Incarcerated people have a diverse range of experience with credit. Some people have excellent credit, others have had little success with credit, and there are some people who have never acquired credit. This article is the first in a series about basic financial literacy for the prison population, so that when we return to society, we will understand the basics of financial literacy.
This editorial will discuss what credit score is and why it’s important. You’ll also learn a few ways to receive your credit score.
To understand the importance of credit, let’s first understand what credit score is and how it is determined.
When a person asks, “what is your credit score?” what they are truly asking is “What is your FICO score?” A FICO score is a three digit number that lets lenders know how much money to loan you and if you will repay that loan. So, in all, it’s a summary of how much credit you have, how long you’ve had it, how much of it your using, and are you paying back what you borrowed on time.
Credit scores range from 0-580 (a risky borrower), 580-669 (low but can get a loan), 670-739 (considered good by most lenders), 740-799 (demonstrates dependability), 800+ (an exceptional borrower)
There is a new category of credit score called an UltraFICO score for people who have low or no credit score. There are two differences when comparing the UltraFICO score to the traditional FICO score, which only uses the credit report data.
The first key difference is the UltraFICO scores uses banking habits in combination with the data from your credit report. These habits include how responsibly you take care of bank accounts. For example, how long you’ve been with a specific banking institution, how many transactions you make, how often there is a positive amount of cash in your account, and do you overdraw your account.
The second key difference is that you have to opt-in to generate the UltraFICO score. This is something you do by linking your banking account to the credit report.
Let’s break down the five things that determine your FICO Score.
The most important aspect of your credit score is the amount you owe. This is 35% of the score because lenders want to know that you’re paying loans on time.
The second-most important part of your credit score is the amount you owe. This is 30you’re your credit score. Owing money doesn’t mean you are a risk to the bank or lender, however your frequently opened credit accounts and the money you owe a lender can be interpreted as you’re possibly living beyond what you can afford and they may not get their money back.
The length of time you’ve had credit in the past accounts for 15% of your credit score. This includes the age of your oldest account, any new accounts, and the average age of all your accounts. The length of credit is a plus but it is not a requirement for good credit.
Establishing new credit or requesting loans in a short period of time account for 10% of your credit score. Bankers and lenders may see these as the warning signs of a risky loan, especially if you do not have a long credit history showing that you can pay back these requests.
FICO Scores take into consideration your diversity of credit sources. Establishing credit from a retailer, bank, credit card company, or receiving a mortgage loan accounts for 10% of how your score is determined, but it is not necessary to have one of each.
Now that you know a little about your credit score and what it consists of, let’s focus on how to request your credit report as an incarcerated person.
According to the Annual Credit Report Request Form, you have a right to receive your credit report once every 12 months. It is important to request a credit report, even if you have never used credit before your incarceration, because it is possible for someone to use the identity of someone who is incarcerated to establish credit in their name because you are not tracking your credit score.
There are three ways to receive your free credit report.
1) For instant access, you can have a trusted family member or friend fill out your credit report request form online at www. annualcreditreport.com They would enter specific information like your Social Security Number and your last known mailing address to access your credit report.
2) Your trusted family member or friend can call (877) 3228228 to request your credit report.
3) You can also mail a request form to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA. 30348-5281. (Include mailing option and what needs to be included)
