 |
Get Your Credit Score To Soar In The Twinkling of An Eye
Ever wonder how a creditor decides whether to grant you
credit? For years, creditors have been using credit scoring
systems to determine if you'd be a good risk for credit cards and
auto loans. More recently, credit scoring has been used to help
creditors evaluate your ability to repay home mortgage loans.
Here's how credit scoring works in helping decide who gets credit
-- and why.
What is credit scoring?
Credit scoring is a system creditors use to help determine
whether to give you credit.
Information about you and your credit experiences, such as
your bill-paying history, the number and type of accounts you
have, late payments, collection actions, outstanding debt, and
the age of your accounts, is collected from your credit
application and your credit report. Using a statistical program,
creditors compare this information to the credit performance of
consumers with similar profiles. A credit scoring system awards
points for each factor that helps predict who is most likely to
repay a debt. A total number of points -- a credit score -- helps
predict how creditworthy you are, that is, how likely it is that
you will repay a loan and make the payments when due.
Because your credit report is an important part of many credit
scoring systems, it is very important to make sure it's accurate
before you submit a credit application. To get copies of your
report, contact the three major credit reporting agencies:
- Equifax: (800) 685-1111
- Experian (formerly TRW): (888) EXPERIAN (397-3742)
- Trans Union: (800) 916-8800
These agencies may charge you up to $9.00 for your credit
report.
Why is credit scoring used?
Credit scoring is based on real data and statistics, so it
usually is more reliable than subjective or judgmental methods.
It treats all applicants objectively. Judgmental methods
typically rely on criteria that are not systematically tested and
can vary when applied by different individuals.
How is a credit scoring model developed?
To develop a model, a creditor selects a random sample of its
customers, or a sample of similar customers if their sample is
not large enough, and analyzes it statistically to identify
characteristics that relate to creditworthiness. Then, each of
these factors is assigned a weight based on how strong a
predictor it is of who would be a good credit risk. Each creditor
may use its own credit scoring model, different scoring models
for different types of credit, or a generic model developed by a
credit scoring company.
Under the Equal Credit Opportunity Act, a credit scoring
system may not use certain characteristics like -- race, sex,
marital status, national origin, or religion -- as factors.
However, creditors are allowed to use age in properly designed
scoring systems. But any scoring system that includes age must
give equal treatment to elderly applicants.
What can I do to improve my score?
Credit scoring models are complex and often vary among creditors
and for different types of credit. If one factor changes, your
score may change -- but improvement generally depends on how that
factor relates to other factors considered by the model. Only the
creditor can explain what might improve your score under the
particular model used to evaluate your credit application.
Nevertheless, scoring models generally evaluate the following
types of information in your credit report:
- Have you paid your bills on time? Payment history typically
is a significant factor. It is likely that your score will be
affected negatively if you have paid bills late, had an account
referred to collections, or declared bankruptcy, if that
history is reflected on your credit report.
- What is your outstanding debt? Many scoring models evaluate
the amount of debt you have compared to your credit limits. If
the amount you owe is close to your credit limit, that is
likely to have a negative effect on your score.
- How long is your credit history? Generally, models consider
the length of your credit track record. An insufficient credit
history may have an effect on your score, but that can be
offset by other factors, such as timely payments and low
balances.
- Have you applied for new credit recently? Many scoring
models consider whether you have applied for credit recently by
looking at "inquiries" on your credit report when you apply for
credit. If you have applied for too many new accounts recently,
that may negatively affect your score. However, not all
inquiries are counted. Inquiries by creditors who are
monitoring your account or looking at credit reports to make
"prescreened" credit offers are not counted.
- How many and what types of credit accounts do you have?
Although it is generally good to have established credit
accounts, too many credit card accounts may have a negative
effect on your score. In addition, many models consider the
type of credit accounts you have. For example, under some
scoring models, loans from finance companies may negatively
affect your credit score.
Scoring models may be based on more than just information in
your credit report. For example, the model may consider
information from your credit application as well: your job or
occupation, length of employment, or whether you own a home.
