Archive for May, 2009
What is a credit score? Is there a good or bad side to credit scoring? How is a score calculated? What is “FICO”? What are the benefits of credit scoring? What are the down sides?
In a nut shell, a high credit score helps your request for credit to be approved. It can also mean lower interest on loans or even insurance rates. Low credit scores can cause higher rates and loan denials… and even that promotion or new job you were seeking.
How Is A Credit Score Calculated?
The credit granting agency utilizes a computer software designed by folks such as Fair, Isaac. An acceptable point value is established based upon selected criteria which offers the lender insight as to the risk involved with getting the loan.
The loan applicant gives information to the lender which is submitted to a credit bureau. Per Fair, Isaac, the credit bureau then returns a: “credit bureau risk score, commonly known as a FICO score, [which] is a snapshot of your credit risk picture at a particular point in time.” Lenders can then determine, ‘If I give this person a loan or credit card, will I get paid back on time?’”
Is Credit Scoring Objectivity Questionable?
Fair, Isaac concludes: “Computers don’t make lending decisions, lenders do. Computers analyze credit information to produce a score, but individual lenders decide what scores are acceptable for different loans or credit cards.”
The problem is that subjectivity has been completely removed in the models. Models should make recommendations not decisions and that is usually not the case today… it is more “expeditious” and “efficient” to rely on the model. The model, then, has become the decision instead of the guide.
What’s the Benefit to Credit Scoring?
Consider, what would happen without a model system? In many cases the result would be non standard chaos based upon subjective guesswork and prejudicial criteria. If I am a bald lender and very sensitive to long hair, isn’t it possible without a measuring standard to be prejudicial in my decision to loan out my money to a long haired rock musician?
Now add on something a little closer to reality like race, color, creed, etc. None of these should be permitted into the decision making process. But we all know of incidents with objective measures fully in place where it has still happened. How bad would it be without a system, any system, fully in place?
On the other hand, what would happen if very few applications were turned down? There is no standard so how am I, the lender, suppose to know who will and will not pay me back. I can’t predict the future. The very reputable and honest person in front of me may well have extraordinary events occur tomorrow. Without some measure of prediction, I could loose more loans then are paid back. That’s a tough way to stay in business and not to very welcome at the next meeting of the stockholders.
What Is a “FICO Score” and How Is It Calculated
Information about you is collected from your credit application and other sources. Data includes your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, age of your accounts, and other information. Using the Fair, Isaac statistical program or model, creditors compare this information to the credit performance of consumers with similar profiles and award points for each factor that helps predict who is most likely to repay a debt. Thus comes the term “FICO Score” which means, a credit score based on the Fair,Isaac Company (FICO) model.
Credit information is weighted based upon its type and history… the more current the good or bad information, the more weighty the affect. For example a very old 90 day late may be less weighted than a very recent 30 day late. The type of data is also weighted:
1. Past Payment Performance (35% or at least heaviest weight)
2. Credit Utilization (30% or next heaviest)
3. Credit History (15% or third weight)
4. Types of Credit In Use (10% or least weighted)
5. Inquiries (10% or least weighted).
You will find greater detail of the above data in the follow up article, Improving Your Credit Score.
What’s a Good Score?
FICO scores can impact the interest you pay on a loan, how much you pay for insurance and a myriad of other decisions. It should also be noted that general US population FICO Scores range
780 to 850 – 20%
740 to 780 – 20%
690 to 740 – 20%
620 to 690 – 20%
Below 620 – 20%
How Can I Get My Score
Though credit REPORTS can be obtained for free as shown in the article referenced below, a credit SCORE will have an associated cost but can be obtained from the same source from which you get a credit report. You wil find all of this information in the article Free Credit Report.
Readers will probably be interested to know Mike, the author of this article, also offers a free debt elimination mini-course via e-mail. You can enroll at Debt Free In 7.5 Years.
By: Michael Killian
About the Author:
In a nut shell, a high credit score helps your request for credit to be approved. It can also mean lower interest on loans or even insurance rates. Low credit scores can cause higher rates and loan denials… and even that promotion or new job you were seeking.
How Is A Credit Score Calculated?
The credit granting agency utilizes a computer software designed by folks such as Fair, Isaac. An acceptable point value is established based upon selected criteria which offers the lender insight as to the risk involved with getting the loan.
The loan applicant gives information to the lender which is submitted to a credit bureau. Per Fair, Isaac, the credit bureau then returns a: “credit bureau risk score, commonly known as a FICO score, [which] is a snapshot of your credit risk picture at a particular point in time.” Lenders can then determine, ‘If I give this person a loan or credit card, will I get paid back on time?’”
