There is a lot expertise in our field on financial security practices, policy and research. One of the key values of the Assets & Opportunity Network is to share this expertise with and between its members. As a part of our work to do so, we’re launching a new series called Ask the Assets & Opportunity Network, in which experts will be responding to common questions asked about their areas of work. There will be varying levels of questions we’ve heard from the field. If you have a question you’d like to see answered, email it to assetsandopportunity@cfed.org.
For our first edition of Ask the Network, Credit Builders Alliance responded to frequently asked questions on credit. This is Part 1 of 4 with Credit Builders Alliance responding to common questions related to credit, credit-building and innovative solutions for increasing credit.
Network Ally Credit Builders Alliance Responds to Common Questions from the Field
Q: How are credit scores determined? How are FICO scores determined? And how are they different?
A: There is no single credit score. There are score modelers—who may be in house at the Credit Reporting Agencies (i.e., Experian, Equifax and TransUnion), but there are also independent third-party companies—such as Fair Isaac (FICO) and VantageScore. These score modelers also regularly update their risk models which results in numerous generations for each score. For example, the newest generation of FICO is FICO® Score 9 and VantageScore 3.0.
To add to the complexity, each score modeler may have many different scores—FICO has over 50 different scores alone. You may wonder why this is necessary. The answer is that those who request scores are diverse (i.e., insurance companies, mortgage lenders, auto lenders, credit card issuers); therefore, the corresponding scores are also diverse. This is because they are modeled according to the factors that each purchaser of a score deems important.
Even though each scoring model uses different algorithms to calculate their score, there are some generalities among the different factors that make up the score. The major categories are payment history, amount owed, percentage of available credit used, length of credit history, age of credit, types of credit and number of inquiries. Of all these categories, however, the one that is usually weighed the most heavily is “payment history.” Quite simply: Are bills paid on time?
Q: How often do credit companies update their reports?
A: Most creditors report their customers’ payment history to the major Credit Bureaus on a monthly basis, although some smaller creditors may not report as regularly or report to the Bureaus at all. Creditors are not required to report to the Bureaus. It is a totally voluntary system.
Q: If I believe there is an error on my credit report, what should I do?
A: If you believe there is incorrect information on your credit file, it is always a good idea to contact the creditor directly to discuss it. If it is a legitimate error, you should dispute it both with the original creditor and also with the Credit Bureau that contains the inaccuracy. One can request a free copy from each of the three major Credit Bureaus annually by going to www.annualcreditreport.com. Each report will include instructions on how to contact the Bureau to dispute anything you believe is inaccurate. You may submit disputes online, by telephone or by mail.
Q: Am I able to report payments to the credit bureaus directly? And if so, how would I do so?
A: No, the creditors are the ones who report to the bureaus. However, a major exception is with rent payments. There are third-party payments processors such as WilliamPaid and RentReporters who may report to Experian and/or TransUnion if the landlord agrees to accept the payment through the payment processing company. A future blog will discuss rent reporting in more detail. Stay tuned.
Q: What are the best ways for me to improve my score in the next six months?
A: CBA recommends concentrating on the greatest weighted factor in determining a credit score—one’s payment history. By paying your bills on time and avoiding late payments, your score can show the most improvement. If you consistently pay late, you may need to figure out why. Is it a cash flow problem (consider asking the creditor to change your due date to better align with your revenue stream) or is it a problem due to disorganization or procrastination? By discovering and putting a plan in place to avoid late payments, one will benefit by noticing an improvement in their credit score as these remedies are put into place.