Your credit score is affected by various factors


I pulled my Equifax FICO credit score today and it's gone up 41 points. Great, right? Well, it would be, but I couldn't find any changes in my report that would have caused it. I shouldn't complain but I'm astounded by the capriciousness of it. What if I had applied for a loan last week and been denied? Is this new, higher FICO score, which might have gotten me approved, actually my correct score?

Your confusion about credit score changes is shared by many, including some lending professionals. Mortgage brokers regularly complain to Fair, Isaac & Co., the company that developed the FICO credit score, that clients' scores have dropped or soared seemingly without any changes in the underlying credit reports. (Credit scores, which are used by lenders to determine creditworthiness, are three-digit numbers computed from your credit history information.)

"When we get the brokers to fax us the before-and-after credit reports," says Fair Isaac spokesman Craig Watts, "we usually find that factors such as account balances have changed. The brokers didn't notice the changes because they didn't expect those elements to be a factor."

Credit account balances can affect a score in a variety of ways. Typically, the bigger balance you carry on your credit cards and other loans, or the more you charge in a given month, the more points are subtracted from your score.

Account balances are not the only details that change. Your credit file ages every day, and in the world of credit scoring, that's usually a good thing.

The FICO score factors how long you've had each account, the average age of all your accounts and the age of any delinquencies or other negative information. The FICO formula adds points when you consistently pay your bills on time and subtracts fewer points as your old delinquencies get older. The longer you've had credit and the longer it has been since you've had any problems, the better your score.

The best way to make sure you have the most "accurate" score is to make sure the information in your underlying credit reports is correct.

It's smart to request your credit reports from the three major bureaus - Equifax Inc., Experian and TransUnion - at least once a year. The bureaus provide forms so you can challenge any errors or information that should be removed, such as late payments that date more than seven years or a bankruptcy filing that's older than 10 years.

And the most reliable way of making sure you have the best score is to handle credit wisely: Pay your bills on time, don't apply for credit you don't need, don't max out your credit cards, pay down your debts.

Over time, your responsible use of credit will help you achieve a score that will make any lender happy to do business with you.

I am a 50-year-old single man living with my father. I pay no rent and do not own a home. My assets exceed the limits of my automobile liability insurance policy and I would like to purchase umbrella liability insurance. But I am told that I must either own a home or purchase renter's insurance to obtain umbrella liability coverage. Why is a home collateral for such a policy? Is it possible to obtain such insurance by merely paying an insurance premium without meeting homeownership requirements?

Umbrella liability policies have become increasingly important as more people accumulate wealth. These policies are usually designed to fit over your homeowners and auto policies like a sunshade, kicking in when the liability component of those policies is exhausted.

Say you cause an auto accident and get sued. The other driver's lawyer is probably going to be able to make a pretty good guess about how much you're worth - and try to get a good chunk of it. If you're successfully sued for $1 million and your auto liability insurance maxes out at $300,000, the umbrella policy would provide the extra $700,000.

That's why financial planners recommend you get liability coverage that at least equals your net worth, and some recommend getting two or three times that figure.

But most insurance companies want you to have your auto and homeowners coverage with them before they'll write an umbrella. Because umbrella policies are relatively cheap - $150 to $200, these insurers often don't think it's worth the bother unless they have the other, more lucrative business.

There are, however, companies that write stand-alone policies. If your insurance agent doesn't know them, you could seek out an experienced insurance broker who deals with wealthy clients.

Or, says insurance industry spokeswoman Candysse Miller, you could just go ahead and purchase the renter's insurance so that your current company will provide the coverage. Miller, who heads the Insurance Information Network of California, points out that renter's insurance is relatively inexpensive and could provide the coverage you need.

Liz Pulliam Weston is a contributor to The Los Angles Times, a Tribune Publishing newspaper.

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