Tips on Maintaining a Good Credit Score

The better your credit score, the better your chances are of getting a loan, being issued a credit card, renting a house, getting a job or receiving good auto and homeowner insurance rates. It all starts with building a track record for paying your bills on time.

How it works
Businesses build actuarial based credit score models to predict future behavior. For instance, banks and mortgage companies use credit score models to predict your ability to meet debt obligations while insurance companies use credit score models to predict the frequency of future claims activity. Different credit models exist depending on intended application. An individual’s credit score generally ranges between 300 and 850. Your score is calculated using a mathematical equation that evaluates the information in your credit file and compares it to patterns in millions of other credit files.

Closed or inactive accounts stay on your record for up to 10 years from the date of their last activity. Matters of public record obtained from government sources such as courts of law–including liens, bankruptcies, late payments and overdue child support–can alter your credit score for up to seven years.

Factors that may have a detrimental affect on credit scores include: owing too much, especially if you’re approaching your total credit limit; opening multiple new accounts in a short period of time; and multiple inquiries into your credit score within a short period of time. Inquiries that are created from an insurance quote or renewal have no impact on insurance credit scores.

What is not included
There are many factors that are not a part of your credit report and its score. There is no information on your credit report about your checking or savings accounts, bankruptcies more than 11 years old, race, national origin, color or creed, gender, ethnicity, religion, political affiliation, medical history or criminal record. Insurance credit scoring models that are used to predict the frequency of future claims activity do not include a person’s income.

Who has access
Under federal law, anyone with what is considered a permissible purpose can look at your report. They include: potential lenders; landlords; insurance companies; employers and potential employers; a state or local child support enforcement agency.

How to improve your score
It is never too late to try to improve your credit score. Here are some steps you can take:

Free credit reports
As of Dec. 1, 2004, consumers in Western states were eligible to receive, upon request, a free copy of their credit report once every 12 months. Reports can be ordered online at www.annualcreditreport.com, by calling (877) 322-8228, or by completing the Annual Credit Report Request Form at www.ftc.gov/bcp/conline/edcams/credit/docs/fact_act_request_form.pdf and mailing it to the address provided.

You will be asked to provide your name, address, Social Security number and date of birth. To verify your identity, you may need to provide some information that only you would know, like the amount of your monthly mortgage payment.

There are three companies that keep credit scores on policyholders and their scores can vary. If you discover an inaccuracy on any report, contact the company to correct it. Below are the toll-free phone numbers and Web addresses for the companies that keep credit scores:

Mark Hanna is a spokesman for the Insurance Council of Texas. For more information, visit www.insurancecouncil.org or call (512) 444-9611.