Most Americans have no clue about the state of their credit until they try and apply for an apartment, credit card, car insurance, loan, and in some cases, employment. It is a good thing to know what credit scoring is, what crediting scoring can do for you, and most importantly what credit scoring can do to you.
Credit score gives lenders a quick, objective measurement of of your cedit risk and determines whether your application will be approved. Because lenders use FICO scores to approve loans, set credit limits and assign interest rates, knowing your credit score and how to improve it gives you a powerful tool for financial health.
FICO, developed by Fair, Issac and Company, Inc., is a complex credit-scoring mathematical formula that assesses the risk a borrower may default. The method is used by the three major credit-reporting agencies (Equifax, Experian and TransUnion) to evaluate many types of information from your credit report. In order to make credit score fair for everyone, the government prohibits creditors from factoring in race, age, gender and religion, to name a few.
Contrary to popular belief, past credit history has a minor impact on your overall credit score. More important factors are current outstanding balances, type of debt, and new inquiries from other creditors that you are considering taking on more debt, even if you don’t actually end up doing so.
Credit score and real estate buying are intertwined. The lower your credit score, the more difficult it becomes to get your mortgage loan approved. Mortgage payment history carriers a greater importance than that of installment debt, with the least amount of emphasis placed on revolving debt--although still important.
More than one-third of your credit history is based on payment, so paying your bills on time is key. A single 90-day late payment is considered as negative as a bankruptcy filing, collection, tax lien, charge off or repossession.
Under Federal law, you have the right to receive a free copy of your credit report from each of the nationwide consumer-reporting companies once every 12 months. For more information, go to www.annualcreditreport.com.