Your Credit Score:How to Fix, Improve, and Protect
the 3-Digit Number that Shapes Your Financial Future
Author: Liz Pulliam Weston
Publisher: Prentice Hall / Pearson (2005)
ISBN: 0131486039 (paperback, 159 pages + index)
Most net-savvy folks are familiar with the financial writing of Liz Pulliam Weston. She's a regular contributor to MSN Money, as well as the "Money Talks" columnist for the LA Times and a host of other national newspapers.
Weston's new book, Your Credit Score, came to me via an interesting route: It was highly recommended by Cheapskate Monthly creator and author Mary Hunt. I can understand her glowing recommendation, as Your Credit Score is easily the best and most comprehensive book I've yet read on the topic of credit scoring and reporting.
The fact is that our credit scores (generically referred to as FICO scores, although FICO is only the most well-known of about a hundred different scoring algorithms) are becoming more and more influential in our lives. With every passing day, scads of lenders, employers, and insurance companies are using FICO scores to dictate whether or not they'll lend you money for a new Toyota ... hire you for that can't-miss job ... or hammer you with super-high premiums. Investment brokerages routinely examine your credit reports before opening accounts, as do many credit unions and banks.
This whole idea of "building" your credit, and thus your credit score, brings about a bit of a conundrum for many people. Obviously, most financial gurus espouse debt-free living. A few climb even further, encouraging us to live existences absolutely devoid of credit-card use (Dave Ramsey comes to mind).
Modern reality, though, is not so tidy and accomodating.
Why? Because credit scores have simply become too influential, in too many areas of our lives, to allow for such a dismissive attitude regarding our FICOs. Building and maintaining a good credit score is important. In order to build a good credit score, you don't have to pay for credit, but you do have to use credit. (Credit-scoring formulas make no distinction between revolving credit-card balances and those which are paid off each month.)
In my opinion, credit scores and reports have become such a pivotal facet of our financial lives that anyone working to improve his or her situation is pretty much obligated to spend time learning about FICO scores and what they involve. Ms. Weston's book covers every angle I can think of ... and does it well.
In Chapter 1, "Why Your Credit Score Matters," Weston echoes my assertion that credit scores carry immense weight in our society. High scores get you the best rates and offers on loans and credit cards, as well as houses, cars, and small-business loans. You'll have negotiating "pull" with lenders. With a low or nonexistent score, though, making headway in your financial life just became a lot more difficult. High rates and stiff fees will be the norm. You'll probably still be able to get credit, but you will pay mightily for it. Landlords and insurance companies will charge you as much as possible — if they don't balk outright at your applications for their services.
In a very telling example, Weston shows how two (imaginary) women could proceed through their lives from age 20 to age 70, each making the exact same purchasing decisions as the other at the exact same times. Each of the women also carries the same balances on all loan accounts. By the end of the segment, the woman with the less-than-average credit score (650) winds up paying $320,000 more in interest charges over her lifetime than did the woman with the 750 credit score. A 100-point difference in FICO scores meant a tangible financial difference of $320,000. Still think your credit score is unimportant?
Your Credit Score does a fine job of elaborating on the five factors which comprise FICO scores. (They're also listed on my FICO page, if you're curious.) She gives this murky area the attention it deserves.
Chapter 3 focuses on improving your score. There's nothing groundbreaking here, really. Weston suggests checking credit reports at least annually, making certain to dispute any errors found. She also advises setting up automatic payments in order to assure that bills are paid on time. Perhaps her most notable suggestion is that readers wishing to improve their FICOs as quickly as possible should pay down revolving balances not by interest rate (highest to lowest) or balance (lowest to highest), but by "balance as percent of credit limit" (highest to lowest).
(Actually, Weston isn't alone in suggesting this. Jean Chatzky does the same in her 2004 book Pay It Down.) Weston also suggests setting up automatic payments in order to assure that bills are paid on time. (It's worth noting that Chapter 6, "Rebuilding Your Score After a Credit Disaster," goes into much more detail regarding the basic suggestions offered in Chapter 3. And Chapter 8, "Emergency! Fixing Your Credit Score Fast," offers a bit more detail, also.)
Just for fun, here's a small sample of Weston's matter-of-fact style. In it, she's discussing possible variations in someone's credit scores over a short period of time:
Because your score is based on the information that's in your report at a given credit bureau, the number differs depending on which bureau's credit report is used.|
Also, each time you or a lender "pulls" your score (in other words, orders a score to be calculated), it's likely to be at least somewhat different, because the information on which it's based probably has changed. Fair Isaac says most people's scores don't change all that much in a short period, but about 25 percent of consumers can expect to see their scores at a single bureau vary by more than 20 points over a three-month stretch.
There are also time limits to what can appear on your credit report. Although positive information can appear indefinitely, negative marks — late payments, collection actions, and foreclosures — by federal law generally must be removed after seven years. Bankruptcies can be reported for 10 years. Inquiries should be deleted in two years.
I paid special attention to Chapter 4, entitled "Credit Scoring Myths." One of the more-interesting snippets:
Many people with high credit scores find that one of the few marks against them is the number of credit accounts listed on their reports. When they go to get their credit scores, they're told that one of the reasons their score isn't even higher is that they have "too many open accounts." Many erroneously believe they can "fix" this problem by closing accounts.|
But after you've opened the accounts, you've done the damage. You can't undo it by closing the account.
You can, however, make matters worse. Closing accounts can hurt you in two ways:
Closing accounts can make your credit history look younger than it is.
Closing accounts reduces the total credit available to you, making your debt utilization ratio soar.
...In reality, closing revolving credit accounts can never help your score, and it might hurt it.
After that, Weston spends time elaborating upon nine other "myths." She discusses the usefulness of "Consumer Statements" added to reports, whether credit counseling is as damaging to your score as bankruptcy, and the "benefits" of asking your credit-card companies to lower your credit limits. In my opinion, this might be the most useful part of the book.... ... ...
There's some good stuff in Chapter 7, "Identity Theft and Your Credit." Credit monitoring is covered ("The quality varies widely, and most credit monitoring services have serious drawbacks"), as well as what steps to take if you're already a victim of ID theft. The information offered is comprehensive — there are 19 pages' worth of it — and direct.
Certainly there is a great deal to be learned about credit reporting and scoring. Rivers of good information are available on the internet, of course. But I would contend that Your Credit Score is the best "first stop" available to readers right now. Even at its cover price of $17.95, the book is an outright steal. It covers credit scoring specifically, and all the intricacies involved with that. But Ms. Weston also spends time on the boundaries of the topic — offering great basics on identity theft, debt reduction, credit monitoring, and a host of other contemporary concerns. Your Credit Score will probably save you multiples of its price simply by educating you on how best to improve and protect your FICO score. And that can save you big bucks when the time comes for you to purchase (or refinance) a house, car, or whatever.
In the end, Your Credit Score is an underpublicized book that is absolutely crammed with good information. But it's also a quick read — I finished the first half of the book in one evening — and an engaging one.
Even if you're already fairly familiar with credit reporting and scoring, Your Credit Score is too comprehensive to pass up. It ought to make a fine reference book, and in any case is certainly worth a read.
July 11, 2005
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