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How to Read Credit Scores
SCENARIO #1: You went online and applied for a loan. Sixty seconds later, you realize you've been approved.
SCENARIO #2: You applied for a car loan and got pre-qualified.
SCENARIO #3: You and your neighbor applied for the same loan, but his loan rates are different from yours.
And all this without anyone even asking you how much money you make. How in the world did they know whether to approve you or not?
The answer lies in your credit score.
Credit scoring is a mathematical algorithm used by credit reporting agencies like Equifax, Experian, and Trans Union, in order to come up with a three-digit number, based on information found in your credit report as compared to information found in tens of millions of other people's credit reports. Since your credit report contains factors that are predictive of future credit performance, the resulting number is a highly accurate prediction of how likely you are going to pay your bills.
Knowing how to read credit scores is important since these scores are used extensively by lenders when reviewing your application for a car loan, mortgage, credit card, or auto insurance. The rate you will receive from these credits will be directly related to your credit score.
Thus, if you have a high credit score, the better your application will look to your lenders. On the other hand, if your credit score is below average, lenders will give you higher loan rates.
What's a Good Score?
How to read credit scores starts with knowing what are the scoring categories used. Fair Isaac Corp., a California-based company, is the developer of the most popular credit scoring system used by many of the country's credit reporting agencies. Its score is called the FICO score and it runs in a scale of 300 to 850. In order to get the most favorable interest rates, your score must be 720 or higher.
However, it should be noted that there is more than one credit score available. There are three major credit reporting agencies and several smaller independent companies that provide their own credit scores using their own credit scoring system, not just the FICO scoring system. This means that your credit scores may vary from credit reporting agency to another.
Knowing how to read credit scores comes in handy whenever you are faced with inconsistent credit scores. When you know how to read credit scores, you know what factors are involved in order to calculate the score.
Another reason why it is important to know how to read credit scores is that this three-digit number will determine if you will get credit at all. Ed Ojdana, president of the Experian Consumer Direct, part of Experian, the largest of the three major credit reporting agencies, says that your credit score will also determine the interest rate on your credit.
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How to Read Credit Scores
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Fair Credit Reporting Act / FCRA
That's only one of the rights that the FCRA guarantees you and every consumer.The FCRA is meant to ensure accuracy and privacy of your credit report or consumer history. In addition, any agency that collects debts must also follow certain guidelines that are set out by the law. Under the terms of the Fair Credit Reporting Act (FCRA), you have every right to know exactly what credit reporting agencies are saying about you.
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How to Read Credit Scores
One the other hand, if you have How To Read Credit Scores excellent credit, you may be charged rates as low as eight percent, or possibly even lower still. If you have several thousand dollars in credit card debt, and you are paying up to twenty percent in interest, it will be virtually impossible for you to ever pay off your debt within your lifetime. Having poor credit can cost your hundreds of dollars per year in car insurance premiums. Financial worries are a leading cause of personal and relationship stress, and this stress can lead to mental and physical health problems.
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The Fair Credit Reporting Act (FCRA) Protects You
In fact, there's a law that guarantees it. Fisher ABOUT THE AUTHOR Jeanette Fisher teaches how to get out from under credit card debt, how to use credit to make money, and six ways to build strong credit to finance your first home and multiple investment properties. Also keep copies of everything for yourself, of course!The FCRA makes it mandatory that the reporting company investigate each item you have disputed, often within thirty days, unless they consider your dispute to be unworthy of researching further.
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How to Read Credit Scores
Additional provisions of the FACT Act include:. Those without internet access can call toll-free at 877-322-8228 or write to Annual Credit Report Request Service, P.O. Your credit score is the actual number ranging from 300 to 850 that lenders use to judge your creditworthiness and the How To Read Credit Scores interest rate theyll charge you. Equifax, Experian, and Transunion,the three largest credit reporting agencies, have set up a special site where consumers can request, view, and print their free report.
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How To Use Your Credit Card To Establish A Good Credit History
Making substantial payments every month will help you keep the interest under control. Signing on the dotted line is fun. Just about all credit cards offer some type of incentives such as rewards points or cash back incentives. If you play your cards right you'll prove to creditors that you How To Read Credit Scores are a person who can take care of business in a mature and responsible way. If you're young and just starting out credit cards are certainly convenient and can help you establish a good credit history, which will be important when you need to make major purchases down the road.
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Ten Steps To Building A Good Credit History
Fix any errors on your credit report. Do you want to buy a new car to replace that old wreck? If you can’t make a payment contact the creditor and make arrangements to make the How To Read Credit Scores payment. To get a secured credit card, you’ll need to deposit funds with the credit card issuer and your credit limit is usually equal to the amount you deposit.
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