Google
 

Credit Score

Credit Report - How Your Credit Score is Determined

Tip! Do not apply for every car, credit card, and home that you are looking at as an eager consumer. Because every time you try to purchase a home, car, or get a new credit card your credit score is checked and the crediting agencies lower your score if you have had two or three credit checks withing a few months of each other.

Most consumers are aware that they have something known as a credit report that is used to determine whether or not they would qualify for a loan. Fewer are familiar with the FICO score, a creation of the Fair, Isaac, and Co. which distills their entire credit report down to a three-digit numeral. What, exactly, is this score? How is it compiled? Can anything be done to improve it?

The FICO credit score is used by all three major credit bureaus - Experian, Trans Union and Equifax. They are the companies that keep track of the credit and lending transactions of millions of Americans. The score is used to provide, in a nutshell, a figure that represents the credit-worthiness of a consumer. That score, which ranges from a low of 300 to a high of 850, is used in many ways by businesses and employers. The score is used by insurance companies to set rates, landlords to establish security deposits, and even prospective employers to determine whether hiring someone is a good risk. Despite the importance of credit scores in their lives, few Americans understand how it works.

The score is determined by a variety of factors, each of which makes up a portion of the score:

  • Approximately one third of the score represents the individual's payment history. Previous loans, and the ability to pay them are shown in this portion of the score. Both late payments and failure to pay at all affect this portion of the score. Those who have paid all of his or her loans on time will obtain the highest scores.

  • Another third of the score is determined by current debts, and the ratio of debt to the amount of available credit. Keeping all of your credit cards at or near their limits will hurt this portion of the score. This seems obvious; those who are already near their credit limits may have trouble paying back any future loans.

    • Tip! Compare the debt consolidation loan programs that each lender can offer. If you have a very poor, low credit score like 450, 480 or 500 - your loan will be a subprime debt consolidation loan.

  • The remaining third of the credit score is determined by three factors - length of credit history, recent credit applications, and the types of overall credit in the individual's credit history. The length of the credit history is the most significant item, as lenders are more suspicious of borrowers who have not established a pattern of borrowing and repaying loans. A history of repaid loans goes a long way towards fortifying this portion of the score. Recent credit applications, particularly a lot of them, may suggest that the individual is desperate to borrow more money and may have a financial problem. Similarly, the types of credit demonstrate spending patterns and reliability. A credit report containing all credit cards may be seen as more risky than one with a few credit cards, a repaid auto loan and an ongoing mortgage.

    • Tip! An individual's race, sex, age, level of education, or marital status has no bearing on a credit score, nor does the fact that an application for credit was previously turned down.

    By seeing how a credit score is compiled, consumers can take action to keep their scores healthy. A good score helps borrower obtain loans at better interest rates, and that is something that everyone can appreciate.

    ©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a site devoted to debt consolidation and credit counseling, and HomeEquityHelp.com, a site devoted to information regarding mortgages and home equity lending.

     

    Credit Score News:

    Bing: credit score site:msnbc.msn.com
    Search results

    What credit score do I need for a mortgage?
    Mortgage lenders have gotten a lot more tight-fisted in the current credit meltdown. So just how low can your credit score be ? and still get approved?
    Red Tape - Lawsuit: Credit score sites mislead consumers
    Confused about your credit score and where to get it? That's intentional, according to a new lawsuit filed in a California federal court. Many consumers ...
    What's a credit score? Consumers still not sure - Business ...
    What's a credit score? Consumers still not sure Survey says most believe scores are free. They're not Below: x Jump to discuss comments below
    Red Tape - 5 Red Tape Traps: Getting a credit score
    You know you need to know your credit score, but how do you get it without getting shafted? Credit scores serve as the report card for consumer adulthood ...
    How can I fix my credit score? - Business - Answer Desk - msnbc.com
    Maybe it's the rising tide of spam offering "credit repair" but a number of readers have been asking how they can increase their credit score. While it's a ...
    ConsumerMan: Credit score Q&A - Business - Consumer news ...
    Your credit score controls so many aspects of your life: whether you can rent an apartment or get a car loan or a mortgage. But most of u don?t have a ...
    ConsumerMan: Your credit score - Business - Personal finance ...
    It?s the three-digit number that can have a huge impact on your life ? now and in the future. I hear from a lot of people about their credit scores. In ...
    Employment News, Consumer Tips and Job Advice - Life Inc. | TODAY ...
    Free credit score Want to know your score without paying? You can also get that for free from Credit Karma and a site called Credit Sesame. Credit Karma gets its score ...
    When your mortgage application is rejected - Business - Real ...
    Fortunately, a rejection shouldn't bring down your credit score, says Craig Watts, public relations director for Fair Isaac Corp. Making a formal application ...
    How to improve, and keep up, your credit score - Business ...
    As you prepare to shape up your finances in 2010, you'll find that improving your credit score is among the more complicated tasks. You may be bewildered ...

    Newsfeed display by CaRP

     

    Personal Finance Info

    Credit Score