Jo Jude asked:




How your credit score is calculated

Credit score information allows lenders to gauge a credit applicant to see if he or she is worth the risk of availing credit. After all, credit institutions are a business and need to profit from their investments in terms of lending their money resources. It is sensible business practice that they try to lend it to people who are responsible enough to pay them back later.

Lenders and credit institutions try to assess each credit application by looking at the applicant’s credit score information. Through it, these institutions will be able to determine if an applicant is worth the risk. The credit score is obtained from information based on the past credit activities of the applicant as well as other related information. All these can be found on the applicant’s credit report.

Your Credit Score

A credit score is calculated using the various information contained in the credit report. Different factors come into play when a credit score is calculated. A designed formula is used by credit reporting agencies to come up with the credit score. The formula takes into account the information from the credit report, both good and bad, to come up with the appropriate score.

In order for this score to be calculated, the credit report must have, as a minimum, one account which is at least six months old & one that has been updated for the same period. This will ensure that there is enough recent information in the credit report from which to base the calculation.

Payment History

Payment history accounts for about 35 percent of the credit score. This includes payments made on time as well as late payments. Public records can find their way into the credit report such as late or non- payments, bankruptcies, lawsuits, etc. These all may be considered when computing the credit score.

Amount of outstanding credit

The amount of credit that you have availed in the past accounts for about 30 percent of the credit score. Not only is the total amount looked upon but also the amount borrowed from different accounts. The balances on certain accounts may also affect the credit score. Maintaining a small balance for example, will have a positive effect on the credit report and may help keep your credit score up.

Credit History

The length of your credit history accounts for 15 percent of your credit score. Your oldest account and the average age of your other accounts are taken into consideration when calculating your credit score. Also considered is the length of time that has passed since you have used certain accounts.

The number of new credits availed accounts for about 10 percent of your credit score. This includes the length of time that has passed since you have opened a new account. The number of credit requests in a one year period is also considered.

The various types of credit that you have availed accounts for 10 percent of the information that goes into the calculation of the credit report. Revolving credit, such as credit card debts and personal loans or mortgages, is also taken into account.

Conclusion

The formula used by the different credit reporting agencies in calculating your credit score do vary slightly from company to company but they all follow a very similar process.

Hector

Robert S Holland asked:




Lenders check your credit when you apply for credit. If you are looking to buy furniture on credit, buy a new car, get a mortgage on a new home, your credit is reviewed. When the lender pulls your credit report it is considered an inquiry. Those inquiries count against you on your credit report.

They count against you because lenders think that you are looking around for credit and if you get all of the credit you may be a bigger risk. That risk relates into a problem for you. The credit bureaus will count that risk into their calculations on your credit score. Because it is a negative risk, it so reflects on your credit report.

Some people say that inquiries don’t hurt your score and other say they only affect your credit score a little. But they can affect your credit score and if you have a lot of inquiries, you will see a definite change in your credit score.

So try to keep your inquiries down. If you need a car, then I suggest that you apply for any automobile loans all at one time. This will give you several inquiries all at once and will appear that you are “shopping” for a car loan. When the bureaus see a group of inquiries all at one time they group them together and they do about as much damage as 1 inquiry rather than several.

The same is true for other things as well, such as a Home Mortgage. If you apply at several mortgage places and they all run your credit, it will appear that you were shopping for a Home mortgage. The damage is greatly reduced.

Just remember if you get accepted for all that credit, you will have a new problem. You will have a lot of “new credit”. This new credit will lower your score (because of the age of the account(s) and raise your available credit limit (in comparison with your income). But if you see any hard inquiries (the ones that count against you) that you did not apply for, dispute them and do the credit repair.

Andrew

Jennifer Quilter asked:




There are countless articles out there that will all tell you different things about what the credit score ranges actually are. This is because every institution decides for itself what these numbers mean to them. That doesn’t mean we need to go in blind though! Based on overall reactions we can make some general statements about ranges and what this all amounts to.

To start with, the scale goes from 350 to 850, with individuals on either end of the scale being very rare.

Anything under 600 is bad and will give you a lot of difficulties.

600-649: Most lenders will work with you, but your interest rates on everything, including insurance, will be unfavorable.

650-679: With this you will be able to do things, won’t have the worst interest rates, but I wouldn’t be excited about it.