To improve your credit score under most models, concentrate on
paying your bills on time, paying down outstanding balances, and
not taking on new debt. It's likely to take some time to improve
your score significantly.
How reliable is the credit scoring system?
Credit scoring systems enable creditors to evaluate millions of
applicants consistently and impartially on many different
characteristics. But to be statistically valid, credit scoring
systems must be based on a big enough sample. Remember that these
systems generally vary from creditor to creditor.
Although you may think such a system is arbitrary or
impersonal, it can help make decisions faster, more accurately,
and more impartially than individuals when it is properly
designed. And many creditors design their systems so that in
marginal cases, applicants whose scores are not high enough to
pass easily or are low enough to fail absolutely are referred to
a credit manager who decides whether the company or lender will
extend credit. This may allow for discussion and negotiation
between the credit manager and the consumer.
What happens if you are denied credit or don't get the
terms you want?
If you are denied credit, the Equal Credit Opportunity Act
requires that the creditor give you a notice that tells you the
specific reasons your application was rejected or the fact that
you have the right to learn the reasons if you ask within 60
days. Indefinite and vague reasons for denial are illegal, so ask
the creditor to be specific. Acceptable reasons include: "Your
income was low" or "You haven't been employed long enough."
Unacceptable reasons include: "You didn't meet our minimum
standards" or "You didn't receive enough points on our credit
scoring system."
If a creditor says you were denied credit because you are too
near your credit limits on your charge cards or you have too many
credit card accounts, you may want to reapply after paying down
your balances or closing some accounts. Credit scoring systems
consider updated information and change over time.
Sometimes you can be denied credit because of information from
a credit report. If so, the Fair Credit Reporting Act requires
the creditor to give you the name, address and phone number of
the credit reporting agency that supplied the information. You
should contact that agency to find out what your report said.
This information is free if you request it within 60 days of
being turned down for credit. The credit reporting agency can
tell you what's in your report, but only the creditor can tell
you why your application was denied.
If you've been denied credit, or didn't get the rate or credit
terms you want, ask the creditor if a credit scoring system was
used. If so, ask what characteristics or factors were used in
that system, and the best ways to improve your application. If
you get credit, ask the creditor whether you are getting the best
rate and terms available and, if not, why. If you are not offered
the best rate available because of inaccuracies in your credit
report, be sure to dispute the inaccurate information in your
credit report.
© Copyright - www.deleteuglycredit.com
Omar M. Omar is the owner of http://www.deleteuglycredit.com
and - Author of "The Credit
Repair Bible" book. The website is dedicated to providing
credit consumers free advice on how to repair credit. It also
provides credit consumers numerous information about their credit
report, credit laws, and their rights as a consumer.
You have permission to publish this
article electronically or in print, in your Newsletter, on your
website, or in your E-Book, as long as the author's Resource Box
is included with the article.
MORE RESOURCES:
Clock ticks down on credit bureau class-action dealIndianapolis Star, United States - 38 minutes agoIn a class-action settlement, credit bureau TransUnion has agreed to provide free credit- monitoring services to millions of consumers to settle claims it ... |
MORE COLLEGE CREDITChicago Sun-Times, United States - 10 hours agoDespite the current nationwide credit crunch, the State of Illinois secured $100 million for the student loans by tapping a new source -- credit unions. ... |
Credit - Google News
|
|
|
RELATED ARTICLES
10 Tips To Prevent
Credit Card Fraud
Imagine opening your credit card statement one morning and
discovering to your horror that you suddenly owe thousands
of dollars - on purchases that you never
made.Impossible?Credit card fraud on the rise, so you need
to treat your card and its information with extreme care.
Debt Collection
Agencies
Debt collection agencies are often a viable option for
receiving payment on overdue bills. Here you can earn how
debt collection agencies work and what to look for in
reputable debt collection agencies.
How a Credit Card Can Be
Your Friend
We have all heard countless stories of people over their
heads with credit card debt-maxing out every card they own,
then only being able to afford the minimum monthly payment.
High interest payments shackle people to their debt for
years, not to mention the significant income drain the
finance charges have on their families.
Tips for Choosing a
Credit Card Company
Credit Cards are essential for any consumer today. However,
when choosing a new credit card company, many people do not
know what to look for.
