- ｩ Score More Credit
Credit Score Issues - Part IYour credit score is a three digit score that predicts the likelihood that you値l default 90 days or more on a loan or credit. For consumer credit, your credit score is the most important factor that lenders use to evaluate your credit worthiness. It can be as important in your credit applications as your SAT score is in your college applications. A low score will hurt you and a high one will help you. A credit score is not like a grade you might receive in school where 100 is the best possible score and anything less means that you answered a question incorrectly. Certain elements on your credit report raise your score and others lower your score. Having a credit mishap on one account can affect other accounts that seem to be totally unrelated, just because your score has changed. This is how it becomes true that if you miss a student loan payment, your auto insurer may increase your premiums or fail to renew your policy. If you stop making payments on one credit card, the others will likely lower your credit line and raise your interest rate. The company responsible for creating the credit score is Fair, Isaac and Company, the largest provider of consumer credit scoring models. They developed a proprietary algorithm to produce a credit worthiness ranking which they dubbed the FICO score. Not all credit scores are FICO scores. Each of the three major credit bureaus has created their own versions to sell to the public at large. However, lenders will only use the FICO score model. "FICO" simply refers to the formula that Fair, Isaacs developed. All credit scores are built around the same information葉he ingredients on your credit report. But the scores are different because lenders don稚 all report to all 3 major credit bureaus. Each of the main bureaus has its own proprietary credit score. Additionally, the credit agencies also customize the financial score algorithms for pretty much every industry. There are also custom scores on the market. Custom scores are generated by individual lenders, who rely on credit bureaus as well as other information, such as account history, from their own portfolios. These are internal company figures that may be used to rate the creditworthiness of consumers. However, more often lenders use scores to predict consumer response to marketing offers and new products as well as customer loyalty葉he likelihood the customer will switch their account to another lender. When you receive your credit report, you may notice that you don't have any entries that are considered negative such as late payments, charge-offs, liens or bankruptcies. You may be surprised to learn that just because you don't have any items significantly hurting your score doesn't mean you receive the maximum points for the elements helping your score. In fact, some aspects of your score are beyond your control to a certain extent. One such factor is time. Time may stand still for no man...however it also doesn't rush for any borrower. If two individuals had exactly the same credit report except for the length of credit history, the person with the longer credit history would receive a higher score, even if neither one had any negative information. There are some credit score rules of thumb. A score of 720 is considered golden. At the 720 mark all credit doors will open for you. Based on your other credit factors they may rapidly close, but at least the 720 score will make you a contender. This score will make available zero percent interest car and credit card loans. At 720 you can request the prime rate from your lenders, and possibly even be granted it. Similarly, a score of 500 or less will padlock the credit doors. At the 500 mark, you will start to be considered for loans, but your interest rates will be unfavorable. A score of 620 will make you a qualified candidate, and put you in the category of borrowers applying for a home mortgage with average publicized interest rates. When you reach 660, you can start qualifying for some of the specialty loan products out there like "no income verification" or "no document" loans. This threshold is key for self-employed people, business owners and seasonal workers who may have a hard time proving consistent income. Most mortgage lenders pull credit reports from all three bureaus and look at the "middle score." The middle score, simply, is the score with the middle value when you consider all three of your credit report scores. It's good news that the credit companies don't average the numbers. While it is always best to initiate simultaneous credit repair action on all your accounts, sometimes time and resources force us to make the decision to focus on one of the three. Knowing that a lender is looking for your middle score, it's a good one to laser target for credit repair and building. When your middle score increases above your high score, your high score becomes your middle score, and you start working on that one! Focusing your credit repair efforts on one of the reports may have a "trickle down" effect on the other agency reports. Credit reporting agencies are supposed to report their updated information to the other two agencies as well. This doesn't always mean that the information on the other agency report will change, but it may possibly do so. When your low score starts to lag by too much so that it may rise the eyebrows of a lender預 good rule of thumb is 50 points behind your middle score葉hen start to work on the low score too. Credit scores are a numerical calculation葉hey aren't perfect, and can only calculate your credit risk based on the statistical risk factors. This may result in a credit decision that seems unfair at first glance. Consider two borrowers: Borrower #1
Borrower #2
While borrower #2 has taken more care with their credit, a lender may lend to borrower # 1 more quickly because the first borrower is applying for a secured loan with little risk of overextending their credit. A good score will help you, a bad one will hurt you, and an average one makes you, well, average. When you are in this arena, the difference between you and another applicant will come down to how well you perform on the remaining parts of credit. |
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