Getting in Good Financial Health By Dr. Bernice Wilson, Resource Management Specialist

Physical examinations and vital health screenings help you and your doctor to determine your health. The doctor gives you a report of the findings and tells you the state of your health based on what the numbers and examinations reveal. But did you know that numbers and observations also help to determine your financial health?

Credit reports and credit scores are based on numbers and procedures that lenders use to determine your financial health and creditworthiness. In other words, will you pay your debts if you are given credit or services? Your credit score is tied to information in your credit report. Your credit score will most likely change when information on your credit report changes. Your credit score helps a lender to decide what interest rate and size of loan will be offered, so your credit score is critical to your financial health.

Tips to Good Financial Health
Unlike a physical examination, you don't need a doctor to begin a financial self-examination. In many instances a financial self-examination can prevent you from becoming embarrassed or disappointed if you do not qualify for credit. Make these tips a part of your routine financial health examination.

• Get a free copy of your credit report annually from www.annualcreditreport.com. Equifax, Experian, and TransUnion are three individual reporting agencies or credit bureaus. You are advised to obtain a copy from each reporting agency at least once a year. You may want to get a copy of your credit report from each agency on a rotational basis every four months. For example, get a report from Equifax in January, a report from Experian in May, and a report from TransUnion in September. At the end of the year you will have annual reports from all three agencies.
• Specialty credit reports also determine your financial health. The Fair and Accurate Credit Transaction Act of 2003 has permitted consumers to obtain a free copy of specialty reports annually since December 1, 2004. The Federal Trade Commission ensures that organizations carry out this mandate. Specialty reports relate to medical records or payments, check writing history, residential or tenant history, and insurance claims. Consumers are advised to call toll-free numbers or a specific agency or company to obtain a copy of their free specialty credit report. Copies of your check writing, employment, and tenant histories may be obtained by calling:
  1-800-428-9623 - Check writing history
  1-866-312-8075 - Employment history
  1-877-448-5732 - Tenant history
• Review your credit score periodically. Credit scores are sold to lenders by each credit reporting agency. Lenders may obtain several types of credit scores such as the Fair Isaac Corporation (FICO) score and the VantageScore that was invented by each of the credit reporting agencies. However, FICO is still the most widely used system to determine your creditworthiness. FICO scores range between 300 and 850 with average scores falling between 600 and 700. Naturally, the higher the FICO score, the lower the lender's risk. Lenders buy FICO scores from the three reporting agencies.

Factors that Influence Your Credit Health
The five factors that determine your credit health are:

1. Payment history accounting for 35 percent of FICO score;
2. Dollar amount accounting for 30 percent of FICO score;
3. Length of credit history accounting for 15 percent of FICO score;
4. New credit accounts making up 10 percent of FICO score; and
5. Mix of credit account types making up another 10 percent of FICO score.

You are considered to be in good financial health if your FICO is 700 or above. A FICO score below 600 is considered to be high risk and you run the risk of having your credit application turned down. Eighty-five percent of Americans score higher than 600 according to Glasner (2006); Singletary (2006).

The VantageScore system is used by the credit bureaus and is considered to be a relatively new credit scoring type that ranges from 501 to 990. Every 100 points corresponds with a letter grade in ascending order: 901 to 990 = A, 802 to 900 = B, 701 to 800 a C, 601 to 700 a D, and 501 to 600 an F. More than two-thirds of all consumers qualify for a grade of "C" or higher.

Remember there are several types of credit scores developed by credit reporting agencies, independent companies, and other lenders. Therefore, your credit score may differ from lender to lender because your credit history may differ from lender to lender. You can obtain your credit scores via the Internet, telephone, or by mail for a set fee.

In closing, credit reports and credit scores are important in determining your financial health. A financial self-examination is vital to your financial health, so do a checkup often. Also, develop and follow a budget. If you practice these helpful tips, then you are well on your way to good financial health and you will know your standing financially.

Glasner, J. (2006). New credit score now online. Retrieved January 11, 2010.

Oleson, M. (2009). Specialty credit reports. Family and Consumer Sciences Hotline. Retrieved January 11, 2010.

Privacy Rights Clearinghouse. (2010, January). Fact sheet 6a: Facts on FACTA, the fair and accurate credit transactions act. Retrieved January 11, 2010.

Singletary, M. (2006, April 6). Explaining new credit score system. The Huntsville Times, pp. B2.

Watts, C. (2008, Winter). What you should know: ABCs of FICO scores. Jump$tart Update, 12(1), 11.

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