Understanding Your Credit Score

Your Credit Score is used by anyone loaning you money. Credit card companies, home equity lenders, auto loan lenders and finance companies all use a model created by Fair, Isaac and Co, the San Rafael, California company that pioneered credit scoring 40 years ago and dominates the field today. This score is most often known as FICO and serves as a snapshot of your credit history.

A low credit score can raise the price of your loan and a very low credit score can mean denial of your loan completely. Here are the approximate percentages that determine your FICO Score.

• Payment history (35%). The largest factor determined on your FICO score is your basic payment history. The number of unpaid bills you have, any bills sent to collection, bankruptcies etc... The more recent the problem, the lower your score.


• Outstanding Debt (30%). Are your credit cards maxed out? High balances or more precisely, balances that are close to your credit limit can negatively effect your credit score. Keep your balances below 30%.


• Length of your credit history (15%).
  How long have your accounts been open? The longer, the better.


• Recent inquiries (10%). Every time you apply for credit of any kind, you create an inquiry on your credit report. Lots of Inquiries negatively effect your credit score.
  


• Types of credit in use (10%).
  Current loans from finance companies. How many and how much.

Your credit score will range between 300 and 870. The higher the better. As your credit score increases, your credit risk decreases. Exact numbers differ by lending institution but the average high approval score is 680 or above. Often times your credit score is taken from all three credit reporting companies and the middle score or average score is used.

Depending on the lending institution, your credit score can cost you. Some lenders will charge a higher interest rate if your score is below 600.

When you apply for credit your score does not come directly from FICO. Instead each bureau has its own version of the rating system with its own name.

Equifax is called Beacon
Trans Union is Empirica
Experian is Experian/Fair Issac

A credit score of 680 or above can save you money, especially for home loans. If you are considering a significant loan you will want to be sure to check your credit reports first. If negative items appear on your report you have two choices. Live with it for 7 to 10 years or dispute these items. For more information on repairing bad credit Click Here.

You may be asking how can you find out what your credit score is before you talk to a lender? Obtaining a copy of your credit is a good idea in case there is something on your report that you may question.

You have probably heard that checking your credit will bring down your score. But checking your own credit report and score is counted as a "soft inquiry" and doesn't harm your credit score at all. Only "hard inquiries" from a lender or creditor, made when you apply for credit, will bring your credit score down a few points.

Your credit report should have the three main credit services Experian, Trans Union and Equifax and each service will give you a different credit score. Here is a quality service that we recommend. Online Credit Info.com


Gary Gresham is a mortgage loan officer and the webmaster for 1 Stop Shopping Online.com. He offers you purchase, refinance, debt consolidation or home equity loans at competitive rates through this online link. Home Loans.

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