Saving Thousands with Robert Palmer.

Good morning central Florida, and welcome to another episode of Saving Thousands. I'm Robert Palmer, and today I'm going to discuss the importance of your credit score and how monitoring the three credit bureaus will help protect you against identity theft and allow you to make sure all of your accounts are accurate and reporting correctly.

I'll take a look at the services online that are available to help you monitor your credit and credit score. Most websites actually offer to sell you fake credit scores. These are not the scores used by lenders and can be very confusing.

I'm going to break down the factors that go into the real FICO score, the one used by lenders, and then show you where you can get the scores online. And unfortunately, they're not free. I'll also show you the only website that will give you a free, accurate copy of your credit report, and what you can expect to pay to get access to your real credit scores.

Let's talk about how credit reports and credit scores have become very important in recent years. Credit scores are now utilized in everything from new credit lines to insurance, or even sometimes applying for a new job. But many consumers are lost when it comes to how scores are calculated, and what information is contained in their credit report.

The credit score is a number expressed based on a statistical analysis of each of your credit files. The purpose is to represent how credit worthy you are. Credit worthiness is the likelihood that in the event you're loaned money, that you'll repay the debt in a timely manner.

Lenders, credit card companies, and auto companies all use credit scores to evaluate the potential risk posed by lending you money, and try to prevent losses due to not being paid back. Scores range from approximately 300 to 850, 300 being the worst and 850 being the best. They are presented by three different credit bureaus, Equifax, TransUnion, and Experian. We all have three credit files, and each credit file can actually contain different information, and thereby generate a different credit score.

The best known and most widely used credit score model in the United States is called the FICO, which stands for Fair Isaac Corporation, who invented the score. It provides a snapshot of the risk that banks and other financial institutions use in order to make lending decisions. Consumers with higher FICOs will be offered better interest rates on mortgages and car loans, while consumers with lower FICO scores could be denied for credit or offered worse terms.

I'm going to break down the makeup of the FICO score for you. And although the exact formula for calculating credit scores is kept secret, FICO has disclosed some basic information to give us an idea of the calculations.

There are five components that go into calculating the FICO score, and each component is given a different amount of weight in the calculation. This is important to understand, because as consumers, we need to pay the most attention to the components with the most effect on our score.

The first part is payment history, making up 35% of the FICO score. The single biggest factor in calculating your credit score is paying all of your accounts on your credit report on time. These accounts are called trade lines, and they are considered on time as long as they're paid in less than 30 days after the due date. Even though some companies may charge you a late fee once you're only 15 days late on a payment, the credit bureaus do not consider an account late until it has been 30 days.

Also, not all bills end up on your credit report. These are primarily the accounts where you have borrowed money, such as mortgage loans, auto loans, and credit cards. By requesting a copy of your free credit report, which we'll cover in just a moment, you can see which accounts are included in your credit file and make sure to always pay these accounts on time.

The next factor, at 30%, is your credit utilization. You can see this is almost as important as paying your accounts on time. Credit utilization refers to the ratio of your current revolving debt, like credit cards, to the total available revolving credit, or your credit limits.

You can calculate this ratio by taking the total amount owed on your revolving debt-- these accounts will be listed on the free credit report we'll show you shortly-- and dividing it by the total amount of available credit you have. Let's do a quick calculation.

If you have three credit cards, credit card A has a $900 balance and a $1,000 limit. This card's pretty close to maxed out. Card B has a $500 balance and a $2,000 limit. And card C has a $3,000 balance and a $3,000 limit. It's completely maxed out.

We add up all the balances and divide by the limits. This example gives us a utilization of $4,400 out of $6,000 in available revolving credit, or 73% utilization. This is a very high utilization, and would greatly lower your score. An ideal credit utilization is to have 25% percent or less.

So in our example with $6,000 in available credit limits, an ideal maximum balance owed would be $1,500, 25% or less. FICO score research has found that consumers who have maxed out credit cards-- that's close to 100% utilization-- were a much greater risk of default than consumers who owed very little compared to their available credit card limits.

