You've probably heard the term credit scoring. You may have some idea that your credit score can have an effect on your life. For example, you may understand that when you apply for a mortgage, the mortgage company will check out your credit score.
But did you know that the interest rate you can get on your mortgage ?and on credit cards ? will depend heavily on your credit score? Did you know that more and more employers will check your credit score when you apply for a job, and that insurance companies may raise your premiums or even cancel your insurance based on your credit score?
So, what is a credit score and how is it calculated?
Your credit score (in some cases, it is called your risk score) is a rating of your credit worthiness or how likely you are to repay a loan and how likely you are to repay it in a timely fashion. And it can have a dramatic effect on your life.
There are three companies that gather information on how you handle credit. They are Equifax, TransUnion and Experian. They each determine your credit score based on a formula developed by the Fair Isaac Corporation but each calls its credit score something different. Trans Union calls its credit score "Empiraca." Experian calls its score "FICO," and Equifax will tell you its credit score is "Beacon."
Credit scores range from 400 to 900 with the average score somewhere around 700. This is one case where higher is not better as the higher the score the greater the risk you are thought to be.
What are the factors that make up your credit score?
There are five factors that determine your credit score. The first of these is payment history. About 35% of your credit score may be based on how late you have been paying your bills (30, 60 or 90 days). The later you have been, the more negative effect this will have on your score. So will matters that are in the public record, such as bankruptcies and accounts that have gone to collection.
About 30% of your credit score will be based on the amounts you owe. If you have, for example, a credit card that is close to its limit, this can impact your score negatively. This means it may be better for you to have a lower balance on several different cards than a large balance on one card.
The third factor in your credit score is the length of your credit history. If you have an account that has been open for a long time, this can have a positive effect on your credit score. About 15% of your score will be based on the length of your credit history.
About 10% of your credit score will be based on how much new debt you have requested. So, if you recently applied for a number of new credit accounts, your score may be negatively impacted,
Your credit score will also depend (about 10%) on the types of credit you already have. For example, if you have loans from finance companies, this can negatively affect your score.
Like it or not, your credit score will also reflect your level of education. For example, a college-educated person will be given more points than a high school graduate. How long you have lived in a single location will also affect your credit score ? for good or for bad. So will the number of years you've worked for the same employer. The companies that score your credit just plain like stable people. And finally, if you are a homeowner, you get additional points.
Is credit scoring fair? It is fair in that it does not take into account personal factors such as your race, gender, color, religion, national origin or marital status. It also does not factor in interest rates you are paying on your credit cards, nor does it include factors such as child or family support obligations or rental agreements. It also does not take into account inquiries about your credit score by employers or lenders that were made without your knowledge, or any information that could be thought of as predicting your future credit performance.
What can you do to improve your credit score?
Experts in this area suggest that you make sure you pay all your bills on time, that if you miss a payment to a creditor, you get it current and keep it current, and that if you are having trouble paying your bills or cannot pay your bills, you contact your creditors or see a legitimate credit-counseling firm.
In addition, you should keep the balance on your credit cards and other lines of credit as low as possible. And if you can, pay off your debt, and not just move it around from credit card to credit card.
Do not try to increase your credit availability by opening a number of new credit card accounts. Try to pay off the balance owed on your credit cards every month.
The credit information providers (Trans Union, Experian and Equifax) are not required to provide you with your credit score. However, they are required by law to provide you with a free credit report once a year. Moreover, the law requires that you be able to access these reports online. The web site for these reports can be found at annualcreditreport.com. Once you log onto this site, you will be asked to provide several pieces of personal information, including your full name, social security number, birth date, and current and previous addresses ... to make sure you are who you say you are.
Douglas Hanna
For FREE help with debt and credit, subscribe today to Douglas Hanna's free email newsletter "8 Simple Steps to Debt Relief" at http://www.all-in-one-info.com.
Years ago your credit score was a big secret, known... Read More
What Are Possible Signs of Fraudulent Transactions see at Web... Read More
Credit Cards can bankrupt you if you let them run... Read More
The recent security breach at credit card processor CardSystems Solutions... Read More
The three major credit bureaus, Experian, Equifax and Trans Union... Read More
Credit Cards and Loans sounds like just two things, but... Read More
Having a damaging credit record can hurt you in many... Read More
To reduce or minimize the risk of becoming a victim... Read More
Using a credit card wisely is an important step in... Read More
Obtaining a credit report is an excellent way to begin... Read More
This article is about bailiffs who may call trying to... Read More
As a young student I feared getting bad grades because... Read More
Your credit score may just be a little number, but... Read More
Identity theft is the fastest growing crime according to the... Read More
By far the greatest invention the banks have ever come... Read More
Moving money from credit card to credit card to take... Read More
Credit cards have both benefits and drawbacks. It is wise... Read More
You've probably never heard of Frank X. McNamara, but he... Read More
If you have considered credit counseling as an option to... Read More
So you ordered a copy of your credit report to... Read More
When applying for a loan to purchase a car, the... Read More
Joint debts remain joint debts.Both spouses signed a legally binding... Read More
Creditors will measure your credit rating based on the following... Read More
Are you thinking of buying a house? Do you want... Read More
In the new millennium plastic money or credit cards has... Read More
In order to determine a consumer's credit worthiness, creditors and... Read More
Sometimes life lands you in a situation that causes your... Read More
This summary of the Fair Credit Reporting Act will explain... Read More
Have you ever really looked at your credit card and... Read More
Secured Credit Card is similar to a prepaid credit card... Read More
Chances are you have received your share of "pre-approved" credit... Read More
There are times when you may be turned down for... Read More
The good thing about bad credit is that you can... Read More
It is very easy to find a site that is... Read More
In this week's article, I am going to offer some... Read More
Before you take out a home loan or make any... Read More
Getting an annual credit report review has been the advice... Read More
Always shop around to get the best deal when choosing... Read More
Collection agencies are businesses that collect past-due bills and accounts... Read More
What is a balance transfer ? A balance transfer can... Read More
Maintaining your Credit ProfileEvery consumer should be maintaining their credit... Read More
It is a well-publicized fact that more of us are... Read More
Identity theft is a growing concern among Americans, and rates... Read More
In my previous article "Establishing Credit ? What You Need... Read More
Secured Credit Card is similar to a prepaid credit card... Read More
His hard earned money? Gone. Creditors on his back everyday.... Read More
Most of us get a credit card on our name... Read More
Even if you think you have a wonderful credit report,... Read More
This summary of the Fair Credit Reporting Act will explain... Read More
Here's a dirty secret, today's "non profit credit counselors" are... Read More
1. Deleting Errors in 48 HoursThis is the absolute fastest... Read More
Credit card debt is a growing sickness in the United... Read More
When you apply for a credit card, the application that... Read More
Credit scores are the most important aspect that determines your... Read More
You're interested in getting the best credit cards for your... Read More
Most of us want a good credit report to obtain... Read More
There are times when you may be turned down for... Read More
You can stop receiving credit card offers in the mail!... Read More
Q: I'm opening a gift shop and want to be... Read More
These days, people need to very carefully consider what type... Read More
Well now we add CitiGroup and UPS to the Identity... Read More
They arrive in your mail - a conspicuous looking mail... Read More
A good credit reward card can contribute to your retirement... Read More
1- Check your credit report regularly2- Secure personal information in... Read More
Here are some useful credit card tips for you to... Read More
Your credit is the most important thing you have other... Read More
Credit |