Manage Your FICO Score … Or Not

A good credit report, generally considered to be a FICO (Fair Isaac Company) score above 700, can be a valuable asset. Just before writing this post, I checked mine, which comes in at 851. A key in driving your score higher is paying off credit card debt. Most significantly, with a better credit score you can get superior interest rates on house or car loans. At least that’s the conventional view.

FICO Score - Meter

James Altucher, a podcaster, blogger, bestselling author, entrepreneur, angel investor and former hedge fund manager believes credit scores are a scam and you should destroy yours because it’s not that important. He also believes people are going about getting rid of their credit card debt in the wrong way. You can check out his rant and get insight into his rationale below …

If you believe Altucher’s rant is interesting but want to go the more conventional route with respect to credit card debt and managing your FICO score, keep reading.

Unfortunately, it is estimated that about 60% of information found on credit reports is either incorrect, outdated, or both. Considering that even the most seemingly insignificant errors can result in you paying a higher interest rate or cause you to be denied a loan completely, it is in your best interest to ensure that you check your credit report regularly for completeness and accuracy. Visit annualcreditreport. This central site allows you to request a free credit report once every 12 months from each of the nationwide consumer credit reporting companies.

Once you receive your credit reports from the three consumer credit reporting companies – Experian™, Equifax®, and TransUnion® – start by checking your personal information such as Social Security number, the spelling of your name, current address, previous addresses, and date of birth for completeness and accuracy.

Credit Assessment

Next, check your credit history. Ensure that the information (e.g. balance, credit limit, etc.) associated with each account is accurate and up to date. Check the status of your accounts. As examples, accounts that are “closed” or a loan that is “paid in full” should clearly be reflected on your report; and should show a zero balance.

Negative remarks can be incredibly damaging. Look for words or phrases like “collection” or “charged-off” or statements indicating that a payment is late. If the information is not accurate, dispute the entry immediately and seek to have it removed or updated.

How Employment Credit Checks Keep Qualified Workers Out of a Job | Demos

Next, check public record information. If your report shows a foreclosure, bankruptcy, tax lien or court judgment, ensure the information associated with the action is accurate. If it is not accurate, dispute the entry.

Finally, check for any negative entries and their dates. Generally, negative information should be removed after seven years. If the information is older than seven years, take steps to have it removed. Each of the credit bureaus outlines how to go about disputing entries on their respective websites.

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.

4 Comments

  1. Having worked at Fair Isaac for over 15 years and having applied the actual FICO score in many underwriting system I have to point out the FICO Score is used for much more than you’re financial health? As a matter of fact my FICO today is higher, not having made a penny in over 2 years than it was when I was making 6 figures.

    Industry seems to derive more from the FICO score about you as a person than about your finances (After all FICO says nothing about your income). Auto Insurance companies look at your FICO because the way you treat your finances (and how you pay your bills on time) tells them something about how well you will take care of your car. Your high FICO score will give them some indication you will drive responsible. Like James pointed out, future employers look at your FICO because the way you treat your finances will tell them something about how you may commit to a project or to the job as a whole.

    Just like your psyche has a lot to do with your finances, your finances will tell a lot about your psyche.

    • Great insight, my friend. Nice articulation of why there is value in effectively managing credit and driving the FICO score higher.

  2. I tell people the same advice, offer the collection agencies pennies on the dollar, they’ll probably take it, but some people have this psychological block about negotiating because it’s not in our daily lives anymore. And Medical bills are a joke, try getting a medical “quote” which is hard enough and watch them double or triple it on a whim and people worry about their credit scores so they pay it. Some struggle to get food on the table or pay bills to keep the lights on while getting a huge random bill, argue to get the medical bill reduced or let it go to collections and pay them a tiny percentage. I hate the medical system, even with Obama’s changes and the credit and insurance systems, they’re all predatory corporate systems.

    I realized once you manage your money well, and have a decent emergency funds, credit scores are so incredibly pointless. The only time it can haunt me is if I try to buy another house, other than that I buy cheap cars in cash and pay off my credit card every month. That said, I believe my credit score is also above 800, should probably do that annualcreditreport soon.

    • When working with a family member, I was able to help him negotiate for pennies on the dollar. If it has gotten to the point where an account has gone into collection, the debtor is certainly in a stronger position than most believe.

      I agree that generally a credit score, for a lot of people, only matters to a great extent within the context of buying a car or house. However, it should be noted that many employers consider credit history – and scores – when considering applicants for employment; and if someone happens to work for certain government agencies, or contractors that work on certain government contracts, their credit history is a factor with respect to getting and maintaining a clearance. At the end of the day, my take is it is better to maintain good credit and a good score is better than a lower score.

      Thanks for stopping by, my friend.

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