680-720: You should feel good if your credit score ranges here! You should never be turned down and in some instances the higher end of this will get you the best interest rates.

721 and up: This is fantastic, you will always get the best rates and no financial door is closed to you! Be sure to keep on doing whatever you have been and keep an eye on your credit reports to try and stay here.

Whenever you apply for anything where your finances are judged like loans, rental applications, insurance, or anything else where they do a credit check you will want to have an idea of your score, and what it all means. To get a wider idea of your actual situation you’ll want to look at your credit report. When you look at this, fix anything that you can and that should help get your score to the best it can be for when you need it most.

Hopefully all this information has given you an idea of where you stand financially. It can be hard sorting all this out, but knowing the credit score ranges can help you take control.

Holly

Chris Wight asked:




There is almost no company now who does not look at your credit score when deciding whether to approve your application for credit. When you apply for credit online, typically the only criteria is a certain credit score that must be meet in order to be approved, and many other lenders also have minimum credit scores they require to open an account. You can see how a credit score can really help speed along the process of applying for credit.

Nevertheless, what good is the score? There are several advantages, such as being approved for loans much quicker than when a lender would have to look over your entire credit file before making a decision. Another benefit is that credit decisions are often fairer and less likely to be based upon criteria that are not allowed to be considered such as gender or race.

However, while these benefits are great when credit is used properly, these same benefits also make it much easier for someone who is trying to commit identity theft to be successful. Because accounts can be opened online with a minimal of information someone with a good credit score can be the fodder of a huge identity theft spree that leaves a credit report badly blemished and the criminal enjoying the purchases for months.

This means that because of the ease in which people are able to commit identity theft it becomes very important to work diligently to protect your credit. Ensure that you guard your personal information and do not hand it over to anyone who asks immediately whether over the phone or even over the internet. Each time your information is passed around, it is at risk of being stolen. This means you should be very careful handing over your information.

It is also important to consider that if you have a good credit score, a sudden rash of identity theft can leave your credit score as much as 300 points lower. This can mean the difference in interest rates of several percentage points, which leaves you badly harmed. You should always take a very proactive approach to watching your credit to ensure that you are not making it too easy for someone to apply for credit using your easy to use credit score. Remember, while a credit score makes it easier for you to use credit, it also makes it much easier for someone else to use your credit as well.

Carla

Jacqueline Harris asked:




Credit Report

A credit report is the record of financial information of an individual or company taken place on credit in a financial year. The report contains all detailed information about credit borrowings, repayment, late payments, and any bankruptcy claim. How the report turns out is instrumental in building an individuals credit reputation. This means whether the person will be able to receive any credit in the future, depends on the report. Also, if the report is too bad, the person has to seek remedial measures like debt consolidation and short sales. Ideally, the procedure goes like this – the person fills out application form from a bank or credit card company and this information is forwarded to designated credit bureau. The task credit bureau has is to match the information given by the person to the file records. This record acts as informative store for lenders to determine the repayment capability of a concerned person. On the basis of all these accumulated date, the credit report is prepared and given to the person.

Credit Score

The formation of the score is based upon the report. It is the statistical expression of the report of the person and shows the credit worthiness of the same. The score is prepared by credit bureaus along with the report or if the person sends in a separate request. What is the purpose of credit score? The credit score is used by banks and financial institutions to decide whether the person applying for loan has actual repayment capability or is the bank going to run into losses. Private moneylenders need the credit reports to ascertain whether the person can pay according to the accepted interest rate and what credit limit should be posed. Also, the credit score also determines the revenue generation capacity of the person. Not only banks or financial institutions ask credit score, mobile phone companies, landlord agreements, employers and other also need them. There are separate levels in which the report is shown and each point level has significance.

Both the report and score complement each other!

Elizabeth

Jason Lanier asked:




Many people have bad credit become fixated on the idea of a particular score or number. Having a “beacon” score of 600, 650 or 550 and being able to get a car loan with the same, depends not so much on your score, per se. It depends more on the lender that you choose to obtain your credit through.

Using the Right Lenders…

So if you are wondering if you can get a car loan with a credit score of 600, the answer lies in understanding lenders and choosing the right type of lender to submit your credit application to.

There are many different people with many different credit scores and there are also many different lenders that have very different requirements for a car loan. What this means for you is that rather than wondering if you can get a car loan with your particular credit score, you should be looking for a lender that will accept you with your particular credit score.

