A credit score offers a glimpse of your credit status, how punctual you were in paying off your bills, how you have dealt with your finances in the past and whether you have landed up in goal for mishandling finances etc. Your credit score has attained a new status due to the tough time the economy is facing right now. Before that, people with less credit score also used to get approved for loans and were made to pay higher premiums in the end. Now, with more and more people loosing jobs it has become impossible for the people with poor credit score to get approved for any loan at all!
FICO, the standard model of evaluating a credit score and other such top credit models rate the credit on a scale, that which usually ranges from 350 to 850.
Score the Magic
Credit Score, the three digits magical number says it all -, your eligibility for a loan or your ability to pay back the credit, or whether you should be given a credit card or not. Lenders, banks and bankers-everybody use credit scores to know the financial worth of a credit-seeker. The morbid meltdown has made the guidelines of banks and lenders more stringent and they now demand good credit scores to forward any credit assistance to the applicant. Ensure that your credit score doesn’t fall below the decent cut-off mark of 750, if you are looking for a large amount of credit. This cut-off mark is likely to vary depending on the market conditions.
Uses of a Credit Score
- Indicates your financial situation and eligibility for the credit you are seeking and saves your time and energy. Instead of you running after the banks, lenders themselves will flock to you if they happen to find you financially viable.
- Whether you are applying for a home loan or credit card or an auto loan, credit score is the primary factor in making you eligible for the loan. In today’s recession-hit world, it is a must that you have reasonable decent credit score or else you will be denied for a loan by the major lenders.
- Landlords prefer and rely on tenants with good credit scores and they might even lower the amount you might have to pay by the way of security deposit.
- Warns you about identity theft and other fraudulent practices that might land you in debt when went unnoticed. A rise and fall in credit score will keep you on your toes and will make you act more responsibly in the issue of your finances.
- Major employers would like to know the financial position of the individual they are planning to recruit. Even the job aspirants are entitled to choose whether or not to undergo this credit check by the would-be-employer.
- A good credit score helps you save a lot of money by obtaining less premium and huge amounts of loan.
Keep your Credit score high to avoid hassles in life!
How To Check Your Credit Score?
Knowing one’s credit score is essential when making future plans like buying a home, applying for a credit card etc. in near future. By knowing your credit score you can make sure of your eligibility and go ahead with your proposals and need not fear of rejection from the banks or lenders. This measure will save you from lowering your credit score by facing rejection from banks.
How will you know your credit score? Is it ok to know your credit score? These are the questions that will come to your mind, when you think of knowing your credit score. You can keep a tab on your credit score by looking it up once in a while in your credit report. But, how to check credit report without lowering your credit score?
Sources of Credit Score: Nationwide Credit Bureaus are privately operating credit reporting agencies where you can obtain your credit reports from anywhere and everywhere. Beware of the credit report scams and do not go for unapproved credit reporting agencies as they might not provide you authentic credit scores.
Online Credit Scores: With the whole banking industries going online, even the consumer’s credit reports and scores have made it to online. Several websites offer free credit score calculators and such other tools that can help you to evaluate your credit score for free.
Some standard places where you can check your credit score online are as follows:
- Scorecard: Experian, one of the nationwide credit reporting agencies is the information-provider for the scores developed by them.
- MyFICO: This is an outcome of the joint collaboration of the FICO designer, Fair Isaac Corporation and Equifax. If you happen to receive your credit score from Equifax then you already know your score.
- E-loan: This is an online lending agency that deals with the credit seekers and delivers free credit scores based on the input provided by the Trans-Union. They don’t generate credit reports unlike the regular credit reporting agencies.
Checking your credit score once in a while is as important as your annual health check-up; it will keep you healthy financially!
How Are They Calculated?
Have you ever wondered why people pay different interest-rates for the same kind of loan? Why some people get rejected for a credit card whereas some others can grab as many as they want? It is the credit score that is making these things happen, influencing the decision of your lenders and bankers and deciding whether you are eligible or not for the mortgage you’ve asked for, the job you are seeking etc.
