Your wedding day; what a wonderful day that was.  You’re dressed in your tux or wedding dress, nervously standing in front of the priest, vowing to respect and honor each other until death do you part.  It’s all sounds like a great plan.  The problem is that the “plan” doesn’t always work out.

According to the CDC the marriage rate is 6.8 per 1,000 or 6.8%.  The divorce rate is 3.4 per 1,000 or 3.4%.  And while this is not a 50% divorce rate, it does mean that there are about 50% as many divorces as there are marriages in any given year.  The result is millions of joint credit cards, auto loans, mortgages and other loans that are now going to be assigned to one of the divorcing spouses for payment as part of the divorce decree.

Here’s where the problems begin.  The divorce decree only assigns payment responsibility.  It does not assign (or re-assign) liability for payment or non-payment.  That means that even though the judge told one of you to make the payments on the loans, the bank still considers both of you to be on the hook if it’s a joint liability.

From a credit reporting perspective your divorce never occurred.  The divorce isn’t on your credit reports and any accounts that were there before the divorce are still there after the divorce.  And if you haven’t figured it out already, any missed payments, defaults, collections or judgments stemming from the joint accounts will also show up on the credit reports belonging to both ex-spouses.  You can end up with significantly damaged credit scores simply because your ex-spouse missed the payments on an account that the judge told him or her to pay.

At this point you might not care but there’s a perfectly reasonable explanation of why the judge’s decree doesn’t somehow remove you from responsibility.  Your lenders are not a party to your agreement to assign the credit cards to him and the auto loans to her.  As such, they’re not bound by your personal agreement to split the debts.

The best way to avoid the credit damages in a divorce environment is to divide the debts on your own before the divorce is finalized.  This will also require that you close joint credit cards, something I never advise in any other situation.  This could leave you without credit cards unless you opened a few on your own prior to the divorce.

Co-mingling credit obligations is very easy.  Separating them is next to impossible.  This is why I suggest that you, at the very least, think about maintain credit independence before and during marriage.  You simply don’t know if marriage is going to last BUT you do know that you obligations to repay your debts will last.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, and the credit contributor for Mint.com.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

One of the most objectionable uses of credit reports is their use by employers for pre-employment and continued employment screening of job applicants and current employees.  It’s especially controversial if protected classes are disparately impacted by the practice.  And while no hard evidence exists that proves there is a disparate impact, the Equal Employment Opportunity Commission just sued Kaplan Higher Education Corporation for alleged discriminatory use of credit reports for hiring purposes.

The lawsuit alleges “an unlawful discriminatory impact” on African American applicants.  And while Federal law (The Fair Credit Reporting Act) still allows the practice of using credit reports for employment screening, the hiring company cannot use credit reports to disqualify groups of people, regardless of intent.  It’s important to note that employers do not use credit scores and I wrote about this credit scoring myth here.

The EEOC’s lawsuit, while in its infancy, begs several questions about the practice of using credit reports for employment screening.  They are…

• Does every employer screen their applicants’ credit reports?
• Are the rules governing the use of credit reports by employers different than those that govern their use by lenders?
• What exactly are employers looking for on credit reports?
• How can job applicants overcome credit barriers?

Not all employers use credit reports for employment screening and those that do don’t screen credit reports for all of their applicants.  The practice seems to be reserved for positions that either require access to money or sensitive information, but that isn’t exhaustive of all situations where credit screening is used.  They’re looking for signs of irresponsibility, which can be gleaned by the amount of delinquent debt on your credit reports.  And finally, outstanding judgments can also be problematic because of the possibility that they’ll become garnishments and unwillingly drag your employer into your debt situation.

The rule governing the use of credit reports for employment screening do differ than the rules governing their use in lending.  First off, the employer must get your express and overt permission before access your credit files.  The same type of permission is not required by lenders as long as they have a reason to believe you’re asking for some sort of credit benefit.  For example, when was the last time you signed any sort of credit application when you asked for a credit limit increase or applied for a public utility?

