By Lila Quintiliani, AFC©
Assistant Coordinator, Military Saves

Just about everyone I talk to is interested in saving money.  Yet very few people are familiar with their own credit report or know their credit score.  Why is this such a paradox?  It’s because your credit history can determine how much you pay for your house, car, insurance, utility deposit…the list goes on and on.  And aside from that, it can also affect your security clearance, your job prospects and even where you live.  Everywhere you go, institutions and individuals will be looking at your credit history and judging you on it, so your best bet is to know what’s in your own report.


What’s the big deal? If you want a slap-you-in-your-face kind of example, a person in Virginia looking for a 60 month new car loan for a $25,000 car will find an interest rate of 3.535% if they have good credit (720-850 FICO score), but will pay a whopping 17.842% rate if they have poor credit (500-589 FICO score).  The car salesman will try and convince you that’s no big deal, but the reality is a person with bad credit will pay 58% more (that’s $10,650!) over the life of the loan, and will have a monthly payment that is $178 higher.  (Check out this handy calculator on the FICO website).

Credit report? Credit score?  What’s the difference? A credit report is basically a record of all your credit activities, including credit card accounts, loans, payment history and balances.  It will also reflect whether you have had any actions taken against you because of unpaid bills.   A credit score will include the above information but will also assign a three digit number representing your credit risk.  Just like in school, the higher your score the better.  There are several different credit scoring systems out there, but the one most in use is the FICO score, developed by the Fair Isaac Corporation.  Every individual has their own unique credit score.  Even married couples will each have their own score.   You can get a free copy of your credit report from each of the credit bureaus (Experian, Transunion and Equifax) per year.  To get your free report, go to  Ignore the catchy commercials you may see on TV -- this is the ONLY official source of free credit reports.  To get a copy of your credit score, you typically have to pay a small fee, although thanks to the FINRA Investor Education Foundation, Military Saves offers a free score to each person who takes the pledge.

How do I get a good score? Well, the exact formula underpinning the credit score is something of a trade secret.  But it’s no secret what elements are key.  Here they are in order of importance:
·    Payment History (35%) – this tracks whether you make your payments on time, late, or not at all.  Make a late payment and it stays on your record for seven YEARS.  So do your best to make at least the minimum payment on time, and if you’re going to be late, call your creditor and let them know.
·    How much you owe (30%)– do you have a lot of debt relative to your available credit?  In other words, do you have a credit card with a $5000 limit and you owe $4500 on it?  This will make your credit score go down.
·    Length of credit history (15%)– how long have you had and used credit?  Consider carefully before closing older accounts.
·    Type of credit (10%)– do you have several different “types” of credit and are you using them appropriately?  For example, do you have a mortgage, an auto loan and a credit card? (But see above, because if you are not using them responsibly, it will hurt your score)
·    New credit inquiries (10%)– do you open up a new credit card each time you go to the mall because you’re offered a free umbrella and a percentage off your purchase?  Each time you apply for credit, your score takes a hit.  It’s worth noting, though, that when you look at your *own* credit report, it is not considered a “hard hit” and won’t count against you.

Why should I find out my score? There are many reasons why you need to know your own score. 
·    Identity theft - Some 11.6 million Americans were the victims of identity theft last year.  A good way to find out if you’ve been victimized is to pull your credit report periodically and check for suspicious activity.  If you space out your three free credit reports, you can essentially take a snapshot of your credit history each quarter.
·    Forewarned is forearmed - If you are going to be making a big purchase such as a car or a house, your potential lender will certainly check your credit score.  So it’s a good idea if you do it first.  I have heard cases of shady car dealers offering customers loans with high interest rates, supposedly because the potential buyer had poor credit.  In one case that I know of, the servicemember had done his homework and knew what his credit score was, so he was able to turn down the bad rate the dealer was offering and go with a local credit union instead.

What should I do if I have a low score? I have helped lots of people pull credit reports, and the unfortunate reality is that many people have experienced difficulties in the past that continue to haunt them for years.  Sometimes people give up trying to better their scores.  But there are always steps that can be taken to slowly improve your score.  There are no quick fixes, however, so don’t believe the ads you may have seen.
·    Pay on time.  Even if you have had a late payment in the past, pay at least the minimum amount due on time.
·    Don’t run up more debt.  Don’t make new charges and try to reduce your debt.
·    Visit your local installation’s Family Readiness Center.  They will be able to give you guidance, help you create a budget and explore ways to get back on track.
·    Call Military OneSource.  If you don’t feel comfortable seeking guidance from your installation, call Military OneSource (1-800-342-9647).  They have financial counselors who will speak to you confidentially.


More resources:
Military Saves – Credit Score Quiz: Will You Pass?
FTC – Building a Better Credit Score
FINRA  - How Your Credit Score Impacts Your Financial Future
Consumer Federation of America -

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