Improve Your Creditworthiness by Keeping an Eye on Your Credit Report Score |
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What is your credit report (FICO) score and what exactly does it mean your financial picture? Many Americans know that credit grantors use their credit report score or, FICO score, as a quick look to determine creditworthiness of loan and job applicants. Most Americans, however, don't know how this score is derived, nor do they know how to improve it so they can take advantage of the benefits of a
stronger credit rating. Your credit report score (or FICO score, named for Fair, Isaac, a company that specializes in predictive analytics, decision management and credit management solutions) is a composite score of weighted determinants or components. Payment history is one of the biggest things that go into making it up. A strong payment history will definitely lead to a higher score, but that's not all. Bankruptcies, Foreclosures collections and repossessions go into it also. Any of these can be a big hit against your score. Another factor is the ratio of your income to your amounts owed. Owing more than you can reasonably be expected to pay back easily means you're overextended. Being overextended is something that can lower your score. Another thing that can lower your credit report score is allowing your credit accounts to creep up to where you are regularly using a large percentage of your available credit. For instance, if you have a credit card with a five thousand dollar limit, and the card is constantly charged up to over $4500, that's a hit against your credit report score. Having many inquiries against your credit profile can also lower your credit report score. One way to watch out for this is not to always accept offers from retail outlets etc that offer discounts on things you buy if you sign up for our store charge card. This requires a credit inquiry against your profile and too many of them can lower your score. Also, the accounts are often so small that when you are approved for the card, it's usually charged to close to its limit just by your initial purchase, another hit against your score. In general, a longer history of credit usage is better than a shorter history. College students often find it difficult to achieve a high credit rating because they have not managed credit accounts of their own for long enough to achieve a strong credit report score. Another thing that goes into the composition of your credit report score is the kinds of credit accounts you maintain. What mix of credit cards, mortgages, insurance etc. do you have? Does it look like what is necessary for a person in your position in life? There are many misconceptions about the use of credit report scores by potential lenders also. For instance, simply having a low overall score doesn't mean you absolutely won't be able to qualify for a home mortgage. Some companies offer loans specifically to people who have had past credit problems, and this can be a way back to a strong financial status for those people. Unfortunately, it's also incorrect to think that paying off delinquent accounts removes derogatory information from your profile. This is not true. The fact that you were delinquent remains on your record for some time, depending on the type of delinquency, how long it lasted, and how it was resolved. Sometimes it's best to dispute these findings with the credit-reporting agency, using factual information to show your effort at maintaining a positive record. Some people also think that a higher income will improve their credit report score. This is also not true. The Consumer Federation of America and Fair, Isaac have prepared information available online to consumers to fully explain their credit report scores, their usage and how to improve them, as well as what the benefits of doing so can be. Nowadays it behooves more Americans to be knowledgeable about their credit report scores, because those scores are being used in more ways. It used to be that only credit grantors used the scores. Now insurers, renters, mortgage grantors, and even potential employers can have permissible purpose and use the scores to gauge responsibility. For these reasons it is key for more and more Americans to know what their credit report score is, and what it really says about them. |