The third piece that makes up 15% of your score, and this is the length of your credit history. The longer you have credit, and the longer you have individual credit accounts open, shows you have more history of paying your credit on time. In addition to the total length of your credit history, this component also considers the average age of the accounts. So whenever you open new accounts, it brings down the average age of your accounts, hurting your credit score.

The next 10% of your score come from the types of credit used. These are installment, revolving, real estate, or consumer finance. Consumers benefit by having a history of managing different types of credit. Because the credit score is all about predicting the likelihood you'll pay on time, the FICO score wants to see that you have experience with each of the different types of credit accounts.

And finally, 10% of your score is based on your recent searches for credit or credit inquiries. Credit inquiries occur when consumers are seeking new credit, and can hurt your score. While all credit inquiries are recorded and displayed on credit reports, credit inquiries that were made by you checking your own credit, by an employer for an employee verification, or by companies initiating what's called a pre-screen offer of credit-- these are the pre-approval notices you receive in the mail-- do not have any impact on your credit score.

Also remember that when you're shopping for a mortgage or car loan and have multiple credit inquiries in a short period of time, it will be counted as only one in the score calculation. According to Fair Isaac Corporation's website-- this is the company who invented the FICO score-- most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time. Again, typically these are treated as a single inquiry and will have little impact on the credit score.

So remember this is straight from the people who invented the FICO score, shopping is important. Even if it means having your credit pulled multiple times, it's not going to hurt your score.

There's a lot that goes into making sure we have good credit scores as consumers. By knowing what we're judged on, we can do a better job of planning and making sure the right financial decisions are made to keep our credit scores good enough to have access to the best rates and terms on new loans.

So how do you find out about your credit score? Well, I just explained that FICO scores are the scores used by lenders. But unfortunately, most online services offering to give you access to your credit scores use a different scoring model. I like to call these the fake credit scores. These fake scores create a lot of frustration and confusion, in my opinion, because they give us as consumers an inaccurate number. A number that won't match what lenders use when we go to apply for credit.

One such model is called a PLUS score. And according to Experian-- one of the three credit bureaus-- website, the PLUS square, with scores ranging from 338 to 830, is a user friendly credit score model developed by Experian to help you see and understand how lenders view your credit worthiness. It is not used by lenders. Right there in their fine print. It is not used by lenders, but it is indicative of your overall credit risk.

Lenders and insurers use several different credit score models, so don't be surprised if your lender gives you a score that's different from the PLUS score you receive online. That's right, they admit it right there in the fine print that the credit score you're purchasing from their website is not the same score that lenders use.

To me, this is just ridiculous. What good is a score that doesn't match the one used by lenders? The only reason we care about our credit score is because we know lenders will use it to judge us when we apply for credit. So what good is a fake credit score?

Over at another one of the bureaus-- you can actually purchase the real FICO score for $19.95. But be careful, because many of their products offer something called an Equifax Credit Score. This again, is not a score used by lenders, so make sure you're buying the real score, the FICO score. TransUnion, the third bureau, also has a similar fake score that can be purchased for $15.95, or you can purchase the real FICO score for $19.95.

Personally after all of my research, I like a website called This website is actually owned by Fair Isaac Corporation, the people who created the FICO score. I'm big on cutting out the middleman and going right to the source, and this is it for credit scores. They only offer the real scores and there is no confusion. The price is the same at $19.95 per score, and they have a lot of great resources and information about credit scores.

I think every consumer could benefit from taking some time and reading the great articles on their website. You do have to be careful though, because when you sign up for some of their products, they sign you up for a 10 day trial for credit monitoring that you have to make sure to cancel if you don't want this product.

There's a lot advertising right now on TV for quote, unquote "free" scores, so you may be wondering why I'm recommending you pay $19.95 to get each of your scores. Well, from my research, I found that most of these free score websites actually require enrollment in a reoccurring subscription for credit monitoring that costs around $15 per month. So they're not really free.

Also, I was unable to find any of the free score sites that offer the true FICO score. All the ones I researched and found offered the fake scores, which don't actually do any good. I think what bothered me the most about many of the free score sites was how difficult they made it to figure out what you were actually getting and signing up for. There was a lot of hidden fine print on these sites that was hard to find.