Additionally, if you have public records on your credit report that fact must be disclosed to you proactively.  When you apply for a loan with a bank or insurance with an insurance company they don’t have to tell you what’s on your credit reports.  Also, the inquiry posted on your credit report when you apply for a loan is viewable by other lenders.  When you apply for a job the employment inquiry cannot be seen by anyone other than you.

It’s rare that employers are so bold as to publicly disclose their policies with respect to their credit screening “breaking point.”  There is also no industry wide standard set of policies regarding how bad your credit has to be before it will cost you a job.  This is why nobody knows “the rules” going in to the interview process.  And, it’s also why nobody knows the right way to handle the impending “credit problems” discussion.

There are some who believe you should not give the employer permission to pull credit if you have something to hide.  The problem with that strategy is that, well, you look like you have something to hide.  And with dozens of applicants for every job opening it’s easy to move on to the next resume.

I think the better tactic would be to get deep into the interview process and, when credit comes up, overtly disclose any issues that are plaguing your credit reports and offer an explanation. You won’t have the opportunity to offer an explanation after you’ve been disqualified, and even if you are it’ll likely be futile at that point.  At least this way you are controlling the conversation as best you can.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, and the credit contributor for Mint.com.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

I’ve gotten a great deal of interest from consumers and the media regarding the last tip in this recent blog post.  Here I advise consumers to be aware of all of the high value tax related documents that will be hitting your mailboxes during the month of January.  These documents include W2s, 1099s, year-end statements from your bank or brokerage company, interest statements from your mortgage lenders, and other sensitive items.

What all of these items have in common is the inclusion of three things; your full legal name, your address and your Social Security Number.  This is the trifecta of information needed in order to either apply for credit in your name or otherwise apply for government issued documents such as a driver’s license.  And, if you do contract work and receive a 1099 memorializing the income, that document also has your company’s name, address and Federal tax ID number.

Many people believe ID theft is a high tech crime involving data breaches, phishing websites and email scams.  However, the reality is that ID theft is still a very low-tech crime largely perpetrated by people who simply steal documents out of your garbage or mailbox.  In fact, some people believe the majority of identity theft incidents involve a family member or friend who has unusual access to your sensitive identification and financial information.  Point being, it’s not the well-organized data breach that you need to be focused on.

How Do You Prevent Identity Theft

A friend of mine in Montana made a very good point to me years ago when we were hiking up a mountain.  I love telling the story so you’ll just have to indulge me.  If you’re hiking through the woods and you come across a bear or a mountain lion, what should you do?  Some people would tell you to run, while others will tell you that you’ll never outrun either animal so running would be futile.

I asked my friend what you should do and he said, “run like crazy.”  When I suggested to him that no man could ever outrun a mountain lion he said, with a smile on his face, “I don’t have to outrun the mountain lion, I just have to outrun you.”  His point, while a little scary at that moment, is applicable to this ID theft story.

You don’t have to outrun the identity thief.  You just have to make yourself a little less attractive to him than your neighbors.  ID thieves are opportunistic.  They’re also going to take the path of least resistance.  Why climb over a fence, break a window, and haul out a Persian rug when I can steal your mail, open a new credit card account and buy the rug online…complete with free shipping.

You will significantly reduce your chances of being a victim of ID theft if you will take some very simple steps to reduce your expose.  First off, I’ll echo what’s been said 1000 times already in other ID theft articles, which is to buy and overuse a high quality shredder.  I can’t tell you how many times I’ve seen tax returns, bank statements, deposit slips, checkbook registers, paystubs and even expired credit cards simply discarded in the trash.

The second piece of advice is directly applicable to this “January Mail” article, which is to download as many of those January documents as possible in lieu of receiving them in the mail.  It’s not too late to incorporate this strategy for your 2010 tax documents coming in the next few weeks.  In fact, you can already download year-end mortgage interest statements because you’ve already made all of your payments for 2010.

