3
Sep
2010
You and Your Credit Score: What’s The Good Number?
Have you ever wondered why people get denied for loans and why other people get approved for it instantly? Have you ever wondered why some people are not accepted by some companies even though they are qualified for the job?
If you answered yes to either of these questions, then you haven’t heard about credit scores. Credit scores are an important part of today’s life. This particular three-digit number will determine whether you are likely to pay the loan you will apply for or will pay the monthly bills.
If you have a low credit score, then getting a phone line hooked up in your house can be very difficult to do. Some phone companies take a look at your credit score in order to determine if you will likely pay their monthly bills or not. Sometimes, certain jobs will require you to have a high credit score. It is a fact that people who are qualified for a certain job in a company are usually denied of the job because they have a low credit score. This is why you should consider taking all the necessary steps to have a high credit score or at least have a good credit score.
In the United States, Fair Isaac Corporation or FICO is the best known credit score model that calculates your credit score. This company calculates your credit score by using mathematical formulas. It is a calculation that is widely used by lenders, such as credit card companies and banks.
The FICO score is designed to provide information to lending companies if a particular person will likely pay their bills or not. It will also contain reports of your past loan application and if you will be delinquent in the next 2 years or the next 24 months.
There are also three credit reporting agencies existing in the United States today and uses their own methods and formula to calculate your credit score. Each calculation differs, even if it was developed by FICO, and are updated periodically that will reflect your repayment behavior. Also, lenders or creditors use whichever calculation they want to use.
The FICO score ranges from 300 to 850. By having a high or good credit score, you will be able to access low interest credit cards and also low interest loans. You will also have a higher chance of getting hired by companies that require a good credit score.
You now ask what makes a good credit score number in the FICO score.
It is a fact that having a higher credit score is good. But you also have to know what makes a good number that will guarantee you of getting approved for a credit card or a loan. In the FICO score, a good number is at around 725.660. By having this kind of score, you will have a higher chance of getting approved for that car loan, mortgage or for that credit card you have been applying for.
You can get your credit score from FICO or from the credit reporting agencies annually for free. Or, you can also get your credit score as often as you want within the year for a fee.
Always remember that by having a good credit score number, you will be able to have access to low interest loans, and credit cards. By having at least a 725.660 credit score, you will be deemed credit worthy. Make sure you have a higher credit score in order to save thousands of dollars in terms of interest rates.
27
Aug
2010
7
May
2010
5 Common Credit Score Myths
Your credit score is an integral part of your financial life. It is important that you understand what it’s all about. Lenders, landlords, insurers, utility companies and even employers look at your credit score. It is derived from what’s in your credit reports, and it ranges between 300 and 850.
Yet, according to a survey that was recently conducted, nearly half of all Americans don’t know how these scores are derived or even what factors are used to come up with them.
For example, if your credit score is 580 you are probably going to pay nearly three percentage points more in mortgage interest than someone who had a score of 720.
Or another way of looking at it, if you had a 150,000 30- year fixed-rate mortgage and your credit score was good enough to qualify for the best rate, your monthly payments would be about 890. This is according to Fair Isaac, the company that created the FICO score and who the rate is named afte (Fair Isaac COrporation). If your credit is poor, however, it is very likely that you would have to pay more than 1,200 a month for that same loan.
With so much depending on the credit score, its important to understand what it is all about and what are the things that affect it.
Unfortunately, people commonly have a lot of misinformation and misunderstandings about their credit score. Here are five of the most common credit score myths and along with it the true facts:
MYTH #1: The major bureaus use different formulas for calculating your credit score.
FACT: The three major credit bureaus – Equifax, TransUnion and Experian — give the score a different name. Equifax calls their score the “Beacon” credit score, Transunion calls it “Empirica” and Experian gives it the name “ExperianFair Isaac Risk Model.” They all use different names for the credit score, but they all use the same formula to come up with it.
The reason that the credit score you receive from each bureau is different is because the information in your file that they base the score on is different. For example,the records that one bureau is using may go back a longer period of time, or a previous lender may have shared its information with only one of the bureaus and not the other two.
Usually the scores are not too far from each other. Unless there is a big difference between what each bureau says is your credit score, many lenders will just use the one in the middle for the purpose of analyzing your application. So, for this reason alone it is a good idea to correct any errors that exist in each of the three major credit bureaus.
MYTH #2: Paying off your debts is all you need to do to immediately repair your credit score.
FACT: Your credit score is mostly determined by your past performance more than your current amount of debt. It will definitely be very helpful to pay off your credit cards and settle any outstanding loans, but if yours is a history of late or missed payments, it wont remove the damage overnight. It takes time to repair your credit score.
So definitely pay down your debts. But it is equally important to consistently get in the habit of paying your bills on time.
MYTH #3: Closing old accounts will boost my credit score.
FACT: This is a common misconception. It’s not closing accounts that affects your credit score, it’s opening them. Closing accounts can never help your credit score, and may actually hurt it. Yes, having too many open accounts does hurt your score. But once the accounts have been opened,the damage has already been done. Shutting the account doesnt repair it and it may actually make things worse.
The credit score is affected by the difference between the credit that is available and the credit that is being used. Shutting down accounts reduces the amount of total credit available and when compared with how much credit you can use your actual credit balances are made to seem larger. This hurts your credit score.
The credit score also looks at the length of your credit history. Shutting older accounts removes old history and can make your credit history look younger than it actually is. This also can hurt your score.
You generally shouldn’t close accounts unless a lender specifically asks you to do so as a condition for them giving you a loan. Instead,the best thing you can do is just pay down your existing credit card debt. That’s something that definitely would improve your credit score.
MYTH #4: Shopping around for a loan will hurt my credit score.
FACT: When a lender makes an inquiry about your credit, your score could drop up to five points. Some borrowers think that if they shop around by going to a number of different lenders that each time a lender does an inquiry it will generate another reduction in the credit score. This isnt true. For credit score purposes, multiple inquiries for a loan are treated as a single inquiry, as long as they all come within a 45 day period. So it is best to do your rate shopping within this 45 day window.
MYTH #5: Companies can fix my credit score for a fee.
FACT: If the credit bureaus have accurate information, theres nothing that can be done to quickly improve your score if in fact you have a history of not handling your debts well. The only way to have an effect on your credit score is to show that you can manage your debts in the future.
Also,if there are errors in your file, you can contact the bureau yourself. You dont need to pay someone else to do it. Each of the major credit bureaus has a website which clearly explains what you need to do to correct an error.
So, the best ways to improve your credit score are: pay down the debt,pay your bills on time, correct existing errors on your credit reports in each of the three bureaus and apply for credit infrequently.