Claudia Buck

Personal Finance: Credit scores in Sacramento area comparatively strong

Published: Sunday, Mar. 3, 2013 - 12:00 am | Page 1D
Last Modified: Sunday, Mar. 3, 2013 - 7:44 am

OK, we didn't make the Top 10. But Sacramento-area residents performed well in a recent ranking of average credit scores nationwide.

Sacramento logged in at No. 34 among 100 of the biggest metropolitan regions, according to Trans- Union, one of the three major credit reporting bureaus.

Our average credit score? 674.

That's not quite as robust as Silicon Valley (San Jose-Sunnyvale-Santa Clara), which nabbed the country's top spot with a score of 700, followed by the San Francisco-Oakland area at 696.

Those scores are based on credit histories covering about 215 million consumers, using TransUnion's score range of 501 (poor) to 990 (excellent).

Why should you even care about your credit score?

Because it could save you big bucks on what you'll pay for a home mortgage, a car loan, a credit card rate. The higher your credit score, the lower your interest rate and monthly payments.

Credit scores are based on all the financial details in our credit reports as compiled by the three reporting bureaus: TransUnion, Experian and Equifax. That includes your payment history on mortgages, credit cards and other bills, as well as negative factors like bankruptcies and court judgments. Even unpaid library fines, if they're over a certain amount and were turned over to a collection agency, can appear on your credit report.

"It's a snapshot of your financial past, which is useful in determining your financial future," said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling in Washington, D.C.

Surprisingly, very few of us bother to look at our credit reports, even though they're free. But we should, considering that many contain glaring errors.

Earlier this month, in what it called an "eye-opening" study, the Federal Trade Commission found that about 26 percent of consumers have big errors in their credit reports, which could be costing them serious money.

Think of your credit report as "a reflection of your financial reputation," said Cunningham. "If there were a letter going around town about your personal reputation, you'd be certain to read it. You need to have that same enthusiasm about what's being said about your financial reputation."

Last year, 62 percent of consumers had not ordered a free copy of their own credit report, according to an NFCC survey.

Your free checkup

Every consumer is entitled to one free credit report every 12 months from each of the three credit reporting bureaus. The fastest, easiest way to get yours is online at AnnualCreditReport.com.

Dispute errors

When you get your credit report, review it to be sure that all the credit history is actually yours. If there are mistakes – loans that aren't yours or store accounts that were paid off but show as still delinquent, for instance – contact the credit bureau and the business reporting the information.

Due to similar family names, errors in transposing account numbers or even identity theft, it's not uncommon to have erroneous items on your report, said Barry Paperno, credit score specialist with Credit.com in San Francisco.

You can dispute the error in writing, using the address on the report. (Sample dispute letters are on websites, such as the Federal Trade Commission's consumer.ftc.gov or MyFICO.com.)

If you're anticipating a big financial move – say, buying a car or refinancing your mortgage – get your credit report at least three months ahead, says Cunningham.

That way, if there's a mistake, you've got plenty of time to get it corrected. Typically, she said, it takes 30 to 45 days for a credit bureau to correct or delete a discrepancy on a report.

Bad news

If legitimate negative details – lawsuits, bankruptcies, late payments – are on your credit report, the only thing that will erase them is time. It takes seven years for most negative items to fall off a credit report; 10 years for most bankruptcies.

But the good news is that their importance diminishes over time. In other words, during the first couple of years they hold more weight in computing your credit score.

And if there were unusual circumstances, say a job loss or a roommate borrowed your credit card and racked up charges but refused to pay, you can write an explanation that is attached to your credit report.

"It may or may not influence the lender," said Cunningham, "but it makes the consumer feel better."

How to repair it?

To rebuild your credit history, the advice is simple: "Almost two-thirds of your score is how you pay and how much you owe," said Paperno. "Mostly, you should start paying on time and keeping your debt level low. Nothing earth-shaking there."

The longer you pay your monthly bills on time, the more your score will improve.

The biggest factor that can help or hurt is revolving debt, such as credit card balances. "If you have extra money, pay off the credit cards. That's where you'll get the most bang for your buck," said Paperno.

And keep your amount of debt low, compared with your credit limit. That so-called "credit utilization rate" should hover around 10 percent.

Let's say you've got a credit card with a $2,000 limit. If your monthly balance is around $1,000, your utilization rate is about 50 percent, which is OK. But if your monthly credit card spending pushes you closer to your $2,000 limit, suddenly you look a lot riskier to a lender.

Beware: Credit repairs

Credit reports can be confusing, especially if you had a past-due account that went into collections and then was repeatedly sold to various debt collectors.

"If you get your report and it makes you cross-eyed, reach out for help in interpreting it," said Cunningham, noting that nonprofit credit counseling agencies can help.

If you've got a battered credit history, you've probably seen or heard the ads promising "instant credit repair" or "100 percent guaranteed" results. Too often, they charge high fees to help you do something you can do yourself. That's why the FTC warns consumers to be wary of credit repair companies making too-good-to-be-true claims.

HOW TO GET YOUR CREDIT REPORTS AND SCORES

Free credit reports

To get your free credit report from each of the three credit reporting bureaus (Experian, Equifax or TransUnion), go to: www.AnnualCreditReport.com or call (877) 322-8228. You're entitled to one free report every 12 months.

Additional free reports:

If you've been turned down for credit, employment or insurance based on your credit report, you're entitled to a free copy. Once a year, you can also request a free copy if: you're unemployed and plan to look for a job within 60 days; you're on welfare; or your report has inaccuracies due to fraud or identity theft.

Credit reporting bureaus

• Equifax: (800) 685-1111, www.equifax.com.

• Experian: (888) 397-3742, www.experian.com.

• TransUnion: (800) 916-8800, www.transunion.com.

If you want to dispute errors in their reports, put it in writing.

Credit scores

Your three-digit credit score, usually anywhere from 300 (low) to 850 (high), is compiled using information in your credit report, such as payment history and bankruptcies. Different scoring companies use slightly different calculations. Although credit reports are free, you must typically pay to get your credit score, usually $7-$20. The three bureaus sell them as well at sites like MyFico.com.

Credit report help

The National Foundation for Credit Counseling has 750 nonprofit agencies that offer free counseling, including how to repair damaged credit history. To find locations near you, call (800) 388-2227 or go to www.nfcc.org. For more tips, go to MyFico.com.

SMALL BUSINESS FINANCIAL SMARTS

What will 2013 mean for you and your business?

The Bee and KFBK will co-host a "Small Business Financial Q&A" from 6 to 7:30 p.m. Thursday at The Bee, 2100 Q St.

Local and state experts will be on hand to answer questions from small-business owners on taxes, employee health benefits, retirement planning, employment law and other bottom-line topics. To register, go to www.beebuzzpoints.com and click on "Bee Events."

© Copyright The Sacramento Bee. All rights reserved.

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