Is Credit Scoring Objectivity Questionable?
Fair, Isaac concludes: “Computers don’t make lending decisions, lenders do. Computers analyze credit information to produce a score, but individual lenders decide what scores are acceptable for different loans or credit cards.”
The problem is that subjectivity has been completely removed in the models. Models should make recommendations not decisions and that is usually not the case today… it is more “expeditious” and “efficient” to rely on the model. The model, then, has become the decision instead of the guide.
What’s the Benefit to Credit Scoring?
Consider, what would happen without a model system? In many cases the result would be non standard chaos based upon subjective guesswork and prejudicial criteria. If I am a bald lender and very sensitive to long hair, isn’t it possible without a measuring standard to be prejudicial in my decision to loan out my money to a long haired rock musician?
Now add on something a little closer to reality like race, color, creed, etc. None of these should be permitted into the decision making process. But we all know of incidents with objective measures fully in place where it has still happened. How bad would it be without a system, any system, fully in place?
On the other hand, what would happen if very few applications were turned down? There is no standard so how am I, the lender, suppose to know who will and will not pay me back. I can’t predict the future. The very reputable and honest person in front of me may well have extraordinary events occur tomorrow. Without some measure of prediction, I could loose more loans then are paid back. That’s a tough way to stay in business and not to very welcome at the next meeting of the stockholders.
What Is a “FICO Score” and How Is It Calculated
Information about you is collected from your credit application and other sources. Data includes your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, age of your accounts, and other information. Using the Fair, Isaac statistical program or model, creditors compare this information to the credit performance of consumers with similar profiles and award points for each factor that helps predict who is most likely to repay a debt. Thus comes the term “FICO Score” which means, a credit score based on the Fair,Isaac Company (FICO) model.
Credit information is weighted based upon its type and history… the more current the good or bad information, the more weighty the affect. For example a very old 90 day late may be less weighted than a very recent 30 day late. The type of data is also weighted:
1. Past Payment Performance (35% or at least heaviest weight)
2. Credit Utilization (30% or next heaviest)
3. Credit History (15% or third weight)
4. Types of Credit In Use (10% or least weighted)
5. Inquiries (10% or least weighted).
You will find greater detail of the above data in the follow up article, Improving Your Credit Score.
What’s a Good Score?
FICO scores can impact the interest you pay on a loan, how much you pay for insurance and a myriad of other decisions. It should also be noted that general US population FICO Scores range
780 to 850 – 20%
740 to 780 – 20%
690 to 740 – 20%
620 to 690 – 20%
Below 620 – 20%
How Can I Get My Score
Though credit REPORTS can be obtained for free as shown in the article referenced below, a credit SCORE will have an associated cost but can be obtained from the same source from which you get a credit report. You wil find all of this information in the article Free Credit Report.
Readers will probably be interested to know Mike, the author of this article, also offers a free debt elimination mini-course via e-mail. You can enroll at Debt Free In 7.5 Years.
By: Michael Killian
About the Author:
Mike has been an Internet Guide/Writer in the field of Credit/Debt Management for over 10 years. His site was awarded Best Of Net by Forbes Publication from 2000 to 2005 with site visitation doubling to over 500,000 average views per month in the last year.
He has also offered debt elimination seminars to businesses and community colleges for the last 9 years, and has written for several publications, and has been interviewed on the radio a number of times.http://learncreditmanagement.com/ ” />http://learncreditmanagement.com/
Aron Granstrom
michaelsenoff asked:
From http://www.hardtofindseminars.com Everyone knows you need a high credit score in order to get a good loan. Its the single most important factor lenders use when determining whether you’re a credit risk or not. But fortunately no matter what your credit score looks like today, there are simple steps you can take that will boost it to its highest level possible. Thats why in this hour-long interview youll meet Dave. Dave is a credit consultant, newspaper columnist, and author of How …
Ezra Derian
BillsDotCom asked:
Watch this credit score video, from Bills.com Co-Founder Brad Stroh, to learn how your score and credit history affect your future. http://www.bills.com Co-Founder, Brad Stroh, reviews credit score basics and offers advice for maintaining a good score in this video.
Craig Apodace
In today’s credit squeeze the importance of good credit cannot be emphasized enough. As a consumer, knowing how good or bad your credit score is necessary to keep a finger on the pulse of your personal finances.
The Fair Isaac Corporation (FICO) sets the standard for credit rating and uses various criteria to determine a credit score. What exactly is a credit report?
Your credit report is basically the history of your credit dealings. The credit report reveals the credit cards you have, whether you have loans and what type of loans (home loans, student loans, car loans), the time period over which the loans were taken, and your liabilities towards repaying those loans. The credit report would include your credit card debt, as well as all other debts you have run up like domestic electricity, telephone bills or medical bills.
