Remember the old Jimmy Stewart movie, “It's a Wonderful Life”? It's Christmastime in early 1940s small town America. Stewart plays a banker at a savings and loan who has loaned money to the poor to help them build decent homes. Now he faces ruin at the hands of a heartless Lionel Barrymore, who has found a misplaced bank deposit, called in the auditors and started a run on Stewart's bank. But the "little people" who Stewart put his faith in prove him right. They stream in with their dimes and quarters and dollars to bail him out.

Fast-forward half a century. A computer has replaced Jimmy Stewart. Whether you get a loan to buy a home CAN depend on a computer-generated credit score that compares certain things about you. Things like how much money you earn, how long you've been using credit and whether you've made payments on time determine your credit worthiness.

The lender wants to know, ‘If I lend money to 100 or 1,000 or 10,000 borrowers with these characteristics, will 90% or 95% or 99% repay?’

  For years, the entire credit scoring process was shrouded in mystery. Fair Isaac and other scoring firms said that if they revealed the scoring system -- and the exact criteria to determine that score -- their services wouldn’t be needed anymore.

In June 2000, Fair, Isaac surrendered to increasing pressure from Congress and consumer groups and released a list of the criteria it uses to determine credit scores. In addition, the company plans to develop a web feature so you can check your own score.

The five main criteria are:

• Your payment history payment history on credit cards, retail accounts at stores, installment loans, and mortgages. 35% of total score
• Amounts owed. What is important is how many accounts have balances and how much of the total credit line is being used on credit cards and other "revolving credit" accounts. 30% of total score.
• Length of credit history. That’s why parents should help children establish credit histories before they go out on their own. 15% of total score.
• New credit. Applying for too much new credit is one of the easiest ways for people to inadvertently harm their credit score. (10% of total score)
• Types of credit. This takes into account your mix of installment loans, mortgages, retail accounts, credit cards and finance company accounts. (10% of total score)

The scores that companies like Fair, Isaac compile are sent to the credit reporting agencies as composite numbers. In addition to your salary and other factors mentioned above, here are some of the things that scoring agencies consider:

• Your education level. It sounds arbitrary, but it’s true. A college-educated person is given more “points” than a high school graduate, for example.
• The number of years you’ve lived in a single location. If you’ve moved around a lot, you lose precious points. If you’ve moved because of a better-paying job, you can recoup some of those points if your salary has increased, for example.
• The number of years you’ve worked for a single employer. Scoring agencies like people who are stable. That’s why they assign more points to people who’ve lived in a particular place for several years or who’ve worked for a single employer for many years.
• Are you a homeowner? If you are, you get additional points. Renters are considered more transient and less reliable to repay their loans.

If all of this sounds arbitrary or unfair, remember that scoring systems have allowed department stores and other lending agencies to offer those “on-the-spot” credit approvals. You know the routine. You fill out some basic information on a card and five minutes later (if the computer is working properly), you’re either approved or disapproved for a loan.

Credit scoring spurs growth
Credit scoring has helped fuel the economic boom of the 1990s because it allowed those who grant credit to grant much more of it -- 20% to 30% more, by some estimates -- than they otherwise would have.

Credit at lower rates is available to a broader spectrum of American consumers than anyone could have imagined just a generation ago,.

There are a lot of elements stored in the computer.

Even a fairly simple credit scoring system is likely to have 10,000 or 20,000 different possible combinations. That's a lot of information to keep straight. What if it gets scrambled up?

OK, YOU know it isn't realistic to think that Jimmy Stewart is going to loan any of us the money to buy a home today. But he's worried about your financial viability -- your ability to borrow money, get a job, buy a home or rent an apartment. It all depends on a database that’s supposed to be fail-safe. Howard's favorite movie is "Dr. Strangelove," the Cold War satire in which a mad U.S. general finds a loophole that allows him to launch a nuclear strike against the Soviet Union. So back in the real world, could this one credit database have a flaw that could destroy your hopes of buying a new home?

You’re about to know more
Some things would seem obvious in credit scoring. A high income earns more points than a low income

Fair, Isaac is only part of the process. Once the company processes a score, it is then transmitted to the lender, which makes the ultimate decision on whether a credit application is approved or denied. Lenders insist that the scoring system does not unfairly hurt minorities, but simply reflects overall lending histories.


