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How to read your Credit
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Your credit score is one of the
primary tools a creditor uses when determining the risk in
lending money to you. Creditors use your credit score, among
other things, to determine whether or not to grant you credit
and, if so, how much credit and at what rate. Creditors will
also access and consider your credit report, which can provide
further substantiation on a given component of a credit score
that could affect their final decision. However, as most credit
decisions are made very quickly, it is a credit score that is
most often used. The strange thing is not every consumer has a
credit score. There are certain situations where a credit score
cannot be calculated because one or more of the following has
occurred:
Your credit report does not contain at least one account
A remark on one of your accounts references a person who is
deceased
The Social Security number on your credit report matches a
Social Security number in the Social Security Administration's
"Death Claim Index" How Your Credit Score Is Determined:
1. Payment History: Approximately 35% of your score. 2. Amounts
Owed: About 30% of your score. 3. Length of Credit History:
About 15% of your score. 4. Pattern of Credit Use: About 10% of
your score. 5. Types of Credit in Use: About 10% of your score.
Credit Score Guidelines
650 and Above
In general, a score of 650 or above indicates a very good
credit history. People with these scores will usually find the
loan process quick and easy, and will have a good chance to
obtain a loan at a relatively low rate of interest.
620 to 650 Scores between 620 and 650 indicate basically good
credit. (Average FICO scores fall into this range.) People with
scores in this range have a good chance at a loan at a good
rate, but may have to provide additional documentation and
explanations to the lender before the loan is approved.
Below 620 A score below 620 may prevent a borrower from
getting the best interest rates, as they may be considered a
greater credit risk-but it does not mean that mortgage funding
can't be found. |
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FICO Credit Score
FICO credit score
from the Fair Isaac Company is the most widely used credit
scoring system. The FICO credit score is a number lenders use to
help them decide whether or not you should be considered credit
worthy. A FICO score is a snapshot of your credit risk picture
at a particular point in time. The higher your FICO credit
score, the lower the risk to lenders. Fair, Isaac and Company
Inc. develops the mathematical formulas used to produce FICO
scores.
There are several things you can do to raise your FICO credit
score. Your FICO credit score analysis will suggest things you
can do to improve your score over time. Generally, people with a
high FICO credit score consistently:
Pay bills on time.
Keep balances low on credit cards and other revolving credit
products.
Apply for and open new credit accounts only as needed The
FICO credit score considers five main kinds of credit
information. Listed from most important to least important,
these are:
Payment history.
Amount owed.
Length of credit history.
New credit.
Types of credit in use. Why Is Your FICO Credit Score
Important? You can get your FICO credit score from your Equifax
credit report. A FICO credit score ranges from 300 to 850. The
higher the FICO credit score, the lower the predicted credit
risk for lenders. A FICO score provides an extremely valuable
guide to future risk based solely on credit report data. The
higher the consumer's score, the lower the risk to lenders when
extending new credit to that consumer. Sound like the same
thing? Well that's just to show you that your FICO credit score
is really important. |
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Beacon Credit Score
The Beacon credit score is a type if FICO credit score. You can
get your Beacon credit score with an Equifax credit report.
Creditors determine your Beacon credit score using a statistical
program that compares this information to the credit performance
of consumers with similar profiles.
A Beacon credit score or any other credit score enables
creditors to evaluate millions of applicants consistently and
impartially on many different characteristics. But to be
statistically valid, a Beacon credit score or any other credit
score 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 Beacon credit score or other
credit score is not high enough to pass easily or is low enough
to fail is absolutely 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 Based On Your Beacon
Credit Score? If you are denied credit based on your Beacon
credit score, 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. Your Beacon credit
score considers updated information and changes 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.
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