Now, I realize this won’t work for everything because 1099s and W2s are traditionally delivered via snail mail, only.  And while you may not be able to download every single one of your tax documents you can certainly reduce the amount of high value January mail sitting in your mailbox.  And, if you’re really lucky you’ll never have to worry about outrunning a mountain lion either.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, and credit blogger for Mint.com.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

Credit scores used for employment screening?  I’ve called it the myth of the decade for many years.  Why…because it doesn’t happen.  Employers don’t use credit scores to screen potential employees.  They can use credit REPORTS, in most states, but not SCORES.

You can tell I get a little excitable about this topic.  I’ve been arguing with people who “know it happens” since my early days at FICO in the late 1990’s.  The minute I ask them to show me an example, any example, of an employer who pulled a credit score for employment screening the conversation ends.  Why?  Because there has never been a verifiable example of an employer asking for, receiving, and/or using a FICO risk score for the purposes of screening an employee or prospective employee.  It’s like the Loch Ness Monster…a lot of people have seen it…but really nobody has ever seen it.

I don’t blame people for thinking it happens.  WE can’t even get it right.  When I say “we” I mean people who work in the credit and media industries.  WE keep telling people, incorrectly, that scores are used for employment screening.  WE keep getting it wrong!  WE caused the problem and WE cause the myth to persist.

Greg Fisher from CreditScoring.com put together a very entertaining and eye opening collage of clips from websites, television ads, and interviews that show just how wrong so many people get this.  Take a look at this collage and you’ll see reputable people, even some who work for key industry players, getting it flat out wrong.

The primary reason why, in my mind, this has become such a prevalent myth is because so many people believe credit reports and credit scores are one in the same.  The reality is credit scores are not credit reports and credit reports are not credit scores.  Credit scores are a product sold along with credit reports to lenders and insurance companies.  The credit bureaus can control the distribution of scores, which means they can prevent them from being sold to employers.  Think of it this way…your credit report is the steak and your FICO score is the cheesecake.  They’re both part of a great “dinner”, but they certainly aren’t the same thing.

All three of the credit reporting agencies has gone on record, over and over and over, stating that they do not provide credit scores with credit reports to employers.  They’ll tell this to anyone who is willing to listen to them.  Further, the Consumer Data Industry Association, the trade organization of the credit bureaus, has also stated the same thing over and over.  So, the next time you hear, read, watch or listen to someone claiming that scores are used by employers, you’ll know better.  And maybe, just maybe, you can help me out by letting them know they’re getting it wrong.  Otherwise I’ll be hearing about credit scores and employment for the rest of my career.

John Ulzheimer, who was not hired by SmartCredit because of his credit score, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit rating” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

While you’re taking down the tree, packing up the ornaments and figuring out how much weight you gained over the holiday season it’s important to remember that the year’s not over yet.  And, there are certain things that you should do before the ball drops in Times Square.  So, before you say goodbye to 2010 be sure to do the following…

Be Sure To Claim Your Free Credit Reports Before The Year Is Over – This should be on your list right next to “change the batteries in the smoke detectors.”  You are entitled to at least one free credit report every 12 months from any company that maintains it.  And, depending on the state you live in you may be entitled to additional free credit reports every 12 months or every calendar year.  Now is the time to claim your freebies if you haven’t done so already.  You can claim your Federally mandated free reports at www.annualcreditreport.com and state mandated freebies at each of the credit reporting agencies directly.  Your free reports do not “roll over” like our cell phone minutes so if you don’t claim them before January 1 then you’ve sacrificed your rights.  Over 150,000,000 free credit reports have been claimed since 2004.  Make sure you add to that number by claiming yours.

Check the Terms of Your Credit Card to See if They’ve Changed – This one would have sounded silly any year other than 2010. Credit card issuers were changing terms of credit card accounts furiously until February 22 of this year when the CARD Act made it more difficult for them to do so.  Now if they want to raise your rates or stick you with an annual fee they have to notify you 45 days in advance.  The problem…you are probably like the other 96% of cardholders who don’t read their notices.  Point being, your interest rate might be higher than you think.  Also, the CARD Act does not require any sort of advance notice by your card issuer when they lower your credit limits or even close your account.  Check your statements closely or call your issuer to confirm that you’ll enter 2011 with an open card with the same credit limit.  And, you might want to confirm the interest rate just to be on the safe side as well.

