Why you need to know and understand your credit score

Why you need to know and understand your credit score

Do you know and understand your credit score? Many people I talk to have no idea. It's something that is easy to overlook until you run into some kind of issue. Sometimes by then, it ends up becoming a problem that is costly, time-consuming, and difficult to overcome.

To say the least, it's important to know and understand your credit score before you run into issues.

I asked the Community Education Specialist for Lexington Law, Randy Padawer to help shed some light on this important topic. Randy agreed that many people have little understanding of why their credit scores are what they are because it’s so confusing.

My first question to Randy was,

“Why are a good credit score and credit report so important?”

Randy explained that so many things depend upon a good credit report and credit score. Simple everyday things like applying for a new mortgage, getting an apartment, going for a job (employers use it to assess the quality of an applicant), a cell phone plan, as well as a myriad of other things, are almost impossible to get without one.

Even when you are able to get those things if your credit report has unfair, inaccurate or unsubstantiated items it can dramatically affect the lending rates available to you. For example:

• The lowest mortgage rates are given to those with good credit scores. Those great low rates that you hear advertised are only available to those with a good score.
• The same thing applies to a good rate on a car loan.
• Your credit score may even affect where you’re able to shop for a car.

Are credit reports and credit histories always fair?

Randy gave me an emphatic, “NO!” First off, it’s hard to get credit without established credit. Paying down revolving credit (such as credit cards) does help your credit score. However, paying down an installment loan in a timely manner (i.e. car loan, student loan, mortgage, etc.) will not give you bonus points. But if you miss a payment and/or are late paying, then your credit score is adversely affected.

What is the reasoning behind this?

The person who is paying down revolving credit (unsecured debt) helps the bank look good to bank regulators. It shows that they are not carrying risky portfolios. Whereas, someone who is paying down an installment loan (one that is secured by property) doesn’t do anything for the lender. In fact, the lender loses interest money on loans that are paid down quickly. And, they have property they can repossess when a loan is in default.

What is the nature of credit reporting?

Credit reporting is not mandated by law. The only laws that exist are consumer protection statutes such as the Fair Credit Reporting Act. Credit reporting is not mandated in the United States. You may have heard from a creditor that a negative report will stay on your credit record for 7 years. The law, however, states that an incident cannot stay on your report for more than 7 years. That is the maximum amount of time.

Isn’t it easy to repair your credit?

Credit repair is more than just filing a dispute with the credit bureau. The credit bureau is only reporting the data they have received from the data furnishers. The credit bureau assumes that the data they receive is accurate, fair, and substantiated. So when a consumer files a dispute, the credit bureau looks at the data and doesn’t see that there is a problem. So the consumer loses.  A credit report with significant damage may take some human intervention like what Lexington Law provides.

What does Lexington Law do?

As the nation’s largest consumer-oriented law firm, they help consumers correct their unfair, unsubstantiated, inaccurate, credit reports. Lexington Law works to ensure that the credit bureaus present your credit reports in a fair and accurate manner. 

There is an abundance of consumer protection statutes that can be leveraged to ensure that your credit report is the way that it should be. Lexington Law intervenes in the repair work that needs to be done by working with the data furnishers to make the credit bureau corrections. This is one service that Lexington Law provides their clients with each level of service as described below.

Lexington Law provides 3 levels of service:

Concord standard – $79.95/mo.  The Concord Standard service level covers the essentials of ethical credit report repair. Lexington Law communicates with both creditors and the credit bureaus on your behalf to ensure fair, accurate and substantiated credit reports.

Concord Premier – $99.99/mo. Concord Premier enhances Concord Standard's basic credit repair services by adding more ways to address your credit problems. You will receive credit monitoring, actionable alerts when your credit reports are updated, a monthly credit score improvement analysis, and access to InquiryAssist in order to address score-damaging credit report inquiries.

Premier Plus – $119.99/mo. PremierPlus includes all credit repair and score coaching services provided with the Concord Standard and Concord Premier service levels. You will also receive your FICO® Score based on TransUnion data each month as well as real-time identity fraud alerts and tools to manage your personal finances.

You can get help from Lexington Law by going to their website www.lexingtonlaw.com. Or you can give them a call at this dedicated phone number provided for SavingsAngel fans 1-844-751-8231.

You can also listen to my Podcast 181- The truth about credit scores you need to know

We'd like to thank Randy Padawer for his insights and Lexington Law for their sponsorship.