Credit reports not understood by the public

Bankruptcies, lawsuits, bills paid late and on time, loans, credit card accounts and home loans acquired or received over a lifetime are reduced by a complicated formula down to a single three digit number - the FICO score. Current evidence show that the public is quite unaware of how a FICO score works, or how deeply it affects their lives. The FICO, or credit score score, created by Fair, Isaac and Co., is a distillation of an individual's entire financial life. The FICO score, ranging from 300 to 850, represents a person's credit worthiness to a would-be lender, landlord or employer and usually accompanies a credit report.

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Listed below are just a few items that a recent study by the GAO discovered:

• Financial professionals usually recommend that individuals keep their credit card balance to less than half of their limit. Only one half of consumers realize that using credit cards or home equity lines of credit to their limit hurts their score. A "full" bank card can significantly affect a credit score.
• Court-ordered debt relief can stay on the record for a decade; other monetary notations usually remain for seven. One half were unaware that negative notations on their credit report, such as a bankruptcy filing or a loan default could remain on their credit reports for seven to ten years.

• Three quarters of consumers believe that they can acquire a copy of their FICO figure for free once a year. A free copy of the credit score would be useful, but the Federal law that allows consumers to receive a free credit report from each credit bureau once a year does not mandate that the scores come with them. The bureaus are allowed to demand payment for FICO scores, and so the free credit report does not include the FICO score.
• Only thirty three percent of those surveyed knew that employers and insurance companies regularly use credit records and FICO scores to derive rates or qualification for employment. A lot of would-be employers regularly check reports so that they might avoid employing people with a background of financial woes.
• Merely 50% of Americans know that there is no "universal score." Acquiring copies of your record from each and every credit bureau also helps locate mistakes, which should be repaired as soon as possible. Each bureau has their own scoring system, which generates different results. The best way to keep abreast of your reports and scores is to contact each credit bureau and acquire copies of that bureau's information so that you can compare notes from one credit bureau to the other.
• The FICO score is merely a measure of ability to repay as agreed, and not an indicator of earning capacity. About one half of the respondents believe that a FICO score can be raised by a raise in income.
• The ability to obtain a job, or insurance or an apartment is heavily dependent on a proven ability to pay bills promptly, and an inability to understand that makes it difficult to borrow money. That such vital information is so widely misunderstood is rather frightening, as it is nearly impossible to operate in today's society without a good financial history.

As of September 1, 2005, everyone in the United States is authorized to obtain a copy of their financial history for free. The only way to improve a damaged score is to work harder to pay bills on time. The sooner one begins to repay bills promptly, the faster one can get improved results. Anybody who would like to see just how complete the monetary information about them can be ought to receive a copy of their financial history.