit in the past. As such, your FICO score is generally considered an indi-
cator of how well you are likely to manage credit in the future.
Actually, a variety of different credit scores exist. Equifax, Experian, and
TransUnion have developed their own credit scores. (Each credit-reporting
agency sells its credit score on its Web site.) But the FICO score has become
the industry standard. You can order your FICO score by going to www·
myfico·com
.
