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Understanding Your Credit Score
Most people know that our reports have a lot of information about our borrowing history. How worthy we are — how likely we are to pay off our debts (on time or not) — is also looked at as an indicator of how people are likely to behave in other areas. Employers rely on reports to see if we’ll be good employees. Landlords pull reports to see if we’ll be reliable tenants. Auto insurers rely on information when deciding what sort of an insurance risk we are. But for years there’s been a piece of the report the average consumer has been unable to see.
YOUR SCORE
It’s called a risk score — and if you have a rating you have one. The scores range from 300 to 850, with a higher score being better than a lower one. Fair Isaac, which is the country’s pre-eminent producer of scores, takes information from your report, gives different weights to different pieces of that information and how long ago those things occurred, and comes up with a number for you. Then when a lender is trying to decide whether or not to give you a mortgage, for example, or what rate of interest to charge on your loan, the score is one important factor they consider when making a decision.
DO MOST LENDERS USE THESE SCORES?
We know that over 75 percent of home loans are decided with help from — as they’re called in the industry — FICO (Fair Isaac and Co.) risk scores, and that if you take the 100 largest financial institutions in the country, 70 percent use FICO scores. So they’re definitely a big player in the marketplace.
HOW DO MOST PEOPLE DO?
Not as badly as you might think, considering that bankruptcies are in the headlines so often these days. With the scale ranging from 300 to 850, the average score is about 720.
Below that, you may have problems borrowing. Twenty percent of people score below 620, for example. Since that population includes about half of all people who default on their mortgages, lenders are very wary of extending them credit. The next 20 percent of people score between 620 and 690. A score in this range may not stop you from getting credit, but Fannie Mae and Freddie Mac (buyers of mortgages for the secondary market) suggest that lenders probe for more information to understand why there’s been a problem before they agree to make a loan. On the high end, anything above 780 is considered elite. Only about one to two percent of consumers score in the 800s.
There are a few factors that make a big difference in your score — let’s talk about them and how you can make changes in them to improve your score:
-Your bill-paying record (This accounts for 35 percent of your score). We all know to pay bills on time. If you always have, you’ve done well in this category. If you slip up here and there, it can hurt your score a fair amount. The more recent the slip up, the more it hurts your score.
And, as in all of these categories, a pattern of bad behavior is worse than one mistake. A string of 30-day late payments is worse than one 60-day late. (The way scoring works is to compare your habits to those other individuals who have proven to act in a positive or negative way overall. But there are different groups of patterns, so a seasoned user won’t be compared to a new user.)
-How much you owe now (30 percent). The scoring companies look at how much you owe relative to how much you have
Sub Prime Loan Bust Extends To Fair Isaac
Fair Isaac has taken a big hit as many people are pointing the blame for the sub prime loan bust on the FICO credit scoring model. Fair Isaac is also seeing a decline in business due to the current credit crisis that is making the demand for any type of loan product very low. The credit crisis has left many people weary or even unable to get approval for any type of loans which means that less people are having their FICO credit scores checked.
Is Home Loan Forgiveness Worth It?
Many lenders are offering their lendees financial assistance with their home loan by offering home loan forgiveness. For many people who are finding themselves in trouble with paying their bills this may seem like a great idea, but in truth it could be potentially harmful. With home loan forgiveness an amount will be forgiven off the loan itself therefore lowering the payments, but the lender will report the money that is forgiven to the IRS which in return the lendee will have to pay taxes on at the end of the year. A person that is considering home loan forgiveness should carefully determine whether this option is the best for their financial circumstances.
How To Get Out Of Credit Card Debt Faster
It is very easy to swipe a credit card and then find oneself later in a large amount of debt. Many people are unaware that the minimum payment that they are making each month on their credit card is simply not enough and that if they want to get their credit card debt down they need to make higher monthly payments. Another key in getting out of credit card debt is that once the money is paid down on the card it is imperative to not use the credit card and accrue any more debt. If there is a need for financial assistance, using an online payday advance can be more debt friendly than using a credit card.
How Your Credit Card Reflects On Your Credit Report
There are many determining factors that make up a persons credit score and one of the major factors considered is a persons credit card history. Having a credit card or even numerous credit cards is not necessarily a bad thing when it comes to how a persons credit score is scored. In fact, a person with credit cards that pays on their cards in a timely manner and keeps a balance of the card can actually gain a higher credit score than a person who completely pays off their credit card.
