Betty is certainly an independent individual! I suspect that
most of us admire that. But, if she's not careful, she could needlessly paint
herself into a financial corner.
There was a time when having a good reputation in your town was
enough to get you credit when you needed it. And, no stranger could destroy a
good reputation simply by making a claim against you.
But, somewhere along the way companies began to collect
information about borrowers. And they sold that information to potential
lenders. It's progressed to the point that virtually every adult in the U.S. has
a credit score.
The FairIsaac Company created the credit score also known as
FICO. Your score will be a number between 300 and 850. A higher number indicates
a better credit risk. So higher is better. Most people have scores between 600
Not suprisingly lenders want to get their money back. And the
best indicator of a borrower's ability to repay a loan is their credit score.
Over 75% of mortgage lenders and 90% of credit card lenders consider your FICO
score when determining whether to make a loan and how much interest you should
Now let's look at Betty's situation. It appears that she has had
some disagreements over bills and refused to pay them. That, plus the fact that
she continues to get credit tells her that her credit score is unimportant.
Is that true? Betty's credit score not only affects her ability
to get credit, but also the amount that she pays for it. So, unless she pays her
credit card bill in full each month, a low score will affect what she pays.
She might want to check the fine print on her original credit
card agreement. In some, if your FICO score drops below 600 you'll be charged
the penalty rate on the outstanding balance. Those rates can be as high as 30%!
But, the biggest potential hit from a low score comes when you
finance a home or auto. MyFico.com is a website subsidiary of the FairIsaac
Company. They estimate that a 200 point drop in your credit score could add 3.5%
to the interest rate on a 30-year mortgage. Over the life of the loan that works
out to over $80,000 in extra payments.
And, unfortunately even if Betty never runs a credit card
balance and has her home and auto paid off, she's still not completely
independent of a bad credit score. Auto insurers and potential employers can
access your score. A low score can affect whether you get auto insurance or that
new job. Even utility companies and potential landlords are using credit scores.
So should Betty just give up and pay bills that she doesn't feel
she owes? Nope. But if the disputed bill is entered into her credit report she
needs to contact the credit reporting agencies and have her side of the story
Even if you don't have disputed bills, it's a good idea to check
your score annually or before you apply for a mortgage or auto loan. Recent
studies have shown that 29% of credit files had errors significant enough to
cause a 50 point swing in the score.
To check or correct your score: Equifax, 800-685-1111,
equifax.com Experian, 888-397-3742, www.experian.com TransUnion, 800-888-4213,
If you report an error the agency must investigate your claim
and respond within 30 days.
Philosophically I agree with Betty. I dig in my heels when
someone threatens me. But unless she's unusually self-sufficient, she probably
needs to periodically check her credit score and share her side of the story on
any disputed bills.
Gary Foreman is the editor of The Dollar
Stretcher.com website. If you'd like to stretch your day or your dollar
visit today! You'll find hundreds of articles to save you time and money.