Pay Off Holiday Debts Before New Year’s Eve – You should seriously consider going online and paying off your holiday credit card debt well before you get your bill in the mail.  Knocking it out quickly is like ripping off a Band Aid.  It’s painful only for a moment, you’re happy you did it and you forget about it quickly.  This will keep the balances off of your credit reports and ensure that you enter 2011 without holiday debt, but you have to do this before the statement close date.

If You Opened Retail Cards Over the Holidays to Save 15% LEAVE THEM OPEN – I realize this sounds counter-intuitive especially considering that I just told you not to open retail cards in the first place.  Here’s the deal…the damage has already been done with the inquiries and the new accounts on your credit reports.  At the very least you should leverage the cards and get some value out of them in your credit scores.  Remember, the unused credit limits on retail cards are just as valuable to your scores as unused credit limits on Visa, MasterCard and Discover cards.  But, the cards have to be open for you to get the value.  Leave them open, don’t charge more than 10% of the credit limit and at least you’ll get something out of making the mistake of opening them.

Beware of Your January Mail – January mail is considered “high value” to identity thieves.  Why?  Think about what’s being mailed to you during the month; 1099s, W2s, interest statements from your banks, year-end statements from your brokerage and retirement accounts, and other highly sensitive tax related documents.  And what do all of these documents contain…your name, address and social security number.  Let’s just say mail theft is going to be way up in January and you don’t want your sensitive information lifted and then turned into new credit card accounts.  So what do you do?  “What can you do” is a better question.  You certainly can’t stop the mail but you can create a list of expected documents and quickly contact the company responsible for mailing it on February 1^st if the documents haven’t been delivered yet.  This doesn’t solve the problem but it gives you a jump on dealing with it.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit rating” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

In time you’ll learn that one of my favorite columns to write is the “mythbuster” piece.  I love debunking common, and not so common, myths about the credit industry.  So in the spirit of the mythbuster, please enjoy these little known factoids about the credit industry.

FICO Doesn’t Sell Scores to Lenders –

The common belief is that when you apply for a loan the lender pulls your credit report from one of the credit bureaus and then gets your FICO score directly from FICO.  This is incorrect except for under rare circumstances when lenders use a FICO service called PreScore®.  The vast majority of FICO scores that are used by lenders are sold to them by the credit reporting agencies.

Each of the “Big 3” credit reporting agencies has a licensing agreement with FICO that allows them to sell FICO scores directly to lenders.  This means the delivery of your credit report AND FICO score is done at the same time by the same credit bureau.  Efficient.  And, because FICO doesn’t sell scores to lender…

FICO Doesn’t Score Your Reports –

No, there is no direct pipeline between the credit bureaus and FICO where the bureaus transmit their credit files to Minneapolis (FICO’s HQ) for scoring before they’re delivered to lenders.  In fact, FICO isn’t even involved with the scoring process at all.  They FICO score is really scoring software.  And, the software is installed at each of the three credit reporting agencies that then use it to score their credit files.

I can tell you that this is so unknown that even some people who work for the credit bureaus don’t know this.  I’ve been in front of credit bureau audiences many times and when I asked them “So, who actually calculates the FICO score” their answer more times than not was “FICO does.”

Employers Do Not Use Scores –

I’ve called this the myth of the decade that just won’t die.  So many people use the terms “credit score” and “credit report” interchangeably and it gets them in trouble.  Credit reports can be used for employment screening, in most states, but credit scores cannot.

All three of the credit reporting agencies and their trade organization, the CDIA (Consumer Data Industry Association), have stated repeatedly, even under oath, that they do not sell credit scores along with the reports they sell for employment screening.  But that just doesn’t seem to matter because it’s still being reported in the media and even politicians are making these claims.

Credit Scores Have No Memory –

Credit scores are “real time”, meaning that just because your score was 700 today it doesn’t mean that it will be 700 tomorrow.  When a lender wants to pull your credit report and get your score they will make the request to one of the credit bureaus, who then compiles the credit report, calculates the score and then delivers the information back to the requesting lender.  All of this happens in seconds.

