Credit Scores were first developed over fifty years ago when Fair Isaacs Corp Developed the first credit scoring system. Today, the Fair Isaacs Corp Credit Score, which is called a FICO score, is the industry standard and used by lenders to evaluate whether to offer an individual a line of credit or a new home mortgage.
Credit scores are based upon information in a persons credit report and based on a numerical scale between 300 and 850. 850 is considered a perfect credit score, but anything above 760 is considered a very solid credit rating. While the amount of debt a person has plays an important role in determining their credit score, this typically only makes up about 30% of the credit score. The rest of the credit score is based off of the way an individual has paid off their debts, as well as the number of delinquent payments, the length of the credit history, and the types of loans offered.
Since a big part of a credit score is not how much debt you have, but how well you manage this debt, it is possible to maintain a healthy credit score even with a high level of debt. However, most loan administrators suggest maintaining a 30% to 50% debt to credit limit ratio.
One of the most important things that you can do to maintain a healthy credit score is to pay all bills off on time. Today, most banks offer free electronic payments, which can be a quick and easy way to ensure that all bills get paid on time. If a payment is missed, it should be paid off as quickly as possible.
Another important step in maintaining a healthy credit score is to pay off the debts that have the highest interest first, without a great deal of debt transfers. Many people, especially those who are having credit problems, also like to apply for any semi-attractive credit card offer they get, but too many credit inquires reduces your credit score, so this should be avoided. Instead, it is suggested to only apply for new credit once a year and to research potential credit offers before actually applying. Once a good credit offer is found, the credit inquire process should be completed in as short of a time frame as possible.
One big factor that goes into a credit score is the length of a persons credit history, so it is not usually advised to cancel a credit line, even if there is no credit balance. Instead, you can simply cut up the credit card, but leave the account open. This helps provide a longer credit history, even if you are not using it.
Using a debit card instead of a credit card can also be a good idea. These can be used in the same way a credit card would be and are accepted at all major retailers, but do not draw money from a credit line, but instead directly from a persons checking account. Some people even find that when they use cash, they are less likely to spend money, so it may be a good idea to do a little experimenting to get in the habit of efficiently managing money.
While credit reports and credit scores are arguably a very controversial device, if you wish to borrow money, having a high credit score is essential.
There are usually a number of factors that a lender will consider when deciding whether or not to offer someone a mortgage. For many lenders, a persons credit score is a very important consideration. Credit scores are a number between 300 and 850, which represents how credit-worthy the individual is.
Lenders and merchants have been using credit reports for thousands of years, which is basically information about a persons borrowing and spending habits that is shared among businesses. However, the credit score was not developed until 1958, when the Fair Isaac Corp implemented a system to analyze credit reports and rate them on a numerical scale.
As is the case with a credit report, credit scores are intended to provide a non-discriminatory means of evaluating a persons creditworthiness, so race, gender, and religion do not come into play.
Since the development of the Fair Isaac Corp credit scoring system, which is called a FICO score, several other companies have developed their own credit scoring system, but none have become more popular than the FICO Score.
While each of the three credit reporting agencies are required to provide a free copy of your credit report every year, there is no such requirement for your credit score. Instead, consumers must purchase their credit score, which typically costs between $6 and $16. Each of the credit reporting agencies also offer a proprietary credit score, but these scores are different than the credit score offered by the Fair Isaac Corp.
There are a number of different factors that go into a FICO credit score, which is based off of information from a each of the three credit reporting agencies. A persons FICO score considers several different factors and rates people on a scale between 300 and 850, with 850 being the highest credit score possible.
The following factors are considered when generating a credit score:
Payments:
Length of Recorded Credit History:
Different Types of Credit:
How Much is Owed:
New Credit Lines:
Each of the above factors is considered by the Fair Isaacs Corp when they generate a persons credit score. Since there are so many different factors, it is very easy for a mistake on a credit report to result in a lower credit score, which is why it is so important to regularly check your credit score for errors.
There are three different credit reporting agencies, which provide all of the Credit Reports. These companies collect information into a single database and then resell it to interested banks or lenders.
These three companies, Experian, Equifax, and TransUnion, all provide the same report, but it is possible that a discrepancy could show up on one, which might not be visible on the others. However, once it shows up in the database of one of the credit reporting agencies, the error will subsequently be transmitted to the other two agencies.