The credit report uses this data to compile your credit score from a computed program. The computer calculates the time you take to pay your bills, how much debt you have, your credit history, mortgages, and declarations of bankruptcy. A typical score would be a three-digit number, ranging from 500-800; the higher the number, the better your credit score will be. Importance is given to factors such as payment history, amount of money owed, length of credit history, new credit and type of credit used.
A lot rides on your history of payments; how regular you are with them, how many debtors you have and the amount of consolidated debt burden you have as an individual. Your credit rating and scores will suffer if you are a habitual defaulter on your loans and will improve if you work at paying off what you owe.
In a nutshell, it is wise to check credit scores; the higher your credit score is the less money you pay in interest; and the lower your credit score is the higher your rate of interest will be. Visit http://www.5minuteautoloan.com/ to know more about credit score.
By: John Collins
About the Author:
The Fair Isaac Corporation (FICO) sets the standard for credit rating and uses various criteria to determine a credit score. What exactly is a credit report?
Your credit report is basically the history of your credit dealings. The credit report reveals the credit cards you have, whether you have loans and what type of loans (home loans, student loans, car loans), the time period over which the loans were taken, and your liabilities towards repaying those loans. The credit report would include your credit card debt, as well as all other debts you have run up like domestic electricity, telephone bills or medical bills.
The credit report uses this data to compile your credit score from a computed program. The computer calculates the time you take to pay your bills, how much debt you have, your credit history, mortgages, and declarations of bankruptcy. A typical score would be a three-digit number, ranging from 500-800; the higher the number, the better your credit score will be. Importance is given to factors such as payment history, amount of money owed, length of credit history, new credit and type of credit used.
A lot rides on your history of payments; how regular you are with them, how many debtors you have and the amount of consolidated debt burden you have as an individual. Your credit rating and scores will suffer if you are a habitual defaulter on your loans and will improve if you work at paying off what you owe.
In a nutshell, it is wise to check credit scores; the higher your credit score is the less money you pay in interest; and the lower your credit score is the higher your rate of interest will be. Visit http://www.5minuteautoloan.com/ to know more about credit score.
By: John Collins
About the Author:
Mercedes Belliveau
wendy asked:
I am 26 years old and I don’t have a credit score. I have unpaid medical bills on my report. They don’t add up to much so I should be able to pay them off fairly easy when I have extra money. How can I get credit so that I can have a score? Every credit card that I wanted to apply to (that would even give me one) has all kinds of fees and doesn’t seem worth it to me. I have student loans which I don’t have to start paying back until I graduate (2009). Will these loans help improve my credit when I start paying them back? If so, what can I do now to get a credit score? I want to buy a house in the next couple of years but I need to build my credit first. Any suggestions?
Christopher
I am 26 years old and I don’t have a credit score. I have unpaid medical bills on my report. They don’t add up to much so I should be able to pay them off fairly easy when I have extra money. How can I get credit so that I can have a score? Every credit card that I wanted to apply to (that would even give me one) has all kinds of fees and doesn’t seem worth it to me. I have student loans which I don’t have to start paying back until I graduate (2009). Will these loans help improve my credit when I start paying them back? If so, what can I do now to get a credit score? I want to buy a house in the next couple of years but I need to build my credit first. Any suggestions?
Christopher
score is a snap shot of your credit risk (ie how likely you are to repay a debt and repay it on time) at a specific point in time. The higher your score, the lower the risk. A credit score is a number indicating your financial risk.
In short, it/\’s a score measuring how likely you are to repay debts, such as loans or lines of credit. A credit score is like the numerical version of your credit report. Credit scoring is the process of using a proprietary mathematical algorithm to create a numerical value that describes an applicants overall creditworthiness.
FICO does offer a package called Score Watch, which is basically a 30-day free trial. When you sign up for Score Watch, you get a free FICO score and credit report. FICO, the most widely known type of credit score, is a credit score developed by Fair Isaac Corporation . It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender.
FICO scores are been used by credit-card companies, auto loan providers and mortgage lenders as part of a process to grant credit for billions in purchases. Often called “FICOs” these scores incorporate five types of information about a persons finances to calculate a score on a scale of 300 to 850. FICO recognizes 5 different balance tiers: 20, 40, 60, 80, and 100 percent usage.
A good rule of thumb is that if you are applying for a loan in the near future and have the resources to pay your balances under 20 of the limit your scores will be very good.
We cannot stress too much that your credit rating not only measures credit worthiness, or your ability to pay back a loan. It also affects the interest rate applied to loans.
