Book Review – Your Credit Score

If you spend much time listening to personal finance advice, you’ve probably heard about your ‘credit score’. It supposedly affects everything from how much interest you pay on your credit cards and your mortgage to the amount you pay for your insurance. But what exactly is this credit score, and how can you make sure you max out your score as much as possible?

Your Credit Score seeks to answer those questions and help you to improve your credit life. The author, Liz Pulliam Weston, goes through what the credit score is, how you can improve it, and what to do if something goes wrong with your score. Is this advice helpful in improving your financial life, or does it leave you trying to find where to turn it for credit? Let’s read on and find out!

Summary

Your Credit Score opens with a chapter providing the basics of the credit score. There is an example story showing how a good credit score could save you hundreds of thousands of dollars over a typical lifetime. There’s also a short history of credit scoring, as well as some of the controversies that still face the credit scoring process. Chapter two looks at just how the credit score is calculated, and provides the range of scores available. There’s also more coverage of the five factors that determine your score, namely: your payment history, the percentage of your credit available, the length of time you’d had credit, your new credit applications, and the types of credit you use.

Chapter three looks at how to improve your credit score, looking at several things you can do to boost your score. From paying your bills on time to applying for new credit sparingly, each of the credit score factors are reviewed and suggestions given to improve your score. On the other end, the fourth chapter looks at some of the myths about how to improve your score. From lowering your available credit to getting credit counseling, some things that do NOT affect your score as people claim are covered, to help give you a heads up.

The fifth chapter looks at how to handle a credit crisis, a situation where you suddenly find yourself with a lot of outstanding debt that must be paid. There are several options that are discussed, from paying off the debt on your own to getting credit counseling to filing bankruptcy. Chapter six continues the topic, explaining how to recover from a credit crisis like above. There are numerous issues covered, from dealing with your creditors (including some who may not be the original creditors) to improving your credit score once you have things squared away.

Identity theft is increasing a problem in the modern world, and the seventh chapter looks at the issue more closely. There is some advice on how to minimize your chances of having your identity stolen (while warning that there are many factors outside of your control), and how to handle the situation if your identity is stolen. Chapter eight, entitled ‘Emergency! Fixing Your Score Fast’, looks at, well, exactly what the title says. There are some useful quick (meaning, in a month or two, not overnight) methods to boost your score given, and some ways, often suggested by shady advisers, that simply don’t work.

Chapter nine looks at how your credit score can end up affecting how much you pay for insurance coverage. It covers what goes into an ‘insurance score’, as insurance companies try to gauge how likely you are to make claims (and cost them money), as well as some general means of saving money on your insurance costs. The tenth and final chapter looks at how to keep your credit score healthy. There are some do’s (pay off your balances, keep an emergency fund, have adequate insurance) and some don’ts (don’t take on too much mortgage debt or student loans, don’t use retirement funds to pay off credit cards) covered. There’s also advice for handling credit during a divorce, even if your ex-spouse isn’t overly cooperative, and the book closes with the three-year rule (not borrowing any money, save for student loans and mortgages, that can’t be repaid in three years).

Pros

Your Credit Score is a really interesting, easy to read guide to credit scores. It answers many questions about credit scores that a reader might have (including some that didn’t even occur to me), and shares a great deal of advice. Just about every issue relating to credit scores is covered, up to and including identity theft and insurance coverage.

Cons

Much of the advice is easy to find elsewhere, including in Weston’s article. Some suggestions are also a bit questionable, such as being sure to regularly use each credit card to keep it from being closed. The view of bankruptcy is a bit optimistic, particularly compared to some discussions of the issue.

Overall

Your Credit Score is a pretty solid introduction to the how and why of credit scores. A few of the pieces of advice are a little bit off, but for the most part, it’s an impressive read. If you are still confused on this credit score issue, I highly recommend it.