Prime vs Subprime…

For example, some lenders (prime) that offer car loans prefer that the applicant have a credit score of at least 700 or better. Other lenders may look for a score of 650 or above, while there are some that will offer car credit to someone that has a score as low as 480 (subprime).

You Can Get Approved…

Credit takes a long time to improve. It’s a great idea to work on improving your credit score however, while you are working on that you can still get approved for a car loan if you simply find the best lender to suit you. You may be pleasantly surprised at what is available for you, based on your income.

Jim

Thomas Eliot asked:




One response to the question — “What does your credit score mean?” — is that it is a score which attempts to show how responsible a person has been in handling their credit matters. The credit score itself is a number that is based on a statistical analysis of a person’s credit report. Depending upon the credit reporting agency involved and what evaluation system they are using, this may entail paying attention to different details which each system scores differently.

But basically, it boils down to: can we trust that this person will pay his bills and will he always pay them on time. No matter what analysis system a credit reporting agency is using — be it the Beacon model, the Emperica model, or the Fair Isaac Risk Model — it will attempt to answer these two very basic questions for the lender who is looking at putting his capital at risk through lending it out. If you were in the business of lending capital, you would no doubt want to know this same information about the people with whom you did business, wouldn’t you.

Your credit score is a number between 350 and 850, and the higher the number the better the opportunity is for the person seeking a loan. The information contained in the credit reporting agency’s files is used to calculate your credit score. Lenders use this number in helping them decide a persons credit risk possibilities as well as giving them an idea of what interest rate to charge.

High vs. Low Credit Scores

If your credit score is on the low side, then lenders assume that you will be less likely to pay them back on time. They will either charge you a higher interest rate or possibly even turn your credit application down altogether.

If your credit score is in the high range, then you probably will be able to get the loan at better interest rates. This is true for all types of credit, including mortgages. Getting a lower interest rate on your mortgage can not only save you hundreds of dollars a year, but will also save you thousands of dollars over the lifetime of the loan. It is therefore to your advantage when pursuing a mortgage loan to have the highest credit score possible.

Sometimes you’ll hear or read about something that is called a FICO score. What is a FICO score? In the financial industry, the most well known rating score is generally referred to as a FICO score, named after the Fair Isaac Corporation which initially developed this rating system. Each credit reporting agency uses this scoring model, but each has its own name for the credit scores it uses, as was mentioned above. Equifax uses the Beacon model, TransUnion the Emperica model, and Experian the Fair Isaac model.

Because your credit file at each of the three major credit reporting agencies may differ, your scores may differ as well. For this reason it is advantageous for you, if you are anticipating being in the credit market in order to make a purchase, to keep track of these various scores so that you are able to address any errors in the reporting system. Keeping track of your credit information can easily be accomplished since once a year you are entitled to obtain a free credit report from each of these three main reporting agencies. Conveniently, you need only go to one source — http://www.annualcreditreport.com — to place your order for your free yearly report from the three credit reporting agencies.

When looking at the question “What does your credit score mean?” these are the things you need to keep in mind. If you are needing help in finding ways to increase your credit score, there are sources of information available which can show you how you yourself can accomplish this without incurring a great deal of expense. Just remember that increasing your credit score is something that may take a little time, so be prepared ahead of time to put some effort and time into this endeavor.

Depending on where the problem lies — that is, is it a problem with paying off an account in order to increase your credit worthiness, or is there an error on your credit history which you can successfully dispute and have removed — the time it takes may vary in order to realize a positive change in your credit score. It may take anywhere from a few months (say three) to several months in the case of an account which needs to be payed up in order to demonstrate your credit worthiness and reduce your debt to credit ratio.