How to improve your score

But, of course, we will try to improve our credit scores, won't we? There are certain things we do know. Fewer credit cards are better than several cards. Paying on time is a must.

Some of the things that weigh heavily are stability -- both at home and on the job -- and a good payment history.

 The figures shown here are estimates. When trying to figure your credit grade, keep in mind the following principles:

 Other Things Being Equal

When your have bad credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation and assets play a larger role in the approval decision.

Worst Case Scenario

When determining your grade, various combinations are allowed, but the worst case will push your grade to a lower credit guide. Late mortgage payments and bankruptcies and foreclosures  are the most important.

Going Once, Going Twice

Credit patterns are very important. A high number of recent inquiries and more than a few outstanding loans may signal a problem. A "willingness to pay" is important, thus late payments in the same time period is better than random late payments as they signal an effort to pay even after falling behind.

The scoring system looks at how close you are to the limits on your cards, what you spend money on and how much you ask for in cash advances. If you are above 50% of your limit, this may adversely affect your score. It is better to have two cards, each with say 49% of the limit, instead of having one card with 98% of the limit. If your balances are high or close to your limit, you can call your credit card company and ask them to increase your credit limit. It is better to have a balance of $2,800 on a $10,000 credit limit than to have it on a $5,000 limit. Bankers are funny that way. Pay attention. But don't despair.

For people with damaged credit …

If you don’t have a credit card, you should open an account, charge something,

and pay promptly. You must have open trade lines (credit accounts) with a good

payment history to get a favorable score. If you are having trouble getting approved,

open a secured credit card. This is where you make a deposit in the bank and they

 issue you a credit card up to the amount of the deposit. If you pay your bills on

 time,  they will probably increase your credit limit to one and one half or two times

 your deposit. This is especially helpful to people who have had a recent bankruptcy.

The best-secured credit card program I have found is Old Orchard Bank, WWW.ORCHARDBANK.COM. You can also find them at

 WWW.EXPERTCREDIT.COM. Check them out if you need them.

 Department stores tend to have more liberal credit policies than banks. They want you to spend money in their store. Hence, they are eager to issue new credit cards. Stores such as Filenes, Lowes, JC Penny, and Sears all have credit cards. Oil cards from Mobile, Getty, and Shell are also a good place to start or rebuild your credit.

 You can also take out a secured personal loan. This is where you make a deposit at a bank and take out a personal loan using the deposit as security. This may sound foolish, but remember that you are trying to build up your credit score, not actually borrow the money. An increased credit score could save you many thousands of dollars in interest payments when you decide to purchase a home.

 Car dealers must sell cars. They must move that car off the lot and will provide liberal financing to people to do so. If you need a new or used car, consider financing the vehicle. Pay off the loan in a few months and have points added to your credit score.

 Another excellent method of improving your credit score is to get someone to allow you to become an authorized user on their account. Ask a relative or close friend. Thusly, you inherit their good payment history. If you want, become an authorized user, receive a credit card on someone else account, and then cut

 up the card. This will add many points to your credit score. (Cutting up the card won’t, but being on the account that is in good standing will).

 A word on credit councilors and debt adjusters. Some of these agencies will offer to negotiate down your balances and put you on a payment program. Be careful!. Entering into such an arrangement will most likely lower your credit score a lot. 

 If you have derogatory information on your credit report, consider disputing it. Write a letter of dispute to the credit agency explaining why you do not owe the money or were late making a payment. If you do not owe the money for whatever reason, you should dispute it.

 If you owe money to a creditor and have been late with your payments, and are in a position to make payments or pay off the entire debt, contact the creditor and try to cut a deal. In exchange for regular payments. Ask them to report your account to the credit agency as paid on time or paid in full. Creditors want to get paid. They do not want to ruin someone’s credit or get sued.You can ask them for a release, in writing, of the late payment history and then report it to the credit bureau.  

 In the case of utility bills, you may be able to have a portion of the bill forgiven. Check out the available programs. A letter with a big sob story and an offer to make payments may persuade the utility company to report your account as paying on time.

 Wireless companies that have you sign a contract may forgive any penalties if you sign back on with them, paying for any time used. You can ask them to release you from any lates and get such lates taken off your credit report. Maybe there was a misunderstanding with the service. An angry customer is bad for business.