As a result of how easy it is for a discrepancy to propagate itself among the three credit reporting agencies, it is important to regularly check all three and fix any errors as they arise. Checking your credit report is often one of the first ways that you can tell if you have been the victim of identity theft as well,
Each person is eligible to receive one copy of their credit report for free from each of the three companies every 12 months. One of the easiest ways to get a free copy of your credit report is to use annualcreditreport.com. You will have to create an account at annualcreditreport.com, then select which credit agency you want to send you the report.
However, it is not a good idea to get all three reports at once. Instead you would want to receive one copy and review it, spreading out all three over the course of a year. They are supposed to share their information, so fixing an error at one agency should fix it at the other two.
Always remember to keep track of who you have already asked for a credit report, so you can get all three free credit reports every year.
Errors can occur because of several reasons, but it is most often because a creditor did not record a payment. In this event, even though you paid the debt, it is reported as a late or missed payment, which will hurt your credit score. If you find an error like this, it is important to act on it as soon as possible.
First, collect all the documentation you can to show that you paid the bill or debt. This includes check stubs, bank statements, and any letters from the creditor. Once you have the documentation, you will need to send a letter explaining the problem to both the credit reporting agency, as well as the creditor. Along with the letter, you will have to send your personal information, such as name, address, birth date, and social security number. It is a good idea to speak with the creditor as well, because they can often fix the error on their end quickly.
It is important to be careful when fixing errors though, because creditors take into account how often the credit report has been accessed. So, it is possible to raise alarms if too many people run your credit while you are fixing the error. If at all possible try to fix the problem as soon as possible, so the people that are accessing your credit report to fix it are not get stretched out over an extended period of time.
Once the error has been fixed, it is very important to ensure that it has been removed from your credit report.
When applying for a loan or mortgage, many lenders will charge the borrower for the credit report. If they charge more than $20, then they are very likely being dishonest, because this is the standard rate. Since checking the borrowers credit report is often the first thing a creditor does, it is important to know whats on your credit report and fix as much as you can before applying for the loan.
In regards to current debt and outstanding payments, it is a good idea to pay these down as much as possible before speaking with a lender. It is also possible that there may be a mistake on the credit report, which even if you have documentation for, you bank would not overlook.
One of the most important things a prospective homeowner can do to improve their chances of receiving a mortgage is to reduce the amount of debt on their credit report. This can be a great first step to new home ownership.
Credit reports are often used by creditors to determine how much of a risk a person would be to lend to. These reports contain information about a persons financial dealings, with some other limited personal information.
There are a number of people who could potentially view your credit report, including the government, banks and other creditors, and insurance companies. It is also possible for employers, both present and prospective, to view your credit report. This is common in professions where they are worried about company theft or embezzlement.
In fact almost anyone can see your credit report providing that they are able to offer an actual financial reason why they should be able to see your credit report. Each person is also eligible to receive three free copies of their credit report every year, one from each of the different credit reporting agencies.
Since there are so many potentially important people who could looking at your credit report, it is important to identify any problems and try to fix them as soon as possible. This can not only make it easier to receive a loan or mortgage, but can also effect many other parts of your life.
At first glance, a credit report can seem very confusing, but all of the information in a credit report can basically be divided into four sections.
Personal Information: Credit Reports are prohibited from containing information about race, religion, or sexual orientation, but they do contain a great deal of other identifying information.
This includes the persons name, aliases, current addresses, previous addresses, Social Security Number, Date of Birth, current employer, past employer, and information about husbands or wives.
Credit Information: As the name implies, credit reports contain a great deal of information about your credit history. This includes mortgages, credit card debt, unpaid debt, debt that has been sent to a collections agency, and some utility information. Also, in the case of loans it has information such as the type of loan, length, cosigners, and a two year payment history.
While the credit information is usually very inclusive, it can not include bankruptcies that are more than 10 years old or other debt that is older than 7 years.
Information from Public Records: This includes any state or country government records, including information on bankruptcies, tax liens, or other civil judgments. It can also include child support.
Recent Credit Report Requests:: This section lists the people who have requested your credit report over the last year, although it goes back 2 years for employers. Sometimes, too much activity can raise a red flag to lenders and may also be an indication of identity theft.
