What You Should Know About Your Own Credit Report Score |
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Millions of Americans who once worried about test scores in their school days are now discovering a new score is following them around as adults: the credit report score. It's estimated by credit industry experts that roughly 75% of the U.S. population that is eligible for credit (18 years or older) has a credit report score at any given time that indicates the individual's creditworthiness to take out a loan, a mortgage, etc. The credit report score system has been around for 45 years and is credited with making lending less discriminatory and credit more widely available. But while the meticulous collecting and sharing of consumers' credit histories has dramatically improved the efficiency of U.S. credit markets, critics say the credit bureau's information--affecting everything from who insures you to who hires you--may contain substantive errors and is increasingly being used and shared among companies without consumers' knowledge. The vast majority of Americans don't know their credit report score--or even how to find out what it is. A recent survey commissioned by the Consumer Federation of America found that only 2% of Americans said they knew their credit report score. And only 3% could, unprompted, name the three main credit bureaus. The most important item in a consumer's financial resume today is his or her credit report score. The one most widely used is the FICO (Fair Isaac Corporation) score, the standard measure for credit risk. Equifax and the Minneapolis-based Fair Isaac Corporation, which provides financial services to the world's 10 largest banks, as well as companies in more than 60 countries, developed this credit report score. The scoring system award points for each factor that can help to predict the likelihood of a person repaying debts on time. The total number of points, the credit report score--predicts how creditworthy a person is. The FICO score, a three-digit number between 300 and 850, is a snapshot of a person's financial standing at a particular point in time. The higher a credit report score, the more likely a person is to be approved for loans and receive favorable interest rates. The best credit rates are given to people with scores above 770, but a credit report score of 700--out of a possible 850--is considered good, according to Fair Isaac. The median credit report score is about 725. Generic interest rate calculations show that when the credit score dips below the mid-600s, those consumers generally qualify only for sub-prime lending and the interest rate starts to climb significantly. Fair Isaac Corporation does not maintain a database of FICO scores, as many assume. Instead, when a lender requests a credit rating, the credit report score is generated by one of the national credit bureaus from which the lender has requested the report. Fair Isaac provides the credit bureaus with software containing an algorithm--a mathematical formula derived from random samples of consumers' credit information--and that is what is used to calculate the credit report score. Paying a fee and contacting any of the three major credit-reporting agencies listed below by telephone or on the Internet can obtain FICO scores. Your local mortgage broker or lender can also run a free credit report and advise you of your credit report score. Lenders use the score as a component in how they set the interest rate they will charge for a loan. There are five main categories of information that credit scores evaluate, along with their general level of importance. They are listed below in order of importance. Your credit report score only looks at information contained in your credit report. However, lenders use many different criteria in evaluating loan applications such as your income, how long you have been at your present job, and the kind of credit you are requesting. Your credit report score is the determining factor whether you are eligible to apply for a loan or not. In America, there are still many people who remain unaware of the power of a credit report score. During the last decade, a number of people had been rejected for accessing loans only because of their low credit score. So, it's important to know your credit report score to avoid making blind attempts at getting a loan. |
