September 22, 2005
What's Your Credit Score? (And what does it mean?)
Anyone applying for a mortgage will probably hear the term"credit score" mentioned at least once, and you'll ask "What'smy credit score?" Depending on where you live, you may or maynot get a straight answer. Some lenders or credit companies maytell you that they cannot legally release it to you, which isnot true. The law does not prohibit the release of thisinformation. However, in most states, lenders and mortgageprofessionals are not required to tell you even though manytimes that is the primary consideration being used whenextending or refusing you credit.
A "credit score" can carry a lot of weight. It can be used todetermine the size of your loan, the terms on which the money islent to you (i.e. interest rate, length of time to repay, andwhether or not you're offered a long-term fixed or short-termvariable rate), the amount of related fees, and your ability topurchase mortgage insurance. In the long run, your credit scorecan cost you quite a bit of money.
For example, inability to purchase mortgage insurance could meanthat you'll have to bring a larger downpayment to the closingtable when purchasing a home. Or, an individual with low creditscores can expect lenders to charge him higher interest ratesbecause the lenders feel they are taking a greater risk with him.
Lenders are concerned with only one question: "will you repay meas agreed or will you default?" Credit scores are consideredgood predictors of a consumer's ability and willingness torepay. A lower score predicts that you're more likely todefault, so they charge a higher fee (interest rate) to loan youthe money. That higher interest rate could make a big differencein the amount of money you pay out each month for housing andthat translates into thousands of additional dollars paid overthe life of your loan.
If your credit score is really low (520 or less), it can even bethe single determinant used to deny your loan applicationwithout considering anything else about you or your creditsituation. So, as you see, your credit score can be veryimportant.
The state of California recently passed a law mandating thatcredit score information be given to prospective borrowers ifthey ask for it. Other states, as well as the federalgovernment, are considering passing similar legislation. So, ifyou're in California and applying for financing, ask for yourcredit score and an explanation of how it's being applied toyour application. For the rest of us, here's more informationabout credit scores and ways to improve yours as much aspossible.
A credit score (also called a FICO score) is acomputer-generated numerical grade given to each consumer basedon a wide range of criteria. This grade is used by lenders topredict their risk in doing business with you by analyzing yourpast behavior. FICO scores are generated and released throughthe big three credit reporting bureaus. Each bureau has a namefor its credit/FICO score. They are as follows: Equifax calls ita Beacon score, TransUnion calls it an Empirica score, andExperian (formerly TRW) calls it a Fair Isaac score. FICO scorescan change day to day depending on what information is reportedto the credit bureau(s).
The information used to calculate your credit score is widelyvaried, but each factor is given a numeric equivalent and addedinto the equation. Some of the thirty or so factors used tofigure a FICO score are: time on the job; how long you've livedat your current address; how many and what types of accounts youhave; how high your account balances are; how much unused credityou maintain each month; the age or newness of your accounts;and of course, the negative factors such as too little or toomuch credit, too many inquiries in the last 90 days, latepayments, collections, consumer credit counseling, judgments,bankruptcies and foreclosures.
Credit scores range from 300 to 900, and scores from 640 to 700are considered excellent. Most lenders flatly refuse to evenconsider scores of less than 500, but still others will approveloans to new borrowers who have no credit scores at all.Needless to say, the borrowers with the "excellent" scoresqualify for the most favorable rates and terms.
To find out what your credit score is you'll have to contact alender or mortgage professional because the report you requestfrom any of the credit reporting bureaus will not show yourscore. However, requesting your credit report (even from one ofthe bureaus) can be a great first step to repairing and/orimproving your credit score. So, at least once a year, get acopy of your report and READ ALL OF IT. The report will comewith instructions on how to read it and how to correctmisinformation. Once you have your report, do the following:
1. Look for anything that may indicate someone else is usingyour credit such as reports that you have changed your addressor newly opened accounts that you are not familiar with, etc.This is a good way to make sure you are not the victim of anidentity thief.
2. Correct errors on your report without delay by following theinstructions that came with it.
3. Pay your bills on time every time, ESPECIALLY YOUR MORTGAGE.Also remember that some bills that wouldn't ordinarily report tothe credit bureaus (such as your rent, utilities, phone billsand medical bills) will show up on your credit report asdelinquencies if you don't pay them, and these "little,unimportant" bills can pull your credit score down just asquickly as other larger accounts.
4. Close any unnecessary accounts. Most lenders prefer thatborrowers have a minimum of four open (active) accounts over thelast 24 months but once you've reached four, the feweradditional accounts the better.
5. Pay down your credit card accounts. Keeping your balancesunder 50% of the approved limits is a definite plus for creditscoring.
6. Pay off collections and judgements. Full payoff is alwayspreferable but if necessary, contact the creditor and arrange asettlement for less than the full amount owed. Afterward, makesure that you get written confirmation that the debt has beenpaid and make sure that the credit bureau reflects this on yourcredit report.
7. Think twice before authorizing new inquiries on your creditreport. Too many in a short period of time really makes lendersnervous.
The three credit report bureaus are listed below. You cancontact each of them by phone, mail or online. Credit reportscost about $9 each, unless you've been turned down for credit inthe last 60 days, in which case, the report is free. Your creditreport request should include your full name, social securitynumber, current address, date of birth, and previous address ifyou've moved in the last 2 years.
Equifax P. O. Box 105496 Atlanta, GA 30348-5496 800-997-2493www.equifax.com
TransUnion P. O. Box 1000 Chester, PA 19022 800-888-4213www.transunion.com
Experian (formerly TRW) P. O. Box 9595 Allen, TX 75013-0036888-397-3742 www.experian.com
About the author: Carole Talley has been involved in numerous aspects of realestate such as examining property titles, originating andclosing mortgage loans, purchase and sales contracts and more.She and husband, J. R., are veteran Real EstateInvestors/Entrepreneurs in Ohio. For more information about thislucrative investment tool, contact them at www.mrdendi.cjb.net.