So remember, no score is really free. And the discount scores won't do you any good, because they aren't actually used by lenders. Make sure you're getting the real thing with

While credit scores aren't free, getting a copy of your credit report once a year is. And when we get back, I'll show you the only website that can give you a copy of your real report absolutely free.

Stay tuned. We'll be right back with more Saving Thousands with Robert Palmer.

Welcome back. Now that we understand the credit scores, it's time to talk about the actual credit report. The credit report is a listing of all your active and closed credit accounts, the payment history on those accounts, the length the accounts have been opened, and the balances and high limits on those accounts. This is all the data that gets turned into a credit score.

There's a federal law that grants all consumers access to their credit report at least once per year. While this free credit report will not include your credit scores, it's still a great tool for identifying negative or inaccurate information in your credit file. You can visit, which is the only website authorized to fill orders for the free annual credit report under the law. In addition to the free credit report you can receive once every 12 months, you're also entitled to an additional free report if you've been declined for credit within the last 60 days.

So let's take a look at the information that will be provided in your credit report for each credit account, called a trade line. One is the account number. Usually, the last four digits will be shown to help you identify the account, but the rest are blocked out for your privacy.

Second is the type of account. We said earlier this is revolving, installment, real estate, mortgage, et cetera.

Number three is the condition. Open or closed. Then the responsibility, whether this is a joint account, an individual account, or just an authorized user on a credit card.

Then we get into the pay status, whether the account is current or late, the date opened, the date reported. This is the last date the creditors sent the information to the credit bureau.

Then we get the balance and limit, payment terms or payment amount, high balance, which the most you've ever owed on the account, any past due amounts, and then a two year payment history, which shows how many payments in the last two years were made on time or late. Late payments are grouped by how late they were, 30 day lates, 60 day lates, 90 day lates, and then those payments that were more than 120 days past due, which do the most damage.

Here's the information you can use to contact each credit bureau. Equifax can be reached at 1-800-685-1111 or Experian at 1-888-397-3742 or And TransUnion at 1-800-916-8800 or

Another great service to consider is credit monitoring. These services will monitor your credit report and send you alerts and updates whenever information in your credit file has changed. This can be very helpful in identifying inaccurate information on your report as soon as it is added, and also monitoring who is checking your credit to prevent possible identity theft.

All credit applications start with the credit check, and if you're notified of these credit checks instantly, you can take immediate action if someone else is fraudulently applying for credit with your identity. The sooner you can discover identity theft, the less damage it will do your finances.

Identity theft occurs when someone impersonates your identity and applies for credit. Scammers will do this to obtain credit cards and other loans in your name, using your good credit. And then when they do not repay the loans, the creditors come looking for you.

Identity theft can absolutely destroy your credit and credit score. And while in most cases consumers whose identity is stolen are released from liability, this can be a long, drawn out process and your credit score will be low, making it very hard to get approved for any credit while you're cleaning up the damage. What's worse is that if you do not monitor your credit, you may only become aware of the identity theft once you apply for new credit.

Many consumers are already a victim of identity theft, but until someone checks their credit when applying for a new loan, they're unaware of the fraudulent accounts. The biggest problem with finding out when you're attempting to get a new loan, is that you'll most likely be denied for the new loan until you can resolve the identity theft problems. This could prevent you from purchasing a car or home when you really need to.

So as a smart consumer, I think it's worth the $15 per month to monitor your credit report. Or at the very least, you can freeze your credit report with each of the bureaus, preventing unauthorized access. This helps you avoid and prevent identity theft.

Using the tips I've shown you here today, plus what you can find on the websites like and the websites of the other three credit bureaus, you can really educate yourself and understand a lot about the credit score and the credit report and the impact it's going to have on your life. So once again, as smart consumers, this is at the top of our list of things we have to be conscious of, and make sure we're doing a good job of monitoring and keeping up with the information in each of our consumer credit reports.

When we get back, we'll take a look at some questions that came in through the website, and next week's show topic.

We'll be right back with more Saving Thousands with Robert Palmer.