The Importance Behind Checking Your Credit Report
The accuracy of ones credit score is very important when it comes to the rates in which a person may receive a loan. Since it is very common for human error to occur when data is being entered on a persons credit report is imperative for people to check their credit report for inaccuracies.
Finally A Cut In Interest Rates
The economy has been hindered recently with high rise in home loan defaults and other economic crisis so when the U.S. Federal Reserve cut interest rates by half a percent, a sigh was heard across America. The recent cut of interest rates means that home loans and auto loans will be available with lower rates. The recent interest rate cut was one waited for four years and has caused economy to show more activity then it has in the past.
Cash Advance Loans Are Great For Vacations
When the situation arises to where you may be trying to go on vacation, but the only time that you can take off from work falls in between paychecks, online cash advance loans can get you the money you will be receiving with your upcoming payday. Online cash advance loans are loans in which can be applied for online and received via direct deposit. Cash advance loans can get you up to $600 from your upcoming payday and requires no credit checks.
Stay Up With Vegas With An Online Payday Advance
Going to Vegas is great, but what happens when you run out of money? With an online payday advance the money you need to continue your vacation in style is available up to $600. An online payday advance allows people to have direct access to their payday when they are on vacation and even when they are not on vacation.
Payday Loans Are Great Short Term Loans
When a need for immediate cash arises, payday loans are the quickest way in which one can acquire the money that they need. Payday loans are loans which can be applied for online and can be used for any financial situation one may have in their life. Payday loans are quick and easy to acquire and allow people to avoid the embarrassment of being turned down for a loan from a bank or family and friends.
Stay On Track With Payday Loans
Payday loans are the perfect answer for any person with any credit situation to get the money they need to handle their finances. When a person needs extra money, the money can easily be attained by simply going online and filling out a quick application for a payday loan. The funds from the approved payday loan are deposited directly into the applicants bank account and repaid in the same manner.
available on your cards. The closer you are to maxing-out your cards, the lower you’ll score in this area. But owing nothing doesn’t prove your ability to handle — owing a little bit is better. For example, being at 80 percent of your limit would be viewed as very high and a negative; 60 percent in most cases is detrimental enough. Having your balances at 20 to 30 percent of your maximum is just fine.
-How long you’ve managed (15 percent). This one is interesting. When people are trying to get their cards under control, one of the things they do — indeed that we advise them to do — is to make sure they don’t have too many tempting cards in their wallet. But when it comes to your score, you may not want to cut up that one card you’ve had the longest. Then the scoring companies lose the ability to see just how long you’ve been managing credit. It may be better to keep that old card even if it’s at a high interest rate, use it once a year and pay it off completely rather than cutting it up.
-Mix of (10 percent): It’s good to show that you can manage different kinds of credit. So having an installment loan (on a home or a car) as well as having a revolving account (credit card) is a positive.
-Pursuit of new (10 percent): The media often exaggerate how much searching for new can hurt you. That’s because, a few years ago, the scorer’s methodology was changed to reflect the idea that it was OK — indeed smart — to be shopping around for a loan. So all of your inquiries into a mortgage over a 30-day period now count as one. That said, if you have real problems and you’re constantly shopping around for new cards or loans, it’s going to hurt your score. Moderation is key. If you’re out looking for every month, it’s a minus. Less fre- quently than that, you’ll probably be okay.
Now that you have this information, you can use it to your benefit.
When you get your report, you can take it and use it to talk to lenders in a preliminary way. You could talk to a mortgage broker and say, “This is my score. How easy will it be for me to get a mortgage?” If you buy the FICO score, you’ll also get a guide explaining how the scores work and the top four factors that contributed to deciding your score. Then, if you need to, you can work on your score before you apply for credit. Give yourself a good six months to get it in shape.
If you go on the Web and search on “free score,” what you’ll come up with are a number of mortgage lenders and banks who are willing to give it to you. In some cases, you have to actually apply for a loan.
There are other scores that aren’t FICO scores (even the ones that are legitimate don’t have FICO’s database). In other cases, providing them with your e-mail address and phone number (so that they can market to you later, one assumes) seems to be sufficient. So if you’re willing to give up some personal information, you can get your score for no money. Or you can pay the $13. (Even if you’re not up for checking your score, you should check your report about once a year. If there are problems, you should check all three of the bureaus.)
John Prentice is a repair expert in the mortgage industry. He provides repair advice via newslatter and offers tools from his website: http://www.AccelerateMyCredit.com.
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