Interest rates vary depending on the risk of the investment. A credit score, also called a credit rating.
It is one of the main keys to a person//\’s financial life. Credit ratings are expressed as a three-digit number, ranging from 350 to 850. A credit rating assesses the credit worthiness of an individual, corporation , or even a whole country. Credit ratings are calculated from financial history and current assets and liabilities.
Check online to see what could affect your credit score. Check out several lenders, ask about their interest rates and loan terms, and find out more about their loan process. Be careful, though, not to submit a flurry of applications in a short period of time as that might affect your credit score.
Checking your credit report is one of the most important things you can do. You can use your credit report to make sure your credit history is correctly recorded before you apply for a big loan or a mortgage.
Check to see if past financial ties (such as bills with ex-partners) have been removed. If a record does have to be amended, make sure it has been changed by ordering another report six weeks later.
Credit score is becoming more and more important to our financial lives as time goes by. Investors, borrowers, issuers and Governments may all use opinions from credit rating agencies.
Different lenders use slightly different factors to come up with a credit score for you. Also, the definition and thresholds of a good or acceptable score will vary from one mortgage lender to another.
Different lenders place different weightings on these factors. This explains why some lenders will reject you for a credit card and others will refuse you for a personal loan or mortgage while others are happy to welcome you as a customer.
Information here should not be construed as advice and it is offered without legal responsibility or liability. It must be emphasized that you should consult a professionally qualified individual or company (such as an accountant, financial adviser or solicitor for example) should you need advice on your financial situation, as they will be able to tailor their advice to your personal needs accordingly.
By: Steve Evans
About the Author:
In short, it/\’s a score measuring how likely you are to repay debts, such as loans or lines of credit. A credit score is like the numerical version of your credit report. Credit scoring is the process of using a proprietary mathematical algorithm to create a numerical value that describes an applicants overall creditworthiness.
FICO does offer a package called Score Watch, which is basically a 30-day free trial. When you sign up for Score Watch, you get a free FICO score and credit report. FICO, the most widely known type of credit score, is a credit score developed by Fair Isaac Corporation . It is used by many mortgage lenders that use a risk-based system to determine the possibility that the borrower may default on financial obligations to the mortgage lender.
FICO scores are been used by credit-card companies, auto loan providers and mortgage lenders as part of a process to grant credit for billions in purchases. Often called “FICOs” these scores incorporate five types of information about a persons finances to calculate a score on a scale of 300 to 850. FICO recognizes 5 different balance tiers: 20, 40, 60, 80, and 100 percent usage.
A good rule of thumb is that if you are applying for a loan in the near future and have the resources to pay your balances under 20 of the limit your scores will be very good.
We cannot stress too much that your credit rating not only measures credit worthiness, or your ability to pay back a loan. It also affects the interest rate applied to loans.
Interest rates vary depending on the risk of the investment. A credit score, also called a credit rating.
It is one of the main keys to a person//\’s financial life. Credit ratings are expressed as a three-digit number, ranging from 350 to 850. A credit rating assesses the credit worthiness of an individual, corporation , or even a whole country. Credit ratings are calculated from financial history and current assets and liabilities.
Check online to see what could affect your credit score. Check out several lenders, ask about their interest rates and loan terms, and find out more about their loan process. Be careful, though, not to submit a flurry of applications in a short period of time as that might affect your credit score.
Checking your credit report is one of the most important things you can do. You can use your credit report to make sure your credit history is correctly recorded before you apply for a big loan or a mortgage.
Check to see if past financial ties (such as bills with ex-partners) have been removed. If a record does have to be amended, make sure it has been changed by ordering another report six weeks later.
Credit score is becoming more and more important to our financial lives as time goes by. Investors, borrowers, issuers and Governments may all use opinions from credit rating agencies.
Different lenders use slightly different factors to come up with a credit score for you. Also, the definition and thresholds of a good or acceptable score will vary from one mortgage lender to another.
Different lenders place different weightings on these factors. This explains why some lenders will reject you for a credit card and others will refuse you for a personal loan or mortgage while others are happy to welcome you as a customer.
Information here should not be construed as advice and it is offered without legal responsibility or liability. It must be emphasized that you should consult a professionally qualified individual or company (such as an accountant, financial adviser or solicitor for example) should you need advice on your financial situation, as they will be able to tailor their advice to your personal needs accordingly.
By: Steve Evans
About the Author:
Find out the true Free Credit Report Secrets and know more than 95% of the public about what the lenders know about you! Or, for something completely different visit our Dog Breeds web site.
Vern Feller
citrus873 asked:
Cathy Curtis, A Certified Financial Planner and Investment Advisor talks about credit score, how to maintain or improve your credit score.
