When I was 18, I went to Barnes Bank in Kaysville to get a loan. I was taken into the bank manager's office. My father was with me. I filled out a long questionnaire about my job and personal information. The banker wanted to know my ties to the community, how important it was to honor my commitments and why he should trust me to pay back the small loan I was requesting.
He hemmed, he hawed. In the end, he decided he would give me the loan, if my dad would co-sign.
The halcyon memories of the past have vanished. Now, getting credit can be determined by the checkout clerk offering you a 10 percent discount if you apply for a card now. Or you can get credit by filling out a form online and never talk to a real person.
Why? Well, like everything else, granting credit has been taken over by the computer. The credit score, particularly the FICO score, is king of the heap.
What does a credit score represent, and what is it based on?
The credit score, in general, is nothing more than a numerical representation of the odds on whether you will make all your payments in the next 90 days. The score is based only on the information contained in a credit report.
Credit reports contain no information on your job, your income, your savings and your connections to the community, all those things that the banker wanted to know about me 30 years ago. The credit score calculation doesn't even consider how much money you make or if you have a job.
Now, the credit report is fed into the ravenous computer, digital machinations take place, and out pops a brand-new credit score every time you run the report.
The score is based on a statistical analysis of past payment history, new credit requests, existing accounts and balances, types of accounts and the length of the credit history. It is the ultimate reduction of the human equation to a cold and lifeless number.
What is the best way to improve your credit score?
Show income on your credit report. I know, I just said that your income doesn't show up on your credit report, but there is one way to show on your credit report that you have money -- have lots of unsecured credit lines that you aren't using.
The twisted thinking of the credit-scoring folks is that, if you have lots of unsecured credit lines (i.e., credit cards) that you aren't using, then you must have plenty of money and, if worse comes to worse, you can always use those credit cards to make the payments.
The converse is also true. If you max out those credit lines, then it looks like you are strapped for cash and you can kiss your credit score goodbye.
The legal protection for consumers is the Fair Credit Reporting Act, which is designed to allow people to protect their own credit.
E. Kent Winward is an Ogden-based attorney. He can be reached at 801-392-8200 or at firstname.lastname@example.org.