A credit score is nothing but a mathematical computation algorithm developed by the financial institutions to grade the creditworthiness of a person and thus determine how risk-prone his/her financial status is. Though, Fair Isaac Corporation was the first one to come up with this kind of score, later several organizations have devised their own means of computation delivering company- specific credit scores to their customers. Often hailed as the standard scoring model, the FICO scores are extensively used by the mortgage lenders to determine the financial viability of their customers. Grading scale of FICO model ranges from 300-850, whereas it varies greatly in the other models say 600-800 or so. Any score falling below 620 is considered a subprime, a potential risk to the lender.
Different Credit Score Models
The three nationwide Credit Bureaus Experian, Equifax and TransUnion also employ different algorithms to deduce the credit scores of their customers and the details of it are as follows:
Experian - Fair Isaac Risk Model / Experian
Equifax - BEACON
TransUnion - EMPIRICA
Most likely, no two credit bureaus will deliver the same credit score for a particular individual! As the data documented in each credit report of the two bureaus is likely to vary, you will get a different credit score from each bureau. When the three credit bureaus have decided to use similar grading method they have come up with a new type of scoring method called Vantage Score. The grading for this scoring model ranges from 501-990. All the lenders you deal with might not upgrade your credit information with the credit bureau. Hence, you might find a great deal of variation when you seek credit scores from different credit bureaus.
Factors To Be Considered
Your credit score will be calculated based on the data available in your credit report alone. There is no place for any kind of discrimination based on your religion, race, nationality or gender. Some of the factors that will be considered in deducing your credit score are as follows:
- Types of credit taken
- Credit history
- New credit
- Payment history
- Amount owed
Making payments on time is crucial in gaining a good credit score. If you think that only negative aspects of your financial status will be reflected in your credit score then, you are totally mistaken. Each and every financial move you make, whether good or bad will influence your credit score; whether you bought a new car or applied for a new credit card, they will definitely affect your credit score.
Some state laws demand that the credit bureaus and agencies deliver credit scores to the consumers when they seek them by offering a fair and reasonable fee. No individual is entitled to a free credit score but only a free credit report alone. So, if some credit agency is trying to lure you with a free credit score then it might be a trap to deceive you. Keep away from such agencies and individuals.
FICO SCORE
FICO score is that magical number which decides your eligibility for low-interest loans and defines your credit status for the lenders and investors. As the score escalates it infuses new life into your otherwise sordid credit score and makes you an apple of the eyes of creditors and bankers. In general, a FICO score is nothing but a credit score, a score that will evaluate your credit position and will help the lenders decide whether or not you are eligible for a particular loan or not. This particular credit score was designed by Fair Isaac Corporation and is hence known as FICO score and usually ranges in between 300-850.
Ace For A High Fico Score
Whenever you apply for a mortgage loan, lenders try to know your financial stability by seeking your credit score from the three major credit bureaus- Experian, Equifax, and TransUnion. Things in your credit report influence your credit score. If you have negative things like default payments etc. in your credit report, then it will adversely affect your credit score. Whether you are buying a home, applying for a credit card or seeking a job, all the people look at your FICO score to judge your credibility and your financial condition. If they find it unsatisfactory, there is all possibility that they can refuse to offer you a loan or credit card or provide you any other basic utilities. The higher your FICO score is, the better are your chances of getting a loan with affordable interest rates.
Good Vs. Bad FICO Scores
People often ask, is there a good FICO score and bad FICO score? And the answer would be yes, considering the kind of impact the FICO score renders to your credit status. When your FICO score is below 600, it is definitely a bad one as you are not eligible for any low-interest loans or such other benefits that usually accompany a FICO score that is well above 750. A decent FICO score will always be above 700 and will never fall below it. People with negligible credit scores are usually feared by lenders as they consider them unfit and risky to deal with. For instance, if your credit score is well below 650 then you will have to deposit huge amount of money with your landlord to be able to rent out a flat for yourself.
Attaining a good FICO score is not an easy thing; but, then, it is not impossible also to attain the same. If your credit history is good and you are trying your level best to keep your credit score from going down then you will surely succeed in getting a good credit score which will also translate into loan benefits and other financial privileges. The ultimate truth about FICO score is that –‘you can receive a loan irrespective of your credit score; but then, how much you are asked to payback is what delineates the importance of a FICO score’.