There is no mechanism whereby the score is “stored” by the credit bureaus and then re-used or redelivered at a later date.  The next time a lender wants your credit reports and scores the process takes place again with no memory or recollection of the previous event. And, because scores are not stored by the credit bureaus…

Credit Scores Are NOT A Permanent Part Of Your Credit Reports –

Your credit reports contain a wealth of information about you.  Your history of credit obligations, collections, some public record information and a slew of personal identification data.  What they do NOT contain is your credit scores because credit scores are not a permanent component of your credit report.

Credit scores are products sold along with your credit reports to lenders and the other parties that use them.  They certainly aren’t the only product sold with credit reports but they surely are the most well known.  It’s because of this that they are assumed to be a part of the credit reports when, in fact, credit reports and credit scores are two completely different and independent items.  This is why you do not get a credit score for free like you can get copies of your credit report for free.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit rating” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

When we think about credit scoring we mostly think about the actual number and strategies to improve that number.  However, the topic of credit scoring is so much more complex and involved.  Understanding scoring in more depth will not only provide you valuable context on the subject but also arm you with more knowledge when you take your next trip to the bank.  Just think…you’ll know more about credit scoring than most of the lenders you work with.  We covered the fundamentals of credit scoring in this blog, now let’s take some bigger bites at the apple.  Let’s just say you’re not going to hear any of this listening to Dave Ramsey.

Odds to Score Relationship

Those numbers actually have a meaning.  I think most people just understand that a 750 is a good score, better than a 700.  But what does a 750 mean as compared to a 700?  Each of those numbers tells a story about your risk and that story is expressed as odds.  Odds, in a credit scoring discussion, are generally determined by studying and understanding the number of consumers who are going to pay their bills on time relative to the one consumer who will not.  This is an EXAMPLE of how the odds could change by FICO score range…

FICO 800 = 800 goods to every 1 bad

FICO 750 = 400 goods to every 1 bad

FICO 700 = 200 goods to every 1 bad

FICO 650 = 100 goods to every 1 bad

FICO 600 = 50 goods to every 1 bad

FICO 550 = 25 good to every 1 bad

FICO 500 = 12 goods to every 1 bad

Every bank knows how much they’re going to make on a “good” and how much they’ll lose on a “bad.”  This allows them to make an informed decision regarding whether to approve applicants who have scores that fall outside of their comfort zone.  Why extend credit to a FICO range where you lose money?  On the other hand, if you knew where the “break even” score range was you could easily draw a line in the sand and say, “we’ll approve everyone with a FICO score above X and decline everyone below it.”

Performance Definition

Every credit scoring model has what’s called a Performance Definition (hereinafter “PerfDef”).  It’s the stated design objective of the model.  So, for example, the PerfDef of the FICO risk score is “to predict the likelihood of a consumer going 90 days past due or worse in the 24 months after scoring.”  This is called an “Incident Model” because it’s predicting whether or not some incident will occur.

There are other models that have very different PerDef’s.  There are scoring models that have a financial based PerfDef.  For example, some scoring models will predict the likelihood that you’ll generate some amount of income or revenue.  These are more uncommon than incident models.

You can tune your model to predict almost any level of delinquency.  Your model can predict 30-day late payments, collections and even bankruptcy.  Equifax has a model called Bankruptcy Navigator Index (or “BNI”) and it predicts the likelihood of you filing bankruptcy.  And some bankruptcy models are even more complex and actually have an idea of how much you’ll cost lenders if you do file bankruptcy.  Awesome!

Validations

A validation, in terms of scoring, is the process whereby a lender or “user” of the scoring system studies and learns the expected performance of their consumers/customers by score range.  See the chart above under “Odds to Score Relationship.”  That’s how you learn those odds, by performing a validation.

