Gloria Smith asked:
Credit scores play a vital role in a person’s financial life. They can make or break your chance of obtaining a mortgage loan, a credit card and other types of loans. For home buyers, a credit score is important in the home buying process as well as in determining the lender’s interest rate.
A credit score is a three-digit number calculated based on a statistical analysis of a person’s credit files. Lending institutions including banks normally use this in determining if a person is worthy to avail of a loan or any other form of credit at a specific interest rate and credit limit. The number helps lenders identify the level of risk they may be taking if they loan an amount to an borrower. In other words, a credit score is proof of his creditworthiness or his ability to pay debts on time.
Credit information
Basically, a credit score is based on credit report information provided by three major credit bureaus or credit reference agencies – Transunion, Equifax and Experian. A credit report contains information on your payment history, how much open credit you have or the amounts you owe, the length of your credit history, types of credit used and new credit, all of which affect a person’s creditworthiness. Apart from those information mentioned, lenders normally consider other factors such as income, employment history and the credit type a borrower is seeking.
Most lenders and banks use the FICO method in calculating an individual’s credit score. Many mortgage lenders also use this to find out the possibility that the borrower may default on his financial obligations to the lender.
FICO refers to the Fair and Isaac Company, an independent firm responsible for developing the method of credit scoring. The FICO credit score ranges from 300 to 850.
Not only banks and lending institutions use credit scoring as mobile phone companies, insurance firms, employers and government departments also apply the same techniques.
A good score
The higher the number, the better is your credit score. This means that the lender believes you can be a good borrower with less risk. Additionally, as your score increases, you will more likely be offered a lower interest rate. Borrowers with a credit score of more than 700 are offered more financing options and better interest rates.
A 2003 report in the U.S. revealed that 29 percent of the American population have credit scores ranging from 750 to 799, 20 percent in the 700-749 range, 16 percent in the 650-699 range and 11 percent in the 600-649 range. Another 11 percent have scores of more than 800.
Getting your score
Previously, only lenders and other businesses that used the FICO could access your credit score. However in 2001, the federal government finally decided to give consumers access to their scores after being pressured by the U.S. Congress, credit industry and consumer groups.
Today, anybody using credit can obtain their credit score from the three big credit agencies, at Fair Isaac and Company’s website and several other websites. Borrowers can also ask their lenders for access to their scores when applying for a loan.
Shane
Credit scores play a vital role in a person’s financial life. They can make or break your chance of obtaining a mortgage loan, a credit card and other types of loans. For home buyers, a credit score is important in the home buying process as well as in determining the lender’s interest rate.
A credit score is a three-digit number calculated based on a statistical analysis of a person’s credit files. Lending institutions including banks normally use this in determining if a person is worthy to avail of a loan or any other form of credit at a specific interest rate and credit limit. The number helps lenders identify the level of risk they may be taking if they loan an amount to an borrower. In other words, a credit score is proof of his creditworthiness or his ability to pay debts on time.
Credit information
Basically, a credit score is based on credit report information provided by three major credit bureaus or credit reference agencies – Transunion, Equifax and Experian. A credit report contains information on your payment history, how much open credit you have or the amounts you owe, the length of your credit history, types of credit used and new credit, all of which affect a person’s creditworthiness. Apart from those information mentioned, lenders normally consider other factors such as income, employment history and the credit type a borrower is seeking.
Most lenders and banks use the FICO method in calculating an individual’s credit score. Many mortgage lenders also use this to find out the possibility that the borrower may default on his financial obligations to the lender.
FICO refers to the Fair and Isaac Company, an independent firm responsible for developing the method of credit scoring. The FICO credit score ranges from 300 to 850.
Not only banks and lending institutions use credit scoring as mobile phone companies, insurance firms, employers and government departments also apply the same techniques.
A good score
The higher the number, the better is your credit score. This means that the lender believes you can be a good borrower with less risk. Additionally, as your score increases, you will more likely be offered a lower interest rate. Borrowers with a credit score of more than 700 are offered more financing options and better interest rates.
A 2003 report in the U.S. revealed that 29 percent of the American population have credit scores ranging from 750 to 799, 20 percent in the 700-749 range, 16 percent in the 650-699 range and 11 percent in the 600-649 range. Another 11 percent have scores of more than 800.
Getting your score
Previously, only lenders and other businesses that used the FICO could access your credit score. However in 2001, the federal government finally decided to give consumers access to their scores after being pressured by the U.S. Congress, credit industry and consumer groups.
Today, anybody using credit can obtain their credit score from the three big credit agencies, at Fair Isaac and Company’s website and several other websites. Borrowers can also ask their lenders for access to their scores when applying for a loan.
Shane
