Reprinted from Daily Journal

Offering solid, financial solutions
By PAM CLIFTON / Daily Journal Correspondent

Editor's Note: This is the first in a several-part series on home mortgages and repairing/maintaining good credit.

It's something that should be checked at least once a year, can affect whether or not a person is hired by a new employer, and can be the biggest financial factor in obtaining everything from a credit card to a home mortgage. The answer? It's an individual's credit score.

Credit scoring is the use of a statistical model to evaluate an individual's available credit information. These scoring models take information from a credit bureau and use it to predict and determine who will most likely be -- or already are -- good payers vs. bad payers.

"One out of every three people have some credit issues," says Brad Cooper, owner of Cooper Financial Solutions. He has been helping families with credit and bankruptcy issues for more than a decade. At CooperFinancial Solutions, he and the staff focus on debt consolidation, new home purchases, refinancing of home mortgages, and a variety of other financial-related topics. Cooper is licensed under the Missouri Division of Finance.

"What people don't realize is that credit scores are so important," he says, noting that employers can actually pull credit history and deny someone a job. Cooper first attended the University of Missouri-Columbia, majoring in criminal justice, and then worked as a police officer. After undergoing financial problems of his own, he knew that his career choice had to change.

Now, he focuses on getting out "commonsense principles" to his clients who seek his financial-focused help on getting out of debt and establishing good credit. Quoting the fact that about 80 percent of lottery winners go bankrupt, Cooper is determined to do his part to get the word out on what it takes to build, establish and maintain good credit. He also stresses that "no credit today is worse than a bankruptcy.

The good news is that historically, it once took 5 to 10 years to re-establish good credit. Now, it can take as little as six months to a year. Without good credit it is difficult for consumers to become homeowners. Lenders won't allow customers to borrow if they have a poor credit history. But Cooper maintains that with hard work and good financial planning, it is possible.

First, consumers must understand what credit scores are and how to establish -- or repair -- their credit.

Credit bureau scores are calculated by what's called a system of scorecards. The scoring models are grouped into three main credit bureaus: Equifax, Experian and Trans Union. When these scorecards were being developed years ago, millions of peoples' credit information was used to perform extensive research into their credit patterns to forecast their
repayment performance.

Now, the three bureaus use up to as many as 40 different items to determine individuals' risk scores.

Credit scores range from about 300 to 900 points. That score is based on all the credit data in a person's credit profile, not just the negative data. The higher credit score is the lowest risk for default in payment, meaning the individual is most likely to pay off the loan amount or other financial sum owed.

Credit scores are constantly changing. When a lender (the person/group who allows you to borrow money) requests an individual's credit report, that report includes a number which changes on a regular basis. Opening a new account or payment updates cause a credit score to fluctuate. Credit scores vary slightly, lender to lender, depending on which type of credit model has been used.

Once the consumer's credit report has been pulled, how is that score analyzed? There are five main areas in which credit data is divided:

Past payment history

Outstanding debt utilization

History of credit establishment

Type of credit being used

Pursuit of new credit

About 35 percent of past payment history is factored into the overall credit score, while 30 percent of outstanding debt utilization is included in the total. The last three totals include 15 percent of the scoring weight for the history of credit establishment, 10 percent for the type of credit being used and the final 10 percent is for pursuit of new credit -- inquiries.

Obviously the most recent items most directly affect the credit score. Older, more isolated incidents are less likely to interfere as much with achieving and maintaining a good score. A 30-days-or-more late payment immediately indicates a higher risk vs. a 30-days-or-more late payment that is 3 years old. Past-due items definitely impact an individual's credit score, but paying off a past-due payment has an instant, more positive effect on the score.

According to Cooper, consumers should request and thoroughly analyze their own credit reports at least once a year. "Nine out of 10 credit reports have at least one or more errors," he says, which should be enough encouragement for consumers to insist on double-checking their credit scores annually. "Pull all three and go through each one," Cooper says. If something is incorrect, consumers should immediately fill out the dispute form which is attached to the report.

Next, send the report to the credit bureau. At that time they have 30 days to validate that the item is correct or incorrect. If incorrect, the bureau corrects the item and sends the consumer a new copy of their credit report. Going strictly through the credit bureau to clear up errors on their credit reports is the fastest -- and legal -- way.

Under the FACT Act, all consumers are given the opportunity to request one free credit file disclosure every 12 months from each of the three national credit reporting agencies.

The credit bureaus are accessible online. For Equifax, visit www.econsumer.equifax.com. For Experian, go to www.experian.com, and www.transunion.com for Trans Union.

Cooper Financial Solutions is located at 401 W. Main in Park Hills. Consumers can call Cooper or one of the members of his staff -- Erin Seiberlich who has been employed at the business for 5 years, or Lisa Norris, who's been there for 6 years, to get answers to their credit or loan-related questions or visit their Web site at www.cooperfinancial.com

For information, call 573- 431-5286.

VIEW PART 2 OF THIS SERIES