So how do you know if your model has been “validated?”  Simplistically, all you have to do is see your “good to bad” odds improving by ascending score range.  In English, you should see more goods to every one bad as you get higher in the score ranges.   If that occurs then you know your model is “ranking” consumers by risk and therefore your model has been validated.  If your model isn’t ranking properly then it hasn’t been validated and it shouldn’t be used.

There are a variety of mathematical tests to determine if, and how well, your model is ranking.  The three more common tests are the Kolmogorov-Smirnov test (or “KS”), Receiver Operating Characteristic (or “ROC”), and Divergence.  Without getting too complicated let’s just say that each of these are used to measure a model’s ability to separate “good populations” from “bad populations.”  The stronger the separation, the better the model.

So, if FICO could put all future “bads” below 500 and all future “goods” above 800 then it would be a perfect model because you’d just deny everyone below 500 and approve everyone above 800.  There’s the end of defaults and collection agencies.  Obviously, there is no such thing as a perfect model.

That’s it for now.  I think my brain is about to explode.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit rating” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

Risk scoring (aka “credit risk scoring”) is the process of summarizing the data on your credit reports into a 3-digit number.  Lenders, landlords, insurance companies, and utility providers use that number, called a “credit bureau based risk score”, to determine your credit or insurance risk.  The most common brand or variation of credit risk score is the FICO® credit score.  FICO is the acronym for its inventor, FICO (formerly Fair Isaac Corporation).  While there are certainly other brands of credit scores on the market to consumers and lenders, FICO is still the dominant player.

The FICO score will fall into a published range of 300 to 850 but most people will score between 500 and 800.  A higher score equates to lower risk and a lower score equates to higher risk.  And, obviously, a higher score will make it easier for you to qualify for loans and insurance and competitive rates and terms.  A lower score will cause you to be denied or approved with disadvantaged terms.

The FICO scoring model is a actually a collection of several scoring models called “scorecards.”  Scorecards are models designed to evaluate unique and homogenous consumer types.  For example, consumers who have a bankruptcy on their credit report will be scored in a scorecard designed to evaluate the risk of bankrupt consumers.  And another…consumers who have very young credit reports will be scored in a scorecard designed to evaluate the risk of consumers who don’t have a long history of credit usage.  The point of doing it this way is to ensure that each unique population of consumers is fairly evaluated.

In general the FICO score “points” are broken down and awarded from 5 different categories.  They are…

Payment Performance – 35% of the points in your FICO score come from this category.  This is where negative information is going to be evaluated.  Late payments, bankruptcy, settlements, charge offs, repossessions, collections, partial payment plans, liens, foreclosures, judgments and other derogatory information can severely punish your score.  Additionally, the frequency, severity and prevalence of these items is also a meaningful measurement in this category.

Debt Usage – 30% of the points in your FICO score come from this category.  This is where your installment, revolving and open debt is going to be evaluated.  While installment debt (fixed payment for a fixed number of months) is important, it takes a back seat to revolving credit card debt because it’s unsecured and an elevated risk for lenders.  You can repossess a car if you default on a car loan but you can’t repossess items purchased on a credit card.  The number of accounts with a balance, aggregate and line item revolving utilization (balances divided by your credit limits) and the total amount of debt is seen by this category.  In fact, the revolving utilization percentage might be the most profiled aspect of the FICO scoring system in the media.

Time in File – 15% of the points in your FICO score come from this category.  This is where the age of your credit report AND the average age of your accounts is going to be evaluated.  The age of your file is determined by taking the “date opened” from the oldest reporting account.  The average age is determined by averaging all of the accounts together. For example…if you have two accounts on your credit reports, one opened 5 years ago and the second opened 3 years ago then your “age” is going to be 5 and your “average age” is going to be 4.  Older is better in both categories.

Account Diversity – 10% of the points in your FICO score come from this category. This is where you’ll be rewarded for having different types of accounts on your credit reports.  Mortgage, auto, credit card are among the different types of accounts you can have on your credit history.  Having a diverse account set is good for your scores.