A "credit score" can carry a lot of weight. It can be used todetermine the size of your loan, the terms on which the money islent to you (i.e. interest rate, length of time to repay, andwhether or not you're offered a long-term fixed or short-termvariable rate), the amount of related fees, and your ability topurchase mortgage insurance. In the long run, your credit scorecan cost you quite a bit of money.
For example, inability to purchase mortgage insurance could meanthat you'll have to bring a larger downpayment to the closingtable when purchasing a home. Or, an individual with low creditscores can expect lenders to charge him higher interest ratesbecause the lenders feel they are taking a greater risk with him.
Lenders are concerned with only one question: "will you repay meas agreed or will you default?" Credit scores are consideredgood predictors of a consumer's ability and willingness torepay. A lower score predicts that you're more likely todefault, so they charge a higher fee (interest rate) to loan youthe money. That higher interest rate could make a big differencein the amount of money you pay out each month for housing andthat translates into thousands of additional dollars paid overthe life of your loan.
If your credit score is really low (520 or less), it can even bethe single determinant used to deny your loan applicationwithout considering anything else about you or your creditsituation. So, as you see, your credit score can be veryimportant.
The state of California recently passed a law mandating thatcredit score information be given to prospective borrowers ifthey ask for it. Other states, as well as the federalgovernment, are considering passing similar legislation. So, ifyou're in California and applying for financing, ask for yourcredit score and an explanation of how it's being applied toyour application. For the rest of us, here's more informationabout credit scores and ways to improve yours as much aspossible.
A credit score (also called a FICO score) is acomputer-generated numerical grade given to each consumer basedon a wide range of criteria. This grade is used by lenders topredict their risk in doing business with you by analyzing yourpast behavior. FICO scores are generated and released throughthe big three credit reporting bureaus. Each bureau has a namefor its credit/FICO score. They are as follows: Equifax calls ita Beacon score, TransUnion calls it an Empirica score, andExperian (formerly TRW) calls it a Fair Isaac score. FICO scorescan change day to day depending on what information is reportedto the credit bureau(s).
The information used to calculate your credit score is widelyvaried, but each factor is given a numeric equivalent and addedinto the equation. Some of the thirty or so factors used tofigure a FICO score are: time on the job; how long you've livedat your current address; how many and what types of accounts youhave; how high your account balances are; how much unused credityou maintain each month; the age or newness of your accounts;and of course, the negative factors such as too little or toomuch credit, too many inquiries in the last 90 days, latepayments, collections, consumer credit counseling, judgments,bankruptcies and foreclosures.
Credit scores range from 300 to 900, and scores from 640 to 700are considered excellent. Most lenders flatly refuse to evenconsider scores of less than 500, but still others will approveloans to new borrowers who have no credit scores at all.Needless to say, the borrowers with the "excellent" scoresqualify for the most favorable rates and terms.
To find out what your credit score is you'll have to contact alender or mortgage professional because the report you requestfrom any of the credit reporting bureaus will not show yourscore. However, requesting your credit report (even from one ofthe bureaus) can be a great first step to repairing and/orimproving your credit score. So, at least once a year, get acopy of your report and READ ALL OF IT. The report will comewith instructions on how to read it and how to correctmisinformation. Once you have your report, do the following:
1. Look for anything that may indicate someone else is usingyour credit such as reports that you have changed your addressor newly opened accounts that you are not familiar with, etc.This is a good way to make sure you are not the victim of anidentity thief.
2. Correct errors on your report without delay by following theinstructions that came with it.
3. Pay your bills on time every time, ESPECIALLY YOUR MORTGAGE.Also remember that some bills that wouldn't ordinarily report tothe credit bureaus (such as your rent, utilities, phone billsand medical bills) will show up on your credit report asdelinquencies if you don't pay them, and these "little,unimportant" bills can pull your credit score down just asquickly as other larger accounts.
4. Close any unnecessary accounts. Most lenders prefer thatborrowers have a minimum of four open (active) accounts over thelast 24 months but once you've reached four, the feweradditional accounts the better.
5. Pay down your credit card accounts. Keeping your balancesunder 50% of the approved limits is a definite plus for creditscoring.
6. Pay off collections and judgements. Full payoff is alwayspreferable but if necessary, contact the creditor and arrange asettlement for less than the full amount owed. Afterward, makesure that you get written confirmation that the debt has beenpaid and make sure that the credit bureau reflects this on yourcredit report.
7. Think twice before authorizing new inquiries on your creditreport. Too many in a short period of time really makes lendersnervous.
The three credit report bureaus are listed below. You cancontact each of them by phone, mail or online. Credit reportscost about $9 each, unless you've been turned down for credit inthe last 60 days, in which case, the report is free. Your creditreport request should include your full name, social securitynumber, current address, date of birth, and previous address ifyou've moved in the last 2 years.
Equifax P. O. Box 105496 Atlanta, GA 30348-5496 800-997-2493www.equifax.com
TransUnion P. O. Box 1000 Chester, PA 19022 800-888-4213www.transunion.com
Experian (formerly TRW) P. O. Box 9595 Allen, TX 75013-0036888-397-3742 www.experian.com
About the author: Carole Talley has been involved in numerous aspects of realestate such as examining property titles, originating andclosing mortgage loans, purchase and sales contracts and more.She and husband, J. R., are veteran Real EstateInvestors/Entrepreneurs in Ohio. For more information about thislucrative investment tool, contact them at www.mrdendi.cjb.net.
# posted by Sponduliqs @ 1:35 PM 
Subscribe to Posts [Atom]