A
Summary of Your Credit History
FICO
scores are provided to lenders by credit reporting companies. The
score is intended to be a predictor of whether you are likely to
repay a loan according to the loan terms. In addition to your FICO
score, lenders may base their decision to issue you credit on:
Your
income and how it compares to your prospective payment amount; other
debt payments you are making; and the appraised value of your home.
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What
is "A" Credit
While
factors vary, typically individuals with FICO scores above approximately
620 are deemed to be "A" credit borrowers. Generally speaking,
the higher above this figure your credit score is, the greater your
likelihood of being approved for the loan you want.
Potential
borrowers with FICO scores below 620 can often still qualify for
a mortgage, but the product might not be as well-priced or might
have other less-favorable features.
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Factors
That Determines Your FICO Score
FICO
scores are calculated and provided by a company called Fair, Isaac
& Co. The company has statistically analyzed credit histories
of a large number of borrowers, and has used those analyses to predict
which factors in a person's credit history may indicate future inability
to repay debts.
The
specific factors that are used, and how they are used, are proprietary
to Fair Isaac and are not known. However, they are prohibited by
law from including factors that would be discriminatory (e.g. race,
religion, gender). Factors that may be used to determine your FICO
score include:
- The
amount of credit you have outstanding
- How
you have paid it back
- Any
problems with credit you may have had in the past (e.g. late payments,
bankruptcies)
- Other
factors
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How
To Improve Your FICO Score
FICO
scores consider your credit history over several years, making it
difficult to increase your credit score in a short time frame. Over
the long term, you can improve your credit worthiness by:
-
Reducing your total indebtness
- Making
your debt payments on time and in full
- Closing
unneeded credit accounts
- Avoiding
bankruptcy and foreclosures
Credit
Reports
You
can review your credit report by requesting a copy from any of the
main reporting repositories -- Equifax, Experian, and TransUnion.
Equifax
P.O. Box 105873
Atlanta, GA 30348
(800) 685-1111
www.equifax.com
Experian
P.O. Box 2104
Allen, TX 75013-2104
(888) 397-3742
www.experian.com
Trans
Union LLC
Consumer Disclosure Center
P.O. Box 390
Springfield, PA 19064-0390
(800) 888-4213
www.transunion.com
Credit
Reports
Your
credit score, or FICO score, is arguably one of the most important
pieces of information in your financial life.
Lenders, landlords, insurers and even employers scrutinize this
rating – which sums up all of the information in your credit
report with three digits ranging from 300 to 850.
For all of its importance, though, the credit score is also one
of the most misunderstood aspects of personal finance, said Jeff
Davis, a vice president with Credit Counseling Network in Fort Worth,
Tex. "There was a time when people weren't aware of their credit
score," he explained. "Now they're sometimes overly concerned."
No doubt, it makes sense to check your credit score and do everything
in your power to improve it. But first, you'll want to make sure
you're not falling for some of these common credit score myths.
Myth: Shopping around for a loan will hurt your score
When you apply for a loan or get pre-approved the creditor checks
your credit report, which shows up as an inquiry to your credit.
While it's true that too many inquiries to your credit will lower
your score, you absolutely can shop around for a mortgage, home
equity loan or car loan without worrying about damaging your credit,
said Ryan Sjoblad, a spokesman for Fair Isaac, the company that
created FICO scores.
"As long as the same kind of inquiries are made within 14 days
of each other, they count as one inquiry on your credit score,"
he said, adding that one exception is with credit cards.
Myth: Checking your own credit will lower your score
"People are afraid to access their own credit because they've
heard it will lower their score," said Davis. In truth, you
can check your own score as many times as you want without impacting
your score. Not knowing your credit score or the information behind
it could be far more damaging, he added.
Myth: Your age, income and sex are factored into your score
According to Sjoblad, none of this information has any bearing on
your score. Your employment is something that is listed on the credit
bureau report, he added, but doesn't affect the score itself.
Myth: Credit card offers are hurting your score
Credit card solicitations, while annoying, don't affect your score,
said Davis. That's assuming you don't respond to the solicitations.
"If you answer the promotion, then yes – an inquiry will
be created," he added.
Myth: When you get married your credit scores are merged
"People think once you're married your credit information gets
mixed," said Sjoblad. But, your good or bad credit is yours
and yours only 'til death do you part. When you open accounts jointly,
though, that information will be reflected on each of your credit
reports.
Myth: You only have one credit score
In truth, you have three credit scores, one from each of the three
major credit bureaus. "These scores can vary by as much as
50 points or more," said Sjoblad. This is why it's a good idea
to check all three.
Myth: You can remove unfavorable info from your file by
disputing it
If there is information in your report that is legitimately inaccurate,
you should by all means dispute it. Credit agencies are obligated
to investigate credit inaccuracies within 30 days or remove disputed
information, said Davis.
But don't fall for so-called credit repair companies promising to
remove unfavorable (though accurate) information from your credit
reports to "instantly" improve your score. These days
credit agencies not only investigate disputes quickly, said Davis,
they know a sham when they see it.
Myth: Shuffling your debt will help your score
There are times when it makes sense to close inactive accounts and
transfer balances for the lowest rate, but be careful about making
big changes before you apply for a mortgage or other loan. Shuffling
your debt could actually lower your score, said Sjoblad.
"There is no magic bullet," added Davis. Your best strategy,
he said, is to not seek a lot of credit, to pay down your existing
obligations and – last but not least – to pay your bills
on time.
Article
by CNN/Money
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