Search for Credit – 10% of the points in your FICO score come from this category.  Some people call this the “Inquiry” category because this is where credit inquiries are going to be measured.  This category also gets a lot of media attention which is a little confusing because the majority of inquires are ignored by FICO and the category is only worth 10% of your score.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and the author of the “credit rating” definition on Wikipedia.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

In the world of credit reporting there are a very limited number of companies who accept, store, maintain, compile and sell your credit information.  In fact, there are really only three companies who fit that mold.  They are Equifax, Experian, and TransUnion.  While there are certainly more companies who are legally defined as “Consumer Reporting Agencies”, these are “The Big 3.”

Equifax is based in Atlanta and is publically traded on the New York Stock Exchange under the symbol “EFX.”  They have been around in some form or fashion since the late 1800s and are generally recognized as the oldest of the credit reporting agencies.  Their traditional stronghold has been in the Southern states and parts of the Midwest.

TransUnion is based in Chicago and is privately owned by the Pritzker family (49%) and the Chicago based private equity firm Madison Dearborn (51%).  Their traditional stronghold has been in the Northeastern states and other parts of the Midwest.

Experian is publically traded in the United Kingdom on the London Stock Exchange and is the youngest of the Big 3 credit reporting agencies in the US.  They are the product of, among other things, an acquisition of TRW’s Credit Services division in 1996.  Their traditional stronghold has been in the Western states.

There is a fourth credit bureau called Innovis Data Solutions based in Columbus, Ohio who has been around in some form for over 50 years yet most people have never heard of them.  At this time, and this can always change, they don’t sell credit reports to lenders or consumers the same way as the Big 3.

What do These Companies Do?

The short answer to that question is “a lot”, but the short answer isn’t sufficient.  From a consumer’s perspective we know these companies as “credit bureaus” and that’s basically where our understanding ends.  These companies compile data about our lending, collection and public record experiences and fashion that data into a credit file or credit report.  These reports are sold to lenders, insurance companies, landlords, utility providers, employers and consumers.

The companies and individuals who use credit reports generally do so to get a better understanding of consumer risk before they’ll extend credit, underwrite an insurance policy or hire you.  Because of that, credit reporting agencies, their information, and the companies who provide them with and use their data are highly regulated.  The primary law that regulates the credit data system is the Fair Credit Reporting Act (or FCRA).  This law defines, among other things, under what condition a credit bureau can provide data, how often consumers can get free copies of their data, and the obligation to ensure the data’s accuracy.

Can I Get A Copy Of My Own Credit Report?

Not only is the answer “yes”, but a resounding “YES!!”  Not only can you get a copy of your own credit reports but you absolutely should get a copy, several times a year.  This information controls so much of your life and you have to ensure that it’s as accurate as possible.  And, the law is generally on your side when it comes to obtaining free credit reports.  In fact, the FCRA mandates that consumers be allowed to obtain a free credit report once per year from any company that maintains it.  So, all four of those companies that I referred to earlier, you can get a free copy from each of them.  You can do this at www.annualcreditreport.com for Experian, Equifax and TransUnion.  For Innovis you’ll have to go to their website to claim your freebie.

Depending on what state you live in you may also be entitled to additional free credit reports.  Residents of Colorado, Maine, Maryland, Massachusetts, New Jersey, Vermont are entitled to another free credit report either annually or once every 12 months.  And, if you live in GA, like me, then you’re entitled to two additional free credit reports every calendar year.

If you haven’t seen your credit reports in the past six months, get them NOW!!

John Ulzheimer is the President of Consumer Education of SmartCredit.com and the credit blogger for Mint.com.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  He has served as a credit expert witness in more than 70 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.

Day 1 – Hello, my name is John Ulzheimer and I am a credit junkie.  I’m also the new President of Consumer Education for SmartCredit.com.  The purpose of this blog is to introduce myself, give you a little bit about my background and share with you what you’ll be seeing from me in the months to come.

I’ve been a part of the credit industry since 1991 when I took a job with Equifax, one of the major credit reporting agencies, out of college.  I was there until the end of 1997 when I left to take a job with Fair, Isaac and Company.  They eventually changed their name to Fair Isaac Corporation and then finally to plain old FICO.