Calculation of FICO Score
Not all FICO scores are the same. Credit Bureaus have their unique way of assessing credit scores in place to deal with the credit scores of individuals. And also, the information provided by these credit bureaus might contain about a particular individual, might vary by greater degrees resulting in varied FICO scores. Some creditors might consider all the 3 credit scores delivered by the three credit bureaus, whereas some might do with a single credit score given out by one of these agencies. Improve your FICO score to improve your fiscal status and credibility. A higher FICO score enables you to achieve the lowest interest rates in the market.
How To Improve Your Credit Score?
Is your sloppy credit score staring at your face? This is what happens when we dwell in our own world unaware of where our credit is heading to and how our credit scores are faring. The enlightenment of a poor credit score dawns upon us only when we keep our best foot forward to buy a new home or a car. Only then we realize that our credit score will take us no where to a good home loan or for that matter a good lender. If you have any special designs for your future like buying property, taking out a credit card etc. then check your credit score well in advance so that if it needs any mending you can do it before the time runs out.
Ways To Improve Your Credit Score
The best thing about credit score is that you can work on it whenever you want. Whether you are taking out a credit card or paying off your bills on time, each bold financial move of yours will improve your credit score and will make your credit report look healthy and appealing. Hold on! Do not expect to work miracles with your credit score overnight. It will take you a long time before you get your credit score back onto the track and you will have to do some strict self-monitoring regarding, how you deal with your finances.
Pay Punctually:
- Pay your bills punctually, on the given date without any fail. Make an effort to not to miss your payments for a considerable amount of time. This will sustain your credit score fast and will make you look more credible.
- Each default payment will be notified in your credit report and will pull your credit score down.
- If you think that your financial mess is weighing you down you can always seek the assistance of debt management agencies and consultants. They will devise a payment plan for you and help you manage your finances efficiently under their guidance.
Manage Your Credit:
- Ensure that the amount you owe to the bank is not too high on your credit card. While calculating your credit score your outstanding balance will also be taken into account. So, try to pay off the existing debts instead of transferring them from one card to the other.
- Opening new credit cards when not necessary or closing the existing ones all of a sudden will also adversely affect your credit score. Deal with your credit cards carefully as they have great potential to influence your credit score.
- Maintain a single standard account for long so that its age will be reflected in your credit report and will show your loyalty in good light. People who have just entered the arena of credit often make the folly of opening too many accounts or hopping from one account to the other pretty fast seeking unknown benefits. Avoid such a tendency, to build your credit score positively.
- Once in a while, know your credit score by seeking your credit report from any of the three established Credit Bureaus - Experian, Equifax and TransUnion. This will not alter your credit score in any manner and will let you know the current status of your credit. Follow these tips for long and see how your credit score improves in the end!
- Some people avoid credit cards for the fear of landing themselves in debt. But, the truth is that, when handled sagaciously credit cards are more beneficial to your credit score just like mortgage loans. Shunning the credit cards will surely work against your credit score.
Facts & Fallacies
The world of credit is entangled with so many facts & fallacies that it often becomes difficult to separate the grain from the chaff. Most of us have been nurturing these fallacies about credit scores assuming them to be facts. In order to obtain a panoramic view of what truly a credit score is, we should unravel these fallacies and elucidate the facts.
A federal law in its original version is the rubric one should follow in the matters of credit. Let’s get to the bottom of some of the oft-quoted facts & fallacies of Credit scores:
Fallacy: Low credit score means no credit.
Fact: Credit score is just a part of the homogenous factors that lenders consider before concluding the financial status of an individual. If you have a potential job and a not-so-long credit history, even then lenders might consider you trust-worthy and might approve you for a loan according to the policies and pre-requisites of their company. They will make a comprehensive study of your financial situation and do not rely on your credit rating alone to provide you financial assistance.
Fallacy: Minorities will be unfairly judged during credit scoring.
Fact: Credit score is assessed using an individual’s credit information like the amount he owes to the banks, number of credit cards he possesses etc. An individual’s personal details like gender, nationality, race, religion or marital status are never considered while assessing his credit score. The Equal Credit Opportunity Act (ECOA) ensures that equal treatment is meted out to all the credit aspirants by the lenders.
Fallacy: Individual’s privacy will be compromised.
Fact: During credit scoring, all the information provided by the individual in his credit application, his credit history etc will be assessed. All this information should have already been accessed by lenders and no other additional information will be sought during the credit rating process.
