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Credit Reports - Why Your Credit Score is Important
If you have never heard of a FICO score before, you should
become familiar with the term. Named for the firm that invented
it, Fair Isaac Corp., the FICO score is the three-digit credit
summary that, in essence, reduces your entire financial life to a
simple set of numerals.
The score represents a distillation of information gleaned
from the three main credit-reporting bureaus - Equifax, Trans
Union, and Experian, regarding your loan and payment history, as
well as any bankruptcy filings you may have made. Andy liens or
payment defaults will be incorporated into the score as well. The
score, which can vary from a low of 300 to a high of 850,
represents an attempt to quantify a lifetime of financial
dealings into a single number. It has been quite successful. In
fact, most people would be surprised to see just how important
that score has become and how many businesses use it for reasons
that aren't entirely obvious.
Most people would assume, correctly, that lenders would check
the score of a potential borrower who was applying for a car loan
or a home equity line of credit. Many would be surprised,
however, to see that the score is often accessed by potential
employers, landlords, or even insurance companies. While some
states have strictly forbidden the use of FICO scores as a
guideline for setting insurance prices, some insurance companies
still access the scores in order to assess risk for potential
customers. Employers access the scores to see if a possible
employee might be a security or theft risk, and landlords may use
the score to determine whether or not a tenant should post a high
security deposit prior to moving into a rental property.
A substantial argument can be made that there is no way to
accurately reduce someone's financial status to a single
three-digit number. That said, it is simply a whole lot easier
for most companies that need a financial "snapshot" of a customer
to look over their credit report, look at the score, and offer a
"yes or no" response based on the score alone. Fair or not, this
is the way things work today, and it is probably unreasonable to
expect lenders, employers and landlords to start looking deeper
into their customers' and employees' finances.
The best solution for anyone who is concerned about his or her
credit score is to examine their own credit report, which can be
obtained for free at annualcreditreport.com. Report any errors to
the appropriate credit bureau, and try to check your report once
or twice a year. Fair or not, we are our credit score. Making
sure that the number is accurate is an important step towards a
solid financial future.
©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner
of Retro Marketing, a firm devoted to informational Websites,
including End-Your-Debt.com, a site devoted to debt consolidation
and credit counseling, and HomeEquityHelp.com, a site devoted to
information regarding home equity
lending/a>.
MORE RESOURCES:
Credit - Google News
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