Why Your Credit Score Is Important
James L. Frannea
The
Problem: Deciding if you need to monitor your credit score
and knowing how to do it.
The
Solution: Booming interest in credit scores stems from
recent legislation that lets Californians obtain these scores and
information on how to improve them. Having a good score is
important because lenders use it to determine loan approvals and
terms.
You should
know your credit score and what information your credit reports
contain. However, unless you're worries about identity theft
or fraud or plan on making a major purchase in the next year, you
probably don't need to have monthly access to your score.
For most
people a yearly check of their credit report and score should be
sufficient to determine score improvement, unauthorized activity,
errors and outdated information.
Many
monitoring services do offer a free credit report or credit score if
you subscribe to their service for one year, but you'll have to give
them your credit card information. You'll also be
automatically billed for one year's service unless you cancel before
the trial period ends. You'll want to make sure you receive
your credit report along with your credit score, because the report
contains the information on which creditors base your score.
You can check
around for the best prices, but often going directly to the credit
bureaus - Experian, Equifax, and TransUnion - will give you the same
service and offer more information for the same cost or less.
Be sure that the monitoring service offers reports from all three
agencies, as credit history and credit scores can vary from bureau
to bureau.
Also be aware
that you have more than one credit score. The gold standard,
the FICO (Fair Isaac and Co.) score consists of a three-digit number
ranging from 300 to 850. The higher the number, the better
your chance of getting the best terms on a loan. According to
the company, more than 75 percent of all mortgage lenders - and
virtually all consumer credit card companies use FICO scores to
determine creditworthiness. However, lenders use hundreds of
formulas to determine credit scores. Check with the monitoring
service to find out which model it bases your credit score on and
which lenders use it. (myFICO.com)
Even though
different lenders use different methods to determine your score, the
underlying information used in the calculations is pretty much the
same. For the most part, these are the most important factors:
-
How you've paid your bills in the
past.
-
How much credit you've been given, and how much you have available.
-
How many times you've recently applied for credit.
-
How long you've has credit established.
-
The kind of credit you've been given.
Simply monitoring your credit score won't improve it. To do
that you'll need to change your credit habits over time. You
can do this by paying bills promptly, paying off revolving credit
lines, and limiting the amount of new credit you apply for.
Probably the most important way to keep your FICO score high is to
avoid bankruptcy, which can lower a good score by 200 points.
Advice to
Remember: Even if you've had an imperfect credit history,
you can take steps to raise your credit score. Many lenders
focus on recent payment histories, and even a lower score doesn't
mean you won't be able to get a loan - you just won't get the best
rates and terms.
James L.
Frannea, is chief executive and president of Consumer Credit
Counseling Service of Orange County. CCCS of Orange County is
part of a nationwide non-profit credit counseling agency with
offices in all 50 states. Most offer free or low cost credit
counseling and evaluations to help consumers get out of debt and
improve their credit scores. The toll free number to reach any
office nationwide is
1-800-388-2227.
-Republished
with permission.
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