Welcome back. Remember, if you have questions or topics you'd like to see covered here on Saving Thousands, you can contact me through our Facebook page at, or by calling in to my radio show every Saturday morning on 96.5 FM WDBO. I'm live on the air taking your calls and answering questions from 8:00 AM to 9:00 AM every Saturday morning. We're also in the process of launching the new Saving Thousands online community at, where you'll be able to watch past episodes and interact with other viewers.

So let's get to this week's viewer and listener questions. Tony from Lake Mary wrote in on the website, asking me about student loans and online universities. Tony has been receiving a number of unsolicited phone calls from online universities encouraging him to enroll in online classes and take on student loans in the process.

Tony, I would recommend you do your research and don't make a decision like borrowing tens of thousands of dollars to go back to school on a whim. This is a big decision, and you need to look at all the costs involved compared to how much you'll be able to increase your income with the additional education. Also look at the school's default rates on their existing student loans, and their success rates for graduation. All of these factors will be good indicators of what you're getting into.

As always I like to take viewer questions for future topics. So Tony, I'll be doing additional research on this topic and covering it on a future show. I think education is very important, but it still should be subject to shopping around and making good consumer decisions.

Another question came in asking about the minimum credit score needed for a mortgage loan. A lot of people are interested in buying homes right now and credit is a hot topic. Well, to get the best rates and terms on a mortgage, you need to have a credit score over 740. If you don't have the credit score of 740, but at least have a 660, you can qualify with most mortgage lenders. And once you get to a score that's lower than 660, down to around 580, you'll be greatly limited on your choices and on the lenders you can work with, and most likely will pay increased costs.

And unfortunately, once you get below a credit score of 580, being approved for a mortgage loan almost becomes impossible. If you do have a low score though, you can use the tips from today's show to request your credit report and identify the problems so you can begin correcting them to increase your score.

When we get back, I'll share my personal story of identity theft and the run-in I had, as well as talk about next week's show.

We'll be right back with more Saving Thousands with Robert Palmer.

Welcome back. Today's show is particularly important to me, because in addition to knowing how important good credit and a good credit score is, I've had a personal run-in with identity theft a few years ago. And thanks to the credit monitoring and my understanding of credit reports and credit scores, I was able to react very quickly.

I had someone take my identity and apply for credit cards at a number of department stores, and then they bought gift cards with the credit cards they were approved for. Their plan was to resell the gift cards and stick me with the unpaid credit card balances.

Well, because I was notified immediately of the unauthorized activity on my credit file, I was able to contact the stores and the police and put an immediate stop to the scheme. The police told me that had I not acted so quickly, it could have been a much more difficult process to get it resolved. So even though I personally pay the $15 a month to have my credit report monitored, it saved me thousands of dollars in frustrations once upon a time when I was able to avoid this credit score and credit fraud scheme that tried to steal my identity.

So again, credit monitoring is very important, as is being aware of everything going on with your credit report and your credit score. And if you are shackled with a low credit score, information is power. The best thing you can do is request your copy of your free credit report, so you can start making the changes.

Like we talked about, it's very important to pay all of your accounts on time. This is a very large factor in your credit score. Next, it's very important to keep your balances low, compared to your total credit limits. And then finally, keep an eye on how much new credit you're applying for and how many times your credit's being pulled.

If you follow these simple steps that we talked about on today's show, within six to nine months, most people can quickly get their scores up to where they can apply for a mortgage loan, get better rates on their car loans and credit cards, by getting that credit score up into the high 600s or even low 700s. All it takes is a little bit of time of paying on time and keeping those balances low and you too can succeed when it comes to credit.

And as always, thanks for tuning in to Saving Thousands. I'm your host Robert Palmer. I hope you can use today's tips to help save thousands by making sure your credit report and credit score are as good as possible. See you next week right here on central Florida's local TV 27 at 10:00 AM. Have a great rest of the weekend.

Be sure to join us again next week as Robert Palmer shares more ideas on how you can save thousands while making everyday decisions. That's next Saturday at 10:00 AM, right here on central Florida's TV 27.