Get Your Credit Report Score To Soar |
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Creditors check your credit report score to see 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. You should know why your credit report score is that much important for getting the credit. Credit scoring is a process designed to predict the future: whether you'll live up to the obligations you incur today. When you make a loan application, the tender will request a credit bureau report showing your prior history. The report may be loaded with information, positive and/or negative. How can the lender evaluate your credit report score and make a fair judgment of the likelihood you'll pay your debts? Based on past experience, lenders have determined the most powerful indicators of future risk. Models have been developed that weigh the data and produce a credit report score that indicates risk level. Lenders can then decide whether they want to extend credit to borrowers who present that amount of risk. Although many lenders now develop their own credit report scores, the Fair, Isaac score, known as FICO, is widely used, especially for home mortgages. Fannie Mae and Freddie Mac, another quasi-federal agency, suggest strongly that lenders use FICO scores so these scores are widely used for mortgages. In some cases you can provide basic information to a loan officer who will enter the data into a computer and come up with your credit report score within a minute or two. Credit report scores look at three factors: severity, recency and frequency. In terms of severity a report of a 30-day late payment is not as serious as a 90-day late payment. Obviously, one late payment is not as risky as several late payments. As far as recency is concerned, a credit lapse four or five years ago might not concern a lender who sees that you've been paying your bills since then. Credit availability also may affect your credit report score. If you have no credit cards, for example, you can't show you have been approved for credit and made payments regularly. On the other hand, having many cards- and a huge overall credit line or high outstanding balances--can be a risk indicator. Fair, Isaac data indicate that having two cards probably is the lowest risk level; if you have seven cards or more, credit report scores may decline. On the other hand, there are many factors a credit report score doesn't look at, because some factors have not proven to be reliable predictors of debt repayment. Credit report scores don't consider your income, the neighborhood where you live or where you work. They don't consider how many years you've been at your current job. Therefore, credit report scores may be helpful to young people who are just starting their careers, provided they handle their debt prudently. On the other hand, if you misuse the first credit card you get when you're still in college or just out of school, the negative reports will hurt your credit report score for years. Unfortunately, you may not realize how much your transgressions have damaged your credit report score. When you request a copy of your credit report, you won't see a score on it. Can you get a copy of your credit report score? Possibly, if you're friendly with a bank loan officer or an auto dealer's credit manager, however, the score itself won't be particularly meaningful unless you know the scale and the cut-off points. If you're in the marker for a mortgage, what might bring your FICO score down to the dreaded 620? Typically, you"d need to show 90-day delinquencies, charge-offs, repossessions, or a bankruptcy to come in at that level. Alternatively, you might receive a low credit report score by using your credit cards heavily, even if you're paying the minimum amount that's due. A minor delinquency a couple of years ago won't by itself drop your credit report score to 620 or below. So just take care of your credit and get high credit report score for getting credit easily! |
