Maybe you don't really need good credit
Ruin My Credit
by Gary Foreman
DIY Credit Repair Tips
Credit Report Errors
What's in Your Credit Report?
I am not a financial whiz. Never was and never will be. Therefore, I respect the advice of those who seem to be knowledgeable about financial matters. However, when it comes to knowing what is in your credit report, I have one question. Who cares? I am 54 years old, have purchased several vehicles, two houses and can write checks anywhere in the town I live or the surrounding smaller towns without any hassle. I have never been turned down for credit. In fact, if I sign up for a new credit card for a minimum balance, I can assure you that within three years my credit limit has increased considerably. Given the above situation, when I am threatened by a bill collector (I don't pay for things just because someone says I owe them money) that they are going to "ruin" my credit, I just laugh at them and say "go right ahead" because it doesn't matter to me.
Betty is certainly an independent individual! I suspect that most of us admire that. But, if she's not careful, she could needlessly paint herself into a financial corner. There was a time when having a good reputation in your town was enough to get you credit when you needed it. And, no stranger could destroy a good reputation simply by making a claim against you. But, somewhere along the way, companies began to collect information about borrowers. And they sold that information to potential lenders. It's progressed to the point that virtually every adult in the U.S. has a credit score.
The FairIsaac Company created the credit score also known as FICO. Your score will be a number between 300 and 850. A higher number indicates a better credit risk. So higher is better. Most people have scores between 600 and 700. Not surprisingly lenders want to get their money back. And the best indicator of a borrower's ability to repay a loan is their credit score. Over 75% of mortgage lenders and 90% of credit card lenders consider your FICO score when determining whether to make a loan and how much interest you should be charged.
Now let's look at Betty's situation. It appears that she has had some disagreements over bills and refused to pay them. That, plus the fact that she continues to get credit tells her that her credit score is unimportant. Is that true? Betty's credit score not only affects her ability to get credit, but also the amount that she pays for it. So, unless she pays her credit card bill in full each month, a low score will affect what she pays. She might want to check the fine print on her original credit card agreement. In some, if your FICO score drops below 600, you'll be charged the penalty rate on the outstanding balance. Those rates can be as high as 30%!
But, the biggest potential hit from a low score comes when you finance a home or auto. MyFico.com is a website subsidiary of the FairIsaac Company. They estimate that a 200-point drop in your credit score could add 3.5% to the interest rate on a 30-year mortgage. Over the life of the loan that works out to over $80,000 in extra payments.
And, unfortunately even if Betty never runs a credit card balance and has her home and auto paid off, she's still not completely independent of a bad credit score. Auto insurers and potential employers can access your score. A low score can affect whether you get auto insurance or that new job. Even utility companies and potential landlords are using credit scores.
So should Betty just give up and pay bills that she doesn't feel she owes? Nope. But if the disputed bill is entered into her credit report, she needs to contact the credit reporting agencies and have her side of the story entered.
Even if you don't have disputed bills, it's a good idea to check your score annually or before you apply for a mortgage or auto loan. Recent studies have shown that 29% of credit files had errors significant enough to cause a 50-point swing in the score.
To check or correct your score:
- Equifax, 800-685-1111, Equifax.com
- Experian, 888-397-3742, Experian.com
- TransUnion, 800-888-4213, Transunion.com
If you report an error, the agency must investigate your claim and respond within 30 days.
Philosophically, I agree with Betty. I dig in my heels when someone threatens me. But unless she's unusually self-sufficient, she probably needs to periodically check her credit score and share her side of the story on any disputed bills.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.
Take the Next Step:
- Order your free annual credit report from each of the three credit bureaus to check it for accuracy.
- If you want to request your credit score or monitor your credit for changes to your credit report, compare the products offered. Our Credit Monitoring Comparison is here.
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