All that's to your credit

NEA Today, Jan 1999 by Rowland, Mary

Who figures out if you're credit-worthy? A cold, calculating computer. Here's how.

Suppose you ran up several thousand dollars worth of debt as a college student. For a time, you couldn't even make the minimum payments, but you whittled away and eventually paid off the entire balance.

Now you're a college graduate (with honors) and have a good job in a great public school. Choose the statement that best describes your situation:

a. You are guaranteed the right to a low-interest-rate credit card.

b. You may have to pay a higher rate for your card.

c. You might get a credit card, you might not.

The answer is "c." Credit is not a right. Even if you have a clean record, it doesn't mean that you can get a card. Fair or not, that's the way credit works.

And you need credit. Your credit record determines not only how much you pay for your purchases, but also whether you can rent an apartment or a car, get a job or a mortgage.

Credit today depends not on your integrity, but on a computer-generated credit score that compares certain things about you-like how much money you earn, how long you've been using credit, whether you've made payments on time-to other groups of people who have repaid their loans.

"The lender wants to know, `If I lend money to 100, or 1,000 or 10,000 borrowers with certain characteristics, will 90 percent or 95 percent or 99 percent repay?"' says Peter McCorkell, senior vice president at Fair Isaac, the leader in developing these scoring systems for lenders.

Both the score and the statistics that go into it are top secret. "If a borrower knows he needs 10 more points to qualify for a particular loan and that closing two bankcard accounts will raise his score by 12 points, he can go out and close two accounts today," McCorkell explains.

If you get a bad score and you're turned down for credit, you can't find out what pulled it down. Some things are obvious-paying on time gives you more points than paying late. But a low income can give you a lower score, too. Critics say that this scoring system discriminates against minoritiesmuch like redlining in other industries.

So how do you improve your credit score? In The Ultimate Credit Handbook, Gerri Deitweiler says, "The more you look like other people who pay their bills on time, the more likely it is the computer will approve your application."

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

"But don't despair," Deitweiler says. "Even if you are head over heels in debt, you can rebuild your credit and improve your score."

If you have a lot of available credit out there, you can reduce your score by closing some accounts. But the best way to improve your score is to pay your bills regularly-and on time.

-Mary Rowland

Resources

Managing debt is often easier said than done. Before you know it, it seems you have more expenses than money to pay for them. Or you get hit with a major repair bill.

Whatever your situation, the NEA Credit Plan can help make your debt more "manageable." You can borrow from $3,000 to $25,000, with repayment terms from 24 to 84 months.

And there's no collateral required. So, whether you're looking to consolidate your bills, pay down high-interest debt, or finance a major purchase, you may want to consider the NEA Credit Plan.

For more information, call an NEA Credit Plan representative, 800/4687632, seven days a week, 8 a.m. to midnight, ET.