In today’s world, your credit score is one of the most important issues to understand and be aware of. Most lenders, no matter what you are buying make their decisions based on your credit score, but more importantly, your credit score in many cases will determine the interest rate you are charged. I have researched credit scores and am pleased to bring to you the results of my findings combined with years of experience.
SO WHAT IS A CREDIT SCORE EXACTLY?
It is the number that creditors use to help them decide whether to extend credit to you and also what rate of interest to charge you. In most cases, the lower the credit score, the higher the risk. There are numerous types of credit scores, but the most prevalent is the credit bureau score. The credit bureau score is based solely on the information contained in your consumer credit reports. Most credit scores are based on calculations by Fair, Isaac and Company. Over time, they developed the scoring model that is most widely used. If you hear the term FICO score, this refers to Fair, Isaac and Company.
WHAT DOES MY CREDIT SCORE DO FOR ME?
It gives lenders a quick and easy way to determine your probability of repayment. Before credit scoring, the task of obtaining a loan was slow and cumbersome and frankly relied on the person’s judgment that was making the decision. Since credit scores have become widely used, loan processing has become quicker, fairer, and has had an effect on lowering rates. Not all lenders, however, base credit decisions solely on your FICO score. Many, like Ford Motor Credit, consider other criteria like job time, residence time, down payment and other factors to determine whether or not to extend credit.
SO WHAT IS A GOOD SCORE TO HAVE?
I have seen scores range from the low 400’s to well past 800. Again, the higher the score, the better the credit rating. Most lenders use a break of somewhere around 620 as the determining factor of a regular loan versus what is called a “subprime” or high-risk loan. Some lenders will not extend credit to people with under 620 credit scores and other lenders will do those loans but at a higher interest rate. A few lenders do automatic approvals for people with 750 or higher scores with no questions asked.
AREN’T THERE SEVERAL DIFFERENT CREDIT BUREAU AGENCIES?
Yes, there are three primary credit bureau companies. There is Equifax, Experian, and TransUnion and each of them refer to their credit scores by different names. At Equifax for instance, their score is called the BEACON score. At Experian, it is the Experian/FICO score and at TransUnion, it is called EMPIRICA.
HOW DO I FIND OUT WHAT MY SCORE IS?
You can purchase your FICO score right over the Internet at either www.myfico.com or at www.equifax.com. Besides your FICO score, you will get your entire credit report, details on how to read your report and ways to raise your scores.
WHAT MAKES UP MY FICO SCORE?
Generally, there are five criteria that make up the score. The biggest driver is payment history…how you have paid your bills. This accounts for 35% of your score. 30% of your score is based on the amount of money you owe lenders. The length of your credit history makes up 15%, new credit makes up 10% of your score and finally, the remaining 10% is the types of credit you use. Things that have NO effect on your score is: race, religion, sex or marital status, your age, length of employment, job description, where you live or any items reported as child or family support. Also, unless it is on your credit bureau, it is not taken into account to arrive at your score.
HOW CAN I RAISE MY SCORE?
Paying your bills on time will help dramatically since we know that credit history is the biggest contributor or detractor to scores. Keep your balances low on credit cards. Do not apply for credit unless it is absolutely necessary. And be sure your credit report is accurate…many mistakes are found and must be corrected to immediately impact your score. By law, all three credit-reporting agencies must respond and report back to you within 30 days if you challenge any information on your credit report.
WHAT ARE MOST PEOPLE’S FICO SCORE:
Here is a break down of where most American’s currently score:
- Less than 1% have scores under 500
- 5% have scores of 500 to 549
- 7% have scores of 550 to 599
- 11% have scores of 600 to 649
- 16% have scores of 650 to 699
- 20% have scores of 700 to 749
- 29% have scores of 750 to 799
- 11% have scores of 800 or more
Other interesting statistics:
- The average consumer has 11 credit obligations on their report
- Fewer than 4 out of 10 consumers have ever been more than 30 days late on a payment
- 2 out of 10 have never been more than 60 days delinquent
- Less than 10% have had an account closed due to default
- 48% of credit card holders owe less than $1000 on their cards
- The typical consumer has access to over $12000 in credit, but over 50% of them use less than 30% of what is available
HOW LONG DOES INFORMATION STAY ON MY CREDIT REPORT?
Good or bad, it is with you for seven years unless it can be proven that it was a mistake.
WHAT IS AN INQUIRY?
This is the record of any person who has checked your credit report. This is another good reason to check your credit report yearly. A lot of inquiries will lower your FICO score because it shows you are applying for new credit, however, inquiries will not drastically change your score. If you have inquiries from mortgage lenders or automobile dealers in a short period of time, this will not affect your score. Their systems consider this as one inquiry and recognize that you are shopping for a specific product.
WHAT IF I AM DENIED CREDIT?
If you are turned down for credit, the lender must notify you in writing within 30 days the reason you were turned down. At this point, you have 60 days to request a free credit report from any of the credit reporting agencies. The Equal Credit Opportunity Act covers both of these.
To get a copy of your credit reports, here are the contact numbers:
- Equifax (800) 685-1111 or http://www.equifax.com/
- Experian (888) 397-3742 or http://www.experian.com/
- TransUnion (800) 888-4213 or http://www.transunion.com/
To just find out what your FICO score is, go to
To read the Federal Trade Commission rules on the Equal Credit Opportunity Act, go to:
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