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You Owe Yourself a Credit Check

By Jane Bryant Quinn
Sunday, March 10 1996; Page H02

More than ever, you need to check for errors in your consumer credit report. In traditional use, your report is used to predict how promptly you'll pay your credit card bills. But users are taking it far beyond this narrow sphere -- employing it to pass judgment on your insurability, your fitness for a mortgage loan, even your character.

They do it by reducing your credit history to a single-number "score." That score distills everything that credit bureaus know about your debts, such as how many years you've had credit cards, how much credit you use and how many times you've paid bills late.

You don't know your score. It's released only to people who inquire about you. The most commonly used system, created by Fair, Isaac & Co. in San Rafael, Calif., puts your number anywhere from 300 ("bounce the bum") to 800 ("borrow money from us, please."). Scores change as new information comes in. You may get different scores from different bureaus, because of an error in your file.

When you apply for a credit card or auto loan, a computer dials up your score to see if it makes that particular lender's cut. If not, you're probably dead.

In general, credit scoring is a clear consumer plus, because there's no waiting while a lender checks us out. Most of us have acceptable credit, so we get an instant "yes" in department stores and auto showrooms. Snap approvals for good risks also will become more common among mortgage lenders. Next up: quick small-business loans, based on the owner's personal credit.

Scoring also is a boon to people who, on the surface, don't seem creditworthy at all. The computer spots individuals, in all walks of life, who can be trusted to repay.

But scoring is moving in more controversial directions. Take mortgages, for example. Increasing numbers of mortgage lenders will be checking your score when deciding whether to give you a loan. Eventually, they probably will lower interest rates for borrowers with high credit scores and raise them for those with lower scores.

But what does this do to the marginal borrower? By using credit scores to pick the loans it checks for quality, the Federal Home Loan Mortgage Corp. (Freddie Mac), which buys mortgages from lenders, rejected 50 percent more mortgages in the year ended last September. Freddie Mac's Michael Stamper said that human loan officers will investigate marginal cases, and may turn up pluses that outweigh an applicant's poor score. Still, there's a powerful message here: Don't count on Freddie Mac for much help with nontraditional loans.

"My real concern is that people might not have an opportunity to own a home because they've been branded with a number," said Angelo Mozilo, head of Countrywide Credit in Pasadena, Calif.

Another controversy boils around using scores to judge applicants for auto or homeowners insurance policies. Fair, Isaac, which sells a special screen to nearly 200 insurers, says that low scores indicate people who might make insurance claims -- so it's harder for them to get insured.

Lower-paid people bear the brunt of this conclusion. Compared with better-paid workers, they find it tougher to keep up with debt -- especially if they lose their jobs.

Then there are the corner-cutters, such as Ohio-based auto insurer Progressive Corp. In some states, it charges higher premiums to people with no credit cards or the "wrong" cards (thumbs down if your only card is American Express green, which might be a corporate card that your company pays for; thumbs up on personal gold cards). Progressive claims that it has the data to prove this works. But under torture, data will prove anything.

Several obvious problems will hold down your score: too many cards, too much debt, persistent late payments.

But some not-so-obvious things can also cut you off. For example, if you carry only one credit card you may be rated a higher risk than people who keep up-to-date with four (never mind that you carry one card in order to minimize debt). If you have a lot of department store cards you may be ranked lower than people with bank-issued cards. A finance company loan might drag you down, even though you pay on time. You're also suspect if you recently ran up a lot of debt.

If the content of your character will be summed up in a credit score, you need two things: disclosure of what goes into your score and legislation to make it easier to fix errors in your credit report.

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