 Late payments may be taken off with a letter to customer service. Sometimes a payment will take two weeks to get there. This is clearly not your fault. If this is the case, dispute it to customer service and to the credit agency. I was having a problem with my mortgage payments getting to the lender on time even though I had been mailing them two weeks ahead of their due date. I reverted to overnight express mail but did not like the cost and the hassle of having to go to the post office to send the payment. I switched to auto pay so the mortgage payment is now deducted from my checking account. End of problem.

 In the case of medical bills, it is a fact that hospitals, doctors, medical facilities charge self paying patients up to four or five times what they charge social security and private insurance companies for medical procedures. Their excuse for this is that they offer a discount for volume business or for a virtual guarantee that they will get paid. I personally don’t accept this. If you feel that you are being cheated or gouged, you should dispute the bill, item by item. Always get an itemized medical or hospital bill. You may be able to negotiate the bill down to a reasonable level, even without going to court or hiring an attorney. If you do end up settling, even if you have been late with your payments, you can write a letter asking the doctor or medical facility to report you as paid on time. Some of them will have mercy on you and help you out. 

 You can have derogatory information removed from your credit report by using the services of an agency that specializes in that sort of thing. The money they charge may be worth it if it helps you get a lower rate on a mortgage. Ask your loan officer for references.

 You should get a copy of your credit report and review it carefully. Check for inaccuracies. If you have incurred a business debt and the debt is more than six years old, you may be off the hook, due to the statue of limitations. If you have a judgment against you, they are usually good for 17 years. Check with an attorney. If you have gone bankrupt, all debts included in your bankruptcy should read as discharged in the bankruptcy on your credit report. Creditors do not always report them as having been discharged. You may have to do some work. Student loans are not dischargeable through bankruptcy in the State of Connecticut. They are, however, dischargeable in the State of Florida. Certain stipulations apply.  

 If someone is reporting clearly erroneous derogatory information about you, you can file a complaint against them through the Connecticut Department of Consumer Affairs, the Connecticut Banking Commission, and the Connecticut Attorney General’s Office. I’d also throw in the Better Business Bureau and the local Chamber of Commerce, and also a few newspapers. But remember, you must be able to prove that you are right and have made an effort to resolve the dispute.

 Finally, it is possible to sue away the derogatory information on your credit report if it is incorrect. If someone says that you owe them money and you don’t and they do not have a valid claim against you, you can sue them. You simply sue the organization reporting the derogatory information and the credit agency. You must provide proof and prove your case. Before doing this, you should at least consult with an attorney. I would ask the judge to order the derogatory information be removed from the credit report and for the judge to award punitive damages for defamation of credit and an unfair trade practice. You can sue in small claims (Connecticut) where the limit in damages is $3,500 in Connecticut or in Superior Court where damages are virtually unlimited. You will probably need a lawyer to sue someone in Superior court, so it is not something to rush into. You should also consider that the other party will probably press their claim in court. You will probably be sued for the money they say that you owe. They, of course will have to prove that you owe the money. If they win, you now have a judgment against you which is more that just someone saying that you owe money. If you win and they loose, they are prohibited upon penalties from the court, from saying that you owe them anything. If the judge says that you owe nothing, guess what? You owe nothing.

If you are concerned about your credit report, the first step is to obtain a copy from each of the three major agencies:

EQUIFAX                              http://www.equifax.com

PO Box 105873
Atlanta, GA 30348
800-685-1111

Experion                                 http://www.experian.com

PO Box 2002
Allen, TX 75013
Consumer Credit Questions
888-EXPERIAN (888-397-3742)

 Trans Union                          www.transunion.com

Post Office Box 2000
Chester, PA 19022
(800) 916-8800
(800) 851-2674

 This is often referred to as a tri-merged FICO credit report. You can contact the agencies directly, or use a service like WWW.MYFICO.COM. They offer some interesting products, but also charge a fee. There is also a service through WWW.IDENTITYGUARD.COM, where you can get three credit reports, including scores, for three months for $24.95. Pulling your own report will not affect your credit score.

 Improving your score does take time – two weeks, six months, two years, depending on the circumstances. The most common timeframe after the information on the credit report has been corrected or changed is 45 to 60  days.  If someone offers to improve your score overnight and especially for a large fee, forget about it. Contact your loan officer to get some reliable advice.