The Credit Score Mystery
There are many questions people ask when it comes to building your credit score. Some people wonder, what is a credit score? Your credit score matters when you buy a home, an automobile or even applying for a credit card. The lenders need to know what kind of risk they are taking by lending you money. Yes, applying for a credit card is considered borrowing money each month for your purchases applied to the credit card!
There are three major credit bureaus that keep track of your financial information: TransUnion, Esperian, and Equifax. Your information is reported from your creditors to these financial credit bureaus. The creditors include your mortgage lender, credit card lenders, utilities, automobile lenders, department store lenders, and sometimes even landlords report your financial activity. Each entity keeps a score which when added together, gives you a credit score or better known as FICO score. FICO score is also known as the Fair Isaac Corporation. The scores range from 350 – 850 and, of course, the higher the number, the better the score. Your score is calculated using the information gathered from your credit reports. Your financial information changes on a regular basis so that is why your score changes regularly as well. Your 3 FICO scores affect both how much and what loan terms lenders will allow you to borrow at any given time and it determines the interest rate you will pay with any of the lenders at any given time.
Did you know that all of the information concerning your finances is kept with these three credit bureaus? This is called Credit History. Any negative
information remains on your credit history up to 7 years. Negative information, for instance, is late utility payments, late credit card payments, late mortgage and
automobile payments, etc. Some items can remain on the report up to 10 years! The older the items are, the better chances are, they will not impact your credit score. Other areas of concern lenders have is how much total debt you have.
There are several key factors to calculate your credit score. These calculations are then compared to similar information from other consumers. Once all of these factors are reviewed, you receive a 3 digit number: this is your credit score. You see your FICO score helps lenders make a faster and more accurate decision to see if you are credit risk. People can get loans faster because the credit report is instantaneous! Thanks to today’s technology! Lenders can focus on the facts and deliver their decision much quicker so you do not have to wait for their answer.
If you do not have a score or if you have very little credit history, some lenders will not give you a loan. However, there is no cut and dry information that says whether you are a “good” or “bad” customer. Each lender has their own criteria to make the decision whether to loan you money or not. Many times a lender will do a credit report a couple times to see if your score is consistent when making their decision to lend you money.
There are ways to increase your score if you have a low score. Your credit score is a reflection of who you are and whether you can be trusted to handle money responsibly. So it pays to know your credit score!