Your Credit Scores Again

							Title:
Your Credit Scores Again

Word Count:
838

Summary:
It's important for every consumer t
o learn what a credit score is and
how to improve it. Most consumers d
o not know what their credit scores
 are, but these scores are used in
dealings with such diverse agencies
 as credit card companies, home equ
ity lenders, auto loan lenders, and
 finance companies when considering
 appications for credit or loans.

Credit scores are usually calculate
d by a computer model created, most
 often, by Fair, Isaac & Company (o
r "FICO," leading to th...


Keywords:
credit score, bankruptcy, cash advan
ce


Article Body:
It's important for every consumer t
o learn what a credit score is and
how to improve it. Most consumers d
o not know what their credit scores
 are, but these scores are used in
dealings with such diverse agencies
 as credit card companies, home equ
ity lenders, auto loan lenders, and
 finance companies when considering
 appications for credit or loans.

Credit scores are usually calculate
d by a computer model created, most
 often, by Fair, Isaac & Company (o
r "FICO," leading to the common gen
eric term "FICO score"). A credit s
core is intended to be a predictive
 summary of a loan applicant's cred
it history. A low score can mean de
nial of a credit card or loan, or i
f the application is accepted, a hi
gher interest rate. Also, some lend
ers use credit scores and other inf
ormation to set the "price" for pro
cessing a loan. Statistically, low
credit scores also correlate with o
ther risky behaviors such as fraud
and auto accidents.

There a many factors affecting the
final credit score. Payment history
 accounts for 35%. A credit score i
s negatively affected by a history
of late payment of bills, accounts
sent to collection agencies, or dec
lared bankruptcy. The more recent t
he problem, the lower the score --
a 30-day late payment a month ago h
as more effect than a bankruptcy fi
ve years ago.

Outstanding debt accounts for 30%.
If the amount owing is close to the
 consumer's credit limit, this will
 likely to have a negative effect o
n the credit score. A low balance o
n two cards is better than a high b
alance on one.

Length of credit history accounts f
or 15%. The longer the accounts hav
e been open, the better.

Recent credit report inquiries acco
unt for 10%. If the applicant has r
ecently applied for many new accoun
ts, that may negatively affect the
score. Promotional inquiries do not
 have any effect.

Types of credit in use accounts for
 10%. Loans from finance companies
generally lower the credit score. F
ICO finds this more important when
there is less of other types of cre
dit information about the applicant
 upon which to base a score.

Although this is a general guide as
 to what credit scoring companies d
eem important, it should be noted t
hat some companies may consider dif
ferent factors.

Credit scores range from 300 to 900
, with an average of approximately
750. According to the model, as the
 score increases, the risk of defau
lt decreases. Studies by the loan i
ndustry show a direct correlation b
etween low scores and high default
rates. Therefor, it may be difficul
t for an applicant with a low score
 to convince a creditor to offer an
 affordable loan, or even any loan
at all. But just as credit history
can vary from credit bureau to cred
it bureau, so can a credit scores.
It is possible to have a high score
 with one credit bureau (Equifax, E
xperian, or TransUnion) and a low c
redit score with another, just as i
t is possible to have a clean credi
t history with one bureau and a sul
lied record with another.

However, extremely wide-ranging cre
dit scores are uncommon, though var
iations of up to 100 points have be
en noted by some lenders. To get an
 accurate picture, lenders often ta
ke the average of all the applicant
's scores. Narrow ranges of 20 or 2
5 points are more common.

Consumers may obtain their credit s
cores from credit bureaus by paying
 a fee (the Federal Trade Commissio
n sets the fee). The bureau must pr
ovide the score, the range of possi
ble scores under the scoring model
used, four key factors that affecte
d the score, the date on which the
score was created, and the name of
the entity that provided the score
(such as Fair, Isaac). Note that th
e score and the scoring model provi
ded may vary from those a given len
der uses. Federal law allows consum
ers three freee credit reports ever
y year. If you get your credit scor
e from one or more credit scorers,
remember that the score may vary fr
om one credit score company to the next.
Fair, Isaac offers several reccomme
ndations to consumers seeking to im
prove their credit scores. Pay bill
s on time; make up missed payments
and keep all payments current. Main
tain low balances on credit cards a
nd other "revolving debt". Maintain
 the "balance-to-limit ratio" of cr
edit cards below 50%. It is usually
 better to carry smaller balances o
n several cards than to pile everyt
hing onto one card. Apply for a new
 card if necessary, rather than pil
ing all purchases onto one.

 Pay off debts rather than transfer
ring them to a new account. Don't c
lose a rarely-used credit account w
ithout opening a new one, as a hist
ory of wisely-used credit boosts th
e credit score. However, do not app
ly for new, unneeded credit cards j
ust to increase available credit.

Loan applicants should not give up
seeking credit just because of a lo
w credit score. Sometimes credit re
ports contain errors, and it is pos
sible to obtain a copy of the repor
t, fix the problem, and explain the
 situation to the lender. The major
ity of lenders will override credit
 scores if they feel an applicant i
s a good credit risk despite a low
credit score.