The Truth About Credit Scores

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It's time to once again answer your questions. As you know, every few weeks I answer questions from you, my readers. This week's crop of questions cover credit scores, mortgage modification programs, auto loans and more. Thanks for helping me tap into the consumer pulse -- and keep them coming.

Question: I recently got my credit score from all three companies. The first two were 740 or more.

The other was 647. They gave me a BS answer on the reasons. How can they do this to people? And how can they do this to hard working people?

-- B.R., Stanley, N.C.

Answer: They didn't really "do" anything to you. A credit score is just a mathematical formula calculated based on the information in your credit bureau file. Each of the three bureaus keeps its own, separate records on people.

We can deduce that the third credit bureau that gave you the lower score either has fewer flattering entries about you in its file or more unflattering ones. What you need to do is order your credit report from that bureau and dispute any inaccuracies that are dragging your score down. You could order your reports from the other two at the same time, because since they are so consistent with each other, that may give you an indication of what in the third report is dragging your score down. Best part is, you can order your reports free by going to

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Question: If my credit score took a tumble due to late payments on a few bills, but I have since paid them off, when should I see my score improve?

-- R.M., Waterloo, N.Y.

Answer: I can't tell you a firm time or even a time frame for when your score will improve because credit scoring formulas take so many hundreds of variables into account that they are very hard to predict. I can tell you that late payments are one of the very worst demerits that causes your score to drop.

Your history of paying on time or late accounts for 35 percent of your score, more than any other factor. So the bad news is the fact you had late payments is a real strike against you. But the good news is that you have since taken care of those payments, so that will dramatically help you. It just may take a few months or years.

Home Underwater

Question: I bought my house high. It's now upside down by, I guess, $120,000. I have an adjustable mortgage plus a second loan. The average of my loan interest rates is about 9 percent. I've lived in the house for 3.5 years and have made all my payments and don't think I've been late once. Money is tight. I need a loan modification.

I contacted my lender and they sent me some paperwork with information for considering a loan modification. I'm scared of being duped. I heard they jerk you around and take forever (It takes a lot of work and persistence).

I guess my question is this. Are there any Federal Housing Administration programs that can help me to get info or do I have to pay someone to get me out of this bad loan?

-- A.C., Las Vegas

Answer: You are right to be worried and skeptical. One of my own co-workers has been trying for months to get her bank to modify her loan and has made zero progress. But I'm happy to say that there are a couple of free resources you can take advantage of.

The Department of Housing and Urban Development, HUD, offers a list of non-profit housing counselors around the country who can help homeowners negotiate with their mortgage companies. Best of all, these counselors are low or no cost and can be found here.

The government has also recently created interactive Web tools that help people determine if they are eligible for several different federal programs.

One helps homeowners who are up to date on their mortgage payments, but who cannot refinance because their homes have gone down in value. The other helps homeowners who have fallen behind on their payments because their interest rate has gone up or their income has gone down. The tools can be found here.

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Question: I need help. Three months ago I paid off an auto loan and took out another for a new car. I have never missed a payment, never been late with a payment on either the car loan or any credit card I have ever owned. I keep my credit card balances very low and use mostly cash. Yet my credit score dropped 30 points. I called the credit companies and they admit I have nothing negative on my reports and can't explain the drop of the score. They said to call FICO [Fair Isaac, the company that pioneered credit scoring.] I called FICO which said it was the credit reporting firms that came up with the score. No one will give me answers. What can I do?

-- M.W., New York

Answer: It's true that Fair Isaac won't have the answer for you. Fair Isaac basically invented credit scoring, but it sells its statistical analysis programs to outside entities like the big three credit bureaus and they use it to analyze your creditworthiness.

It's possible that your score dropped through a complicated combination of factors and that the auto loan is just one of them. It's also possible that because you got rid of a longstanding loan, the old car loan, and replaced it with a brand new loan, the new car loan, that that hurt your score. Why? Because the length of your credit history makes up 15 percent of your score, so a newer loan isn't as good for you.

If you applied for lots of loans when you were buying your new car, that may also have hurt you. Recent credit applications account for 10 percent of your score and banks don't like it when people apply for lots of loans in a short period of time. To them, it looks suspicious, like you are getting ready to flee the country or finance an independent film or something. One suggestion: if your score dropped 30 points at one of the big three credit bureaus, it's quite possible it dropped less or not at all at the others. Consider ordering your individual score from each to find out where you really stand.

Credit Card Problems


I signed up for two credit cards before I knew anything about credit and how it works. I let both accounts fall to a delinquent status. However, I have spent the last two years working on paying them off. One has been paid off. The other card's balance has been brought way down (less than half of the credit limit) and my minimum payment due is now $20. I pay more than the minimum each month and I pay it on time.

I recently applied for a new card so that I could transfer the balance of the old card onto it and be done with my two former delinquent accounts. However, I was denied.

The card for the account that I am still paying off has expired. The card for the account that has been completely paid doesn't work because the account had been so delinquent. I had no desire to get new cards for fear of spending more money than I have.

My questions are: even if my accounts are in much better standing than they were before, is my credit affected by the fact that I do not have usable cards? Should I call the companies and have new cards sent to me and then not use them? Will I even be allowed new cards?

-- K.B., Albuquerque, N.M.

Answer: The fact that your cards are not usable has no bearing on your creditworthiness or your score. However, the fact that the cards were once delinquent is devastating. Still, you are making terrific progress and recent, positive trends do help you.

Yes, you should try to get the banks to send you new cards for your existing accounts. They may not send them given the economic climate, but you have a better chance with them than with a new bank that doesn't know you. And older accounts help your credit score.

If they issue you working cards, then use them regularly to keep them active so you won't get canceled. Maybe you can arrange an automatic monthly payment for a small bill like a cell phone to be charged to your cards. Then, of course, pay the card off in full each month. Eventually your credit score will improve.

Free Credit Reports

Question: I have a question about credit reports. I did go get my free report last year. I printed it all out but nowhere did I see a score number. It showed all my credit cards, loan info and such, but I couldn't find the number anywhere on the report. Does it not give you the actual Credit Score number?

-- B., Trenton, N.J.

Answer: That's right. Congress mandated that the big three credit bureaus give each consumer a free credit report each year, but the credit score is separate. You have to pay $10 to $15 for it. Or you can get the bank to share it with you when you apply for a loan, but it's better to know your score before you apply, so you know where you stand. You can order your credit score at the following Web sites:,, and Keep in mind that they will try to sell you multiple scores or other services, but keep scrolling down if all you want to pay for is a single score.

Question: I just wanted to ask a question. I just wanted to know if placing a freeze on your credit will hurt your score in the future? I have placed a freeze on mine.

- S.M., USA


No, placing a freeze on your credit should not hurt your credit score. A freeze simply prevents companies from looking at your credit file without your permission. One exception: if you do not have or use credit of any kind, then a freeze could hurt you indirectly because since companies can't check your credit, they won't offer you credit cards. Even very wealthy people can have poor credit scores if they don't have and use credit responsibly. For an optimum score, it's best to keep one to two credit cards open and use them and pay them off monthly.