Mohamed Vicic
37days asked:
http://www.37DaysToCleanCredit.com – I show you exactly how I boosted my score 135 points in 37 days, deleted 19 negative items, and basically got my life back!
Eula Franchette
The FICO credit score, or simply FICO score, is perhaps the most important aspect of your credit report and history. Why is it important? Because it is the score MOST creditors use to rate your risk level, and determine whether to give you a loan or credit and at what interest rate.
Why is the FICO credit score rating so confusing? One thing you should know is that all the credit reporting agencies refer to their scoring by different names.
The Equifax Company calls their FICO score rating their Beacon credit rating score. TransUnion calls their credit scoring model the Empirica model. And at Experian, they call their scoring model the Experian/Fair Isaac Risk Model. While we’re referring to one scoring model, Fair Isaac, they confuse us by referring to various names.
One important thing to know is that not all credit bureaus offer the true FICO score to consumers. Only one of the three major credit bureaus currently offers you this all-important score. The others offer their own versions, which sometimes differ greatly from the FICO model.
The three major credit bureaus do not share the same information. Each creditor chooses which bureau they will deal with. It’s completely up to the creditor which bureau will get the information about you. This is why it’s essential to check all three credit reports. Each one contains different information and all three may not have the same creditors listed.
You must examine your credit report from all three credit reporting bureaus before applying for any large loans such as a mortgage loan. Try repairing any errors on all three reports before shopping for any loans because it takes time to correct your credit score and a minimum of 30 days to fix those trademark mistakes.
One common myth, among several others, is that credit counseling can hurt your credit score.
Any of the credit scoring models don’t know you’re dealing with a credit counseling agency. FICO credit score rating systems ignore any reference to credit counseling that may be in your file.
The FICO credit scoring researchers found that people receiving credit counseling are not likely to default on their debts any more often than those not getting credit counseling. Yes, people who commit to counseling sometimes fail because they cannot deal with the strict debt management rules.
Credit counseling may hurt your ability to get approved for a loan because you probably have had trouble paying creditors and that will show up on your credit report. Some lenders may back away from loan approvals if you are in credit counseling.
The best way to improve your credit score is by keeping current on payments. Each of your bills show up on the credit report and each late payment is also reflected.
By: David Kamau
About the Author:
Why is the FICO credit score rating so confusing? One thing you should know is that all the credit reporting agencies refer to their scoring by different names.
The Equifax Company calls their FICO score rating their Beacon credit rating score. TransUnion calls their credit scoring model the Empirica model. And at Experian, they call their scoring model the Experian/Fair Isaac Risk Model. While we’re referring to one scoring model, Fair Isaac, they confuse us by referring to various names.
One important thing to know is that not all credit bureaus offer the true FICO score to consumers. Only one of the three major credit bureaus currently offers you this all-important score. The others offer their own versions, which sometimes differ greatly from the FICO model.
The three major credit bureaus do not share the same information. Each creditor chooses which bureau they will deal with. It’s completely up to the creditor which bureau will get the information about you. This is why it’s essential to check all three credit reports. Each one contains different information and all three may not have the same creditors listed.
You must examine your credit report from all three credit reporting bureaus before applying for any large loans such as a mortgage loan. Try repairing any errors on all three reports before shopping for any loans because it takes time to correct your credit score and a minimum of 30 days to fix those trademark mistakes.
One common myth, among several others, is that credit counseling can hurt your credit score.
Any of the credit scoring models don’t know you’re dealing with a credit counseling agency. FICO credit score rating systems ignore any reference to credit counseling that may be in your file.
The FICO credit scoring researchers found that people receiving credit counseling are not likely to default on their debts any more often than those not getting credit counseling. Yes, people who commit to counseling sometimes fail because they cannot deal with the strict debt management rules.
Credit counseling may hurt your ability to get approved for a loan because you probably have had trouble paying creditors and that will show up on your credit report. Some lenders may back away from loan approvals if you are in credit counseling.
The best way to improve your credit score is by keeping current on payments. Each of your bills show up on the credit report and each late payment is also reflected.
By: David Kamau
About the Author:
Now find out which companies offer you the true FICO credit score that most creditors use. David Kamau offers credit repair tips at his site and is offering a free credit secrets report for a limited time.
Corrina Trebbe
ExpertRealEstateTips asked:
Before you even think about buying a home, you should ask yourself two questions: “What’s my credit score?” and “How do I raise it?” Knowing your credit score will help you negotiate a good interest rate on your mortgage, and if you can raise your score, you’ll get a loan with a lower interest rate.
Darren