Fallacy: A Poor credit score will damage your fiscal image forever.
Fact: A credit score gives you an insight into your financial situation at that period of time and will not mar your financial worthiness forever. There will always be a chance for you to work on your credit score by managing your finances well. As you deftly go on managing your finances, your credit score will improve considerably and will also make you more credit-worthy.
Fallacy: Applying for new credit is dangerous to one’s credit score.
Fact: This does not hold good for all kinds of situations. For instance, if the individual applies for too many credit cards or various types of loans within a short time, then it will lead to multiple enquiries of your credit status and will bring your credit score down. But, if the credit inquiries were made by auto lenders then it wouldn’t do any harm to your credit score because all those enquiries will be treated as one.
Now that you are equipped with the credit facts, go ahead and score well on your credit! Happy Credit Scoring!!
Importance of Checking Your Credit Score
There was a time, when, people used to check their credit scores only when they need to take out a loan; but now, things have changed. A credit score is no more an ostentatious tag that says you are financially ok, it has become a necessity with which you cannot do without and you need it at every step of your life. Be it in your employment or insurance or a credit card approval; you need to produce your credit score everywhere before you conclude the deal. Having a negligible credit score is not enough any more. It should be good and decent enough to be able to be accepted by the lenders and bankers. It is a genie that can make things real fast for you in the financial world.
There are many institutions and online websites that are ready to sell your credit score for you for a fee. Though the option of buying your credit score might sound frivolous, that is the only way you can obtain one. No entity or person will deliver your credit score for free. So, look for an authentic credit agency and buy your credit score from there without any qualms. You will surely benefit more by knowing your credit score.
By checking your credit score you will come to know if any body had made any enquiries about it, If, any new bank accounts have been opened on your name without your knowledge; if some body else has applied to a credit card using your personal information etc. Basically, it will save you from identity theft and thus, from going bankrupt in the process.
Credit Score Sans Credit Report
Usually, credit reports and credit scores go hand in hand with each other. People who seek their credit reports also buy their credit scores for a reasonable fee. According to Fair and Accurate Credit Transactions Act (FACTA), the credit reporting agencies should deliver the credit scores of the individuals for a ‘fair and reasonable fee’. In some states, people have the facility to buy their credit scores alone sans their credit reports. Without the credit report you will only have a partial understanding of your current financial status and will not be able to work towards improving your credit score.
Fixing Credit Score
Unfortunately, you cannot dispute the credit scores delivered to you by a credit bureau however low or wrong your credit score might seem to you. There is absolutely no way of messing up with your credit score and no institution or organization is equipped to do the same. Several private mortgage companies are also entitled to deliver credit scores when the consumer specifically asks for it. At the same time, they are also obliged to provide the consumer with their algorithm system of calculation so that the consumer can have a fair idea of how is credit score has been deduced by them. You are only entitled to fix the errors in your credit report which will subsequently be reflected in your credit score.
Credit Bureaus
According to law, every American citizen is entitled to a free credit report from one or all the three major credit bureaus- Experian, Equifax and TransUnion once in every twelve months. And these three credit bureaus can be accessed by clicking on the following links:
All these three credit bureaus can also be accessed through www.AnnualCreditReport.com, wherein you can seek your free credit report and obtain your credit score as well by paying a small fee. Remember, you are only entitled to a free credit report and not for the free credit score according to federal law. You will have to pay an additional fee for obtaining your credit score from AnnualCreditReport.com.
Fair Isaac Corporation: You can also get your credit score from Fair Isaac Corporation, whose system is usually used to calculate your credit score and is deemed as standard in the financial markets.
Credit Reporting Agencies: If you want to obtain your credit score for free along with your credit report then you can approach third-party agencies known as credit reporting agencies or credit monitoring services. Once you pay your membership and become a member of their agency they will deliver your free credit report and credit score as well. Most of these credit reporting agencies have websites online to provide instant credit reports and scores to their customers in a customer-centric environment.
You will also be notified whenever somebody or some organizations has made any enquiries about your credit status. Besides, you can know your credit score as many times as you want without having to worry about your score getting affected. They even have free trial weeks to help you get started and to help you know how their services will be.
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