You surely recognize them for their well-known and widely used FICO® credit scoring system.  I left FICO at the end of 2004 and in 2005 I started doing work for Credit.com, where I eventually served as their President of Consumer Education.  I also started doing expert witness work in 2005, which I still do today.

The one thing that all three companies have in common is their involvement, one way or the other, with the consumer credit environment.  Equifax compiles and sells credit reports.  FICO designs and develops credit-scoring systems.  And, Credit.com gives consumers access to credit related products and services.

And as of today, December 8, I add SmartCredit.com to my resume and I’m thrilled to be here.  My role as President of Consumer Education means my job is to teach you everything you need to know to fully leverage, and benefit from, our credit system.  I don’t take this task lightly and what you’ll quickly learn when reading my work is I take great care to provide consumers with hyperaccurate information about the topic.  You’ll also quickly learn that I’m not a guy who knows what I know because someone else told me some stuff about credit.

I am FCRA (Fair Credit Reporting Act) certified and have authored or created numerous educational materials on the subject including:

• You’re Nothing but a Number, Why achieving great credit scores should be on your list of wealth building strategies.
• The consumer handbook, Surviving Identity Theft. (co-authored)
• The white paper, Common Mistakes Made by Ineffective Credit Expert Witnesses.
• The article, Top 12 Ways to Survive a Deposition

What did I do at Equifax? I learned about credit reports and managed the consumer dispute process, which included conducting consumer interviews, logging consumer disputes, communicating with credit data furnishers, modifying credit reports and communicating dispute resolution results to consumers.

I eventually managed the relationship between Equifax and thousands of small customers, such as credit unions, car dealerships, banks, and collection agencies.  My final role with the company was to manage the relationship with Barnett Bank, which was eventually acquired by Nations Bank and then Bank of America.

I left in 1997 to take a job with Fair Isaac and that’s where it got really fun.  In 1997 the mortgage industry was essentially force fed FICO scoring by Fannie Mae and Freddie Mac, and they weren’t happy about it.  My role was to support all of Fair Isaac’s credit bureau based scores in North American (Equifax, Equifax Canada, TransUnion, TransUnion Canada, and Experian.)  In other words, if FICO built it and it was sold by a North American credit bureau, I supported it.

I became well versed in all things having to do with credit scores including credit score validations, credit score implementation and credit score development.  I have performed hundreds of credit score trainings to audiences of all levels of sophistication including lenders, insurance companies, credit bureaus, politicians, media, consumer groups and consumers.  If someone had a question about credit scoring between 1997 and 2004, the answer likely came out of my group.

I was also one of the few employees allowed to speak to the media on the company’s behalf, which is where my media exposure really started.  I always joke with people that 10 years ago nobody cared about what I had to say and today everyone cares.  Here is a sampling of my media hits since 2007. http://johnulzheimer.com/media.asp

I frequently appear on FOX, CNN, local network television, and NPR.  I’ve contributed content for CNBC’s “On The Money”, Freddie Mac’s “Know Your Score” campaign, Oprah’s “Debt Diet” series and The Suze Orman Show.  I am a weekly guest on FOX Business Network’s The Willis Report every Thursday for a segment called “Covering Your Assets” and I write a weekly article for Mint.com.

I teach a course, when offered, on credit reporting and scoring at The Emory University Center for Lifelong Learning.  I am also a regular guest lecturer at The Westminster Schools, The Walker School (both in Atlanta, GA) and The University of Georgia located in Athens, GA.  And finally I volunteer my time and teach credit basics to members of the Georgia Consortium for Personal Financial Literacy.

So what will you learn from me in the coming months?  It’s simple, you’ll learn about credit reports, credit scores, credit law, debt, collections, settlement, scams, and much more.  And this won’t be just about me telling you what I think you should know.  This will be a two way street, meaning I’ll write about what you think is important as well.  How will I know what you want to learn?  It’s simple, I want you to always feel free to ask a question or suggest a topic by sending me an email to John@Smartcredit.com.

Happy learning!!