Bad Credit Loans For
Those Who Seek Alternatives for New or Old Car
You can still save money on a Bad Credit Loan by comparing
rates, checking out multiple policies, and negotiating with
lenders.Getting a Bad Credit Loan doesn't have to be like
basic training.
Good Credit -- Essential
for the Prospective Home Buyer
Credit is a funny thing. It can be a useful tool in the
hands of an informed individual, or a weight of burden to
the unsuspecting.
Your Credit Card May Be
Costing More Than You Think!
Do you know what your credit card is truly costing you?
Many people assume that they do, but aren't familiar with
the hidden fees that many credit card companies are
charging. In fact, if you don't keep close tabs on your
credit card, you may end up paying hundreds of extra
dollars per year-without ever really knowing it!And if
you're trying to budget your money, those hidden fees can
add up!Let's take a look at some of the most common credit
card fees, and then talk about how you can avoid them.
How To Start A Second
SEPERATE Credit File!
Your personal credit file is separated from those with the
same or similar names by several factors, including a
driver's license number, birth date, or spouse's name.
Although these are three important identifying marks, the
number one identifying mark on your credit report is your
social security number.
Always Avoid Payment
Holidays
Once you've been paying off a credit card for a while, you
might be offered a 'payment holiday'. You'll get a letter,
saying that since the company knows it's difficult for some
families around Christmas (or whatever other excuse they
think up), they're offering you a month off from paying, as
a 'special present'.
Bailiffs & Council
Tax - Knowing What To Do
This article is about bailiffs who may call trying to
collect Council Tax or Community Charge (Poll Tax) arrears.
If a bailiff has contacted you to collect another sort of
debt the law might be different.
Free Credit Reports -
How to Maintain Your Credit Profile
Maintaining your Credit ProfileEvery consumer should be
maintaining their credit profiles to ensure the highest
scores possible. To do so, you must first order your credit
reports from the three major credit bureaus: Equifax, Trans
Union, and Experian.
How Credit Scoring
Works
The all important credit score! It determines the amount of
loan you can get, it determines the interest rate at which
you are charged for a loan, etc. Your credit score plays an
important figure in your financial life.
Establishing Credit -
What You Need To Know Part 2
In my previous article "Establishing Credit - What You Need
To Know Part 1" I discussed the need for a good credit
history and what lenders were looking for prior to loaning
an individual money or additional funds based on their
credit history. This article will go into the necessary
steps someone needs to take in order to initially establish
their credit history.
Balance Transfers
Introduction
Credit card balance transfer involves using a credit card
to pay off the amount outstanding on one or more
credit/store cards. The total debt then moves to one card.
Common Credit Score
Myths
A lot of credit score myths about fico score ratings get
spread around and some of them are just outdated
information. Sometimes even lenders can give you the wrong
advice and it can get confusing.
All You Wanted to Know
of Bad Credit
Martin Henderson is in a fix these days. Because of his
failure to repay a loan he had taken a few years back, he
has been adjudged as a bad credit case.
What Can Happen to You
as a Victim of Identity Theft, Facts &
Figure
Is identity theft really that serious? Thousands of people
every year are victims of this terrible crime. Thieves use
your personal information to commit fraud or other crimes
in your name and can cause significant credit damage.
The Art of Stoozing to
Make Money from Credit Cards
Make Money from StoozingStoozing, this is a sophisticated
method of making money from credit cards that offer 0%
introductory periods, the method requires cast iron
discipline in never spending on the cards.But, I hear you
all ask - what is stoozing and can I do it?Stoozing, in the
simplest terms is borrowing money from credit cards that
offer a 0% introductory deals and saving that money in a
savings account for the duration of the offer on the credit
card.
Do You Know Whats On
Your Credit Report ?
It is important to know your credit rating for a number of
reasons. Believe it or not there may be errors in your
credit report, and it is essential that you repair them
immediately.
Guide to Credit
Terms
Listed below is a useful guide to credit card terms. It is
a list of definitions of credit card terms that may or may
not be familiar to you.
|
|