Credit reports are used by prospective lenders to determine if an individual is eligible to receive credit.
Since a persons credit report is one of the first things a creditor will look at, as a borrower it is important to try to fix any errors and clean up your credit report as much as possible before applying for a loan.
Credit reports are a special document that contains information about a persons financial records. It will include information about child support, debt, credit lines, mortgages, and in some cases utilities. This information details how the person has been in regards to using credit and paying it back.
While there is a great deal of personal information in a credit report, there is a lot of things that can not be printed in a credit report. This is as a result of the Fair Credit Reporting Act of 1971, which put an end to some very compromising data collection practices by credit reporting agencies.
For instance, prior to 1971, it was not uncommon for there to be information gleaned from actual surveillance in the credit report. They also often included information about race, religion, sexual preference, and criminal background. Credit reports where then used as an excuse to deny people credit, instead of determining if they were credit worthy.
Today the credit report has had the discriminatory and compromising information that was previously found in credit reports removed. Instead, the credit report is limited to only providing information about the persons finances and current debt load.
When a person misses a payment to a lender, creditor, or certain utility companies, this would be noted on the credit report.
Only debt that is relatively recent is included as well. For example, for bankruptcies, only those in the last 10 years are included in a credit report. Other types of debt, such as debt that has been sent to a collection agency, is only included for 7 years on a credit report.
Credit information is collected by three different credit reporting agencies, Transunion, EquiFax, and Experian, who store all this information and resell it as credit reports. Sometimes when applying for a mortgage, the credit report will be included in the cost of the application, but its cost should not exceed $20.
As a consumer, each credit reporting agency is required to provide one free credit report a year. It is a good idea to not get all three at once, instead spreading them out over the length of the entire year. This way, the credit report can be reviewed and corrected, then another copy can be received, which should reflect the changes. In this manner, it may be possible to not have to pay to receive your own credit report.
It is also possible to pay and receive a credit report whenever needed. However, it should be noted that creditors do look at how often a credit report has been requested and if it has been requested too much, this can count against you.
Credit reports can be viewed by a number of people, including government agencies, employers, insurance companies, and lenders.
It is also possible for many other people, t, such as landlords, to view your credit report, as long as they can provide a real financial reason.
Preparing to buy a new home can be a very daunting process, especially for a first time home buyer. Due to the current financial situation, in many cases lenders have become much more strict with who they will lend to and are much more likely to throughly analyze the finances of a prospective home buyer, more so than they would have only a few years ago.
For many lenders, having a high credit score with limited or manageable debt is a key factor in offering an individual a home loan, with some lenders now requiring minimum credit scores of 700. A persons credit score is a number that is based off of information on your credit report. Whenever you make a purchase on credit, are delinquent on a bill, or make a payment on your line of credit, this information is added to your credit report. In the case of a delinquent or unpaid bill, your credit score would likely be lowered, while a record of on time payments will raise your credit score.
A credit score of 850 is considered to be perfect, while a credit score of 300 is considered to be fairly low. With many lenders tightening their restrictions on financing mortgages and requiring a credit score of over 700, they have successfully limited the number of individuals who will now qualify for a home loan.
These restrictions help to highlight the importance of thinking about the big picture when using a credit card or deciding not to pay a bill. While missing a payment or making a late payment might not be a big deal at the time, if this prohibits you from getting a mortgage a year later, it has effectively cost you much more than a little bit of extra interest.
When preparing to apply for a mortgage, it is important to first take steps to repair your credit report and take care of any delinquent or unpaid bills. This will not only help raise your credit score, but will also show a strong sense of commitment to the bank or mortgage broker, who will see that an effort has been made to be fiscally responsible.
Not only will a lender take your credit score and borrowing practices into account when you apply for a home loan, but they will also consider your net worth. Your net worth is basically the difference between your total assets and how much money you owe. So, even if you were to make six figures a year, if your liabilities were also six figures, then you would not be considered to have a very high net worth.
Both your net worth and credit rating are two very important factors a mortgage broker or other lender will consider when deciding whether to offer you a mortgage and how much of a mortgage to offer. So, not only should you try to clean up your credit report well before applying for a mortgage, it is also a good idea to try to reduce your overall liabilities whenever possible.