While credit scores in different states are computed using the same formula as long as they are from the same credit reporting agency, your credit score may differ depending on the state you live in. This is because of the states’ different laws on the statute of limitations. The Fair and Credit Reporting Act takes measures to protect consumers, but it does not preempt state laws regarding the statute of limitations unless they are in violation of the Act.
This is particularly important if you have any long-term unpaid credit balances, or have had any problems with credit in the past. The difference among the states’ statute of limitations will affect the length of time your negative information will appear in your credit report. This, of course, will in turn affect the computation of your credit score.
The Fair Credit Reporting Act states that civil suits, judgments, and records of arrest will appear on your credit report for 7 years or until the state’s statute of limitations expires, whichever is longer. So if there’s a lawsuit or judgment against you – a foreclosure, for instance – and you’re living in Florida, that foreclosure will remain in your credit report for 20 years and may be re-recorded for another 10 years. If you’re a Wyoming resident, it will take 21 years before this disappears from your report. On the other hand, if you live in Idaho where the statute of limitations on judgments is 5 years, then it will take 7 years before this is erased from your credit report unless it is renewed for another 5 years.
How does this affect your credit score? There are five areas considered in the computation of your credit score: your payment history, which accounts for 35% of your total score; your debts, 30%; your credit history length, 15%; new credit, 10%; and other factors such as the mix of credit types you use, 10%.
Public record items such as judgments, bankruptcies, wage attachments, liens, foreclosures and suits fall under, and are included in the Payment History category. These are considered very serious items. If you have any of these on your credit report, these will definitely pull down your credit score.
The best way to avoid this is first, study the statute of limitations on credit reporting in your state; second, if you have any unpaid balances or outstanding debts, try to pay them off in full; and third, avoid incurring huge long-term debts that will be difficult for you to pay off.
Your credit score affects your purchasing power, and that purchasing power also differs depending on the state where you reside. A study conducted by Experian showed that the average credit score differs from state to state. As of November 2008, Minnesota ranked the highest with 722, while Texas had the lowest average credit score at 699. This means that if your credit score is higher than the state average, you will find it easier to get approved for new credit, and will also likely be offered lower interest rates.
Note that in the past, a credit score of 680 was considered a favorable rating to get good interest rates on mortgages, but since the subprime mortgage fallout, which started in 2007, lenders informally raised their asking score to 720 or higher. If you’ve got a credit score above 720 and you want to apply for a home mortgage loan, then your chances of getting approved are higher.
The bottom line: the higher your credit score is, the better your purchasing power will be. It does pay to have a good credit score, and the hard work involved in getting it to that high ranking is well worth it.
Comments
sam March 7, 2009 11:19:57 AM 11:19 AM I didn't know that credit scores are different in different states. Thanks for letting everyone know that. No one can have perfect credit score I think but we can always maintain good score.
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