Pearl

levselector asked:

Start with getting your 3 credit reports and 3 FICO scores from www.myfico.com. Once you received and analyzed the information – follow these 5 steps (1) Late records. Call your lenders and ask them to remove the late records in exchange of you making the payment. Or just say that you don’t recall being late. It may be as simple as a phone call. (2) Settle with lenders. Negotiate that they will remove the bad records from your file retroactively instead of just reporting the debt as “paid in full”. The original creditor has the power to do this (completely dismiss all bad records related to the account). Also important is to get their promise in writing before you pay them. Usually it is a signed letter on a letterhead sent to you via fax. (3) Dispute with cras. Do this by writing letters, providing proof – and sending them via certified mail so that you will have a confirmation of delivery for your file. If you do it right – the agencies will have to verify the facts and remove mistakes in no more than 30 days. In the guides on our web site ( www.101creditrepair.com ) we provide sample letters and explain the tactics. (4) Get more positive records – ask the lenders or vendors with whom you have good standing to send good information about you to credit agencies, or simply give you letters which you can forward to credit agencies yourself. This tactics is usually overlooked – but it is effective in shifting your good-to-bad balance. (5) Reduce your revolving debt-to …

Bernice

Aubrey Clark asked:




Many people spend time working to improve their credit score but they do not take the time to look for low interest rate credit cards once they achieve a better rating. However, not doing so could be a costly mistake. As this all important number changes, it becomes vital for individuals to consider what is in their wallet. Is it the best that it could be?

Check Your Score

Check your credit score to learn if and how much it has improved over the last few months or longer. The key is to notice any larger changes. For example, if your score was below 700 but now is 750, this may qualify you for a better credit card. What difference does this make?

· A better score may result in a better interest rate. An interest rate drop even as little as half of a percent can make a big difference if you carry a balance month to month.

· You may no longer have to pay fees associated with the credit card. This includes annual fees, membership fees or other types associated with having the card.

· You may qualify for a new rewards program. If you currently have a reward program associated with your account, you may qualify for a better product.

As you can see, there are some key reasons you should investigate the various new lines of credit available to you if your score has improved. Do not assume that your current lender will automatically give you the best rate available or will improve their offer to you if your score goes up. This common misconception could be costing you thousands of dollars per year in interest.

Look For Something New

If you have noticed an improvement in your credit score, now is the time to act on it. There are a variety of lenders that now have affordable, low interest rate credit cards available to you. Those rates may be substantially lower than what you are currently paying.

To find them, simply request quotes and look at offers that are available on the web. There is a good deal of competition among credit lenders for those with good credit which means that you are likely to find substantial offers readily available to you.

Focus on a wide range of offers and narrow them down to what works the very best for you. Keep in mind that the most important factor in obtaining a line of credit is the interest rate. The higher the rate is, the more costly this card will be for your particular needs, especially if you carry a balance from month to month.

Nevertheless, low interest rates are available and if you have good credit, you should have them. If not, it may be time to change up what you are carrying in your wallet so that it better matches the quality score and the hard work you have done to improve that number. You may be impressed with the offers you can receive now.

Beth

Laura Evert asked:




Have you wanted to buy a house or a car but you have a low credit score? You can fix that by checking your annual credit report to see if all information is accurate. However, if you have been missing bill payments or have been going over your credit limit then you can consider counseling. Remember, the interest rate you will pay for the money that you borrow will be determined largely by the three-digit number generated from your report.

You are lucky if you have a good report and score from credit report companies but if you have a poor one, you will have big problems. Most lenders have rules that are carved in stones about handling out the best terms. These rules always place a major emphasis on your score. For instance, if their best rates are offered to borrowers with a score of 700 or higher and you have a score of 698, those two points could cost you thousands of dollars.

As FICO said, the interest rate difference between those two ratings is bout one-third of a percentage point. FICO or Fair Isaac Corporation created the FICO rating and is the most commonly used rating. You should consider understanding FICO if you want to know how to raise your credit rating. On 30-year fixed rate mortgage of $165,000, that third of a point could cost you more than $11, 172 in interest charges, assuming 629 percent is the lowest rate available. If you fall below 660, the rate goes up another.81 percent.

Of course, the numbers mentioned are averages. Today, most lenders practice tiered pricing with interest rates rising as ratings go down. You annual report should be monitored if you want your level not to go down. However, each ender chooses its own “break points” between tiers. While one lender may increase the interest if the level falls below 700, another lender might not charge higher rates until the level is 690 or lower. The picture being painted here is that if you stick with one lender whose break point is 700, raising your level from 698 to 701 can be vital.

This underscores the importance of not only doing means on how to improve credit level but also shopping thoroughly when looking for a mortgage. From a mortgage broker’s point of view, who can choose among a sea of many lenders, no sharp break points exist. As a consumer, you should do what a good broker does and look for a lender that offers the best rate to a specific level.

Brittany