You Should Know Something About Your Personal Credit Score and understand how a low personal score can affect your ability to secure a credit loan.
The prospect of applying for credit unnerves many people unnecessarily. Just be truthful when you answer the questions and you should not have any problems. In our everyday lives we fill out "applications" rather frequently. Aside from the more obscure employment application we fill out more familiar forms for people several times a week. At least I do.
I spend a lot of time on my computer and the Internet and I am always requesting information. Usually they require your name, password, username, but quite often they will ask for additional information such as your address, date of birth, telephone number. Try requesting a telephone or cable service or posting a certified letter with a return receipt without first filling out a form.
The day you are born you get a birth certificate and a social security number; both follow you for life. Everytime you do a search on Google a record is made and saved in a database somewhere in California. This record includes information from your computer so they can trace that search right back to you and your house or your office.
So, by the time you get around to requesting credit, you are already in one or more databases and your personal information is usually available to anyone who wants to buy it. Everyone already knows who you are. So breathe easy and just go ahead and fill in the form.
What does this have to do with credit scoring and how does it affect me? All I want to do is buy a new (fill in the blank) .
Any company that is in the business of lending money to its customers has to know with reasonable certainty that the borrower will pay it back. Credit risk is the name of the game but managing that risk is a science and a skill combined.
If any company makes it a practice to take unnecessary risks by approving bad loans it increases the likelihood they will loose money. If that same company only extends credit to no-risk or prime risk borrowers they will ignore a sizeable group of hard working, honest, and responsible people who need credit. This group will fall somewhere between the high risk groups and the low risk groups but represents an enormous amount of profitable business. Not working with this 'average' group will cost any lender a sizeable amount of business income and opportunities for commensurate profits.
To help make it more profitable for companies to work with these borrowers a system of credit scoring was developed about twenty-five years ago in an attempt to forecast an assumed credit reliability model against which any single person applying for credit would be rated. Basically, whenever you buy anything on time, that purchase and your record of repayments is recorded in a database under your name and social security number. These records are constantly updated each time you make additional credit purchases or repayments on a loan.
Your personal credit score is a fluctuating number based on your individual record of prompt on-time payments to satisfy your loans, the number and amounts of loans you have made, the number and amounts of your current outstanding loans, and how quickly or how slowly you have lived up to your obligations to repay each of those loans, your total debt, how detailed you credit history is, information found in public records, and other factors.
Opening a new account or making a payment could operate to change your score. Your information is categorized, sorted, and analyzed against previously created statistical credit models. The result of all of these reports and comparisons represents a predictive analysis of your credit worthiness, or your personal credit score.
The major credit reporting agencies are using a recently consolidated scoring system called FICO, developed by The Fair Isaac Corporation. Experian uses a proprietary version of FICO called "The Vantage System". Vantage has a scoring range from "501 to 990". The older FICO system has a range of scoring from "300 to 850". In a nutshell, the higher you're score, the lower your risk, and all other things being equal. The problem here is that all things are not equal.
Interpretation of the results is pretty much up to the lender and it is hard to get a consensus on what is an average score. Not all credit companies interpret the available information in exactly the same manner. Suze Ormand, a CNBC financial guru and television personality quotes "703" as an average FICO credit score. A personal loan credit score of 500 would probably place you at the lower end of the scale.
Your credit score affects every aspect of your financial life. Your ability to repay a loan and the probability or your repaying that loan are the highest considerations for any lender and he uses your personal credit score to determine your credit worthiness.
It is a paradox that the major credit reporting companies all use the same credit scoring models or a proprietary version but none are all that willing to tell you what threshold, or "point score" they use to deny you credit or what the "number" is that dictates the interest rate they will charge when you buy that new car, HDTV, or boat. For a more complete personal credit report that includes the actual credit score assigned you by that reporting company and a chart comparing you to other borrowers nationwide, you have to pay a fee, usually about $15.00.
- Here are several website addresses where you can get a free personal credit report:
- www.CreditReport.com
- www.annualcreditreport.com/
- www.consumerinfo.com/
- www.lendingtree.com/stm3/offers/free-credit-report.asp
- www.spendonlife.com/
I have no interest or affiliation with any of them. They are listed here as a convenience to you, only. One caveat when visiting these websites; they all offer a free credit report but each site has enhanced additional services that do cost money.
Jack Igan is a part-time writer and webmaster at http://www.bestcreditscoring.com. This website can help you to get better credit and to straighten out an already shaky credit report. |
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