|
|
|
Credit Education |
|
Rent To Own Blog Student & Personal Loans Mortgages and Loans
|
|
Sponsored Links
|
| Table of Contents:
Page 1:
Page 2:
- Abbreviations used on a credit profile
- Thinking of using a Credit Repair Agency? You may want to think again.
- Credit Education Specialists
- Credit tips for homeowners
- Credit tips for college
- Credit tips for job applicants
- The Fair Credit Reporting Act (FCRA)
|
Sponsored Links
|
|
Do you Know What Your Scores Are?
Click Below To Find out:
|
|
|
Why is credit important?
Credit isn’t just for shopping – it can be essential to achieving many of the most important goals in your life. These include buying a home, paying for college, even looking for a new job. These days, your credit rating can affect almost everything you do. And if you have a good credit record, you have more opportunities to get the things you want, and to accomplish your goals. That’s why it is so important for you to establish, maintain and protect your credit record. |
|
Back to top |
|
Your credit file is a listing of your payment history on all your credit cards and loans, including your mortgage. It includes information about outstanding loans, debt repayment and credit limits. It may also include non-credit information, such as jobs you have held, public record information, your date of birth and your address.
Lenders review your credit file when you apply to them for credit. They use the file's information in deciding whether or not to give you a loan. Credit files are maintained by private companies known as credit reporting agencies. The three largest national credit reporting agencies are Experian, Equifax and TransUnion.
Credit reporting agencies collect information from creditors about the payments you make for auto loans, student loans, installment loans, mortgages, rent, insurance, credit cards, or other credit.
|
|
Back to top |
What are credit reporting agencies?Credit reporting agencies are private companies that maintain credit files. In the United States there are three major national credit reporting agencies - Experian, Equifax and TransUnion. In addition to these three, there are many other smaller local reporting agencies. Many of the local reporting agencies are affiliated with, and report their information to, one of the three major national credit reporting agencies. |
|
Back to top |
|
Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit file. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due. Because your credit file is an important part of many credit-scoring systems, it is very important to make sure it's accurate before you submit a credit application.
There are many different scoring models. Many lenders devise their own scoring models using variables that are important to them, so the score that you get from one creditor probably won’t mean very much to another creditor. |
|
Back to top |
Why is credit scoring used?Credit scoring is used to speed the application process and to automate the analysis of credit applications. Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals. |
|
Back to top |
How is a credit-scoring model developed?To develop a model, a creditor or an organization skilled at mathematical modeling selects a random sample of customers or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.
Under the Equal Credit Opportunity Act, a credit scoring system may not use certain characteristics like -- race, sex, marital status, national origin, or religion -- as factors. However, creditors are allowed to use age in properly designed scoring systems. But any scoring system that includes age must give equal treatment to elderly applicants. |
|
Back to top |
What can I do to improve my score?Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.
Nevertheless, scoring models generally evaluate the following types of information in your credit file:
|
• |
Have you paid your bills on time?Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit file. |
|
• |
What is your outstanding debt?Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit it may have a negative effect on your score. |
|
• |
How long is your credit history?Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances. |
|
• |
Have you applied for new credit recently?Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit file when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit files to make "prescreened" credit offers are not counted. |
|
• |
How many and what types of credit accounts do you have?Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score. |
Scoring models may be based on more than just information in your credit file. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.
To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly. |
|
Back to top |
How reliable is the credit scoring sy stem?Credit scoring systems enable creditors to evaluate millions of applicants consistently and impartially on many different characteristics. But to be statistically valid, credit-scoring systems must be based on a big enough sample. Remember that these systems generally vary from creditor to creditor.
Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed. And many creditors design their systems so that in marginal cases, applicants whose scores are not high enough to pass easily or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the consumer. |
|
Back to top |
What happens if you are denied credit or don't get the terms you want?If you are denied credit, the Equal Credit Opportunity Act requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: "Your income was low" or "You haven't been employed long enough." Unacceptable reasons include: "You didn't meet our minimum standards" or "You didn't receive enough points on our credit scoring system." If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Credit scoring systems consider updated information and change over time.
Sometimes you can be denied credit because of information from a credit file. If so, the Fair Credit Reporting Act requires the creditor to give you the name, address and phone number of the credit reporting agency that supplied the information. You should contact that agency to find out what your file said. This information is free if you request it within 60 days of being turned down for credit. The credit reporting agency can tell you what's in your file, but only the creditor can tell you why your application was denied. If you've been denied credit or didn't get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you get credit, ask the creditor whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit file, be sure to dispute the inaccurate information in your credit file. |
|
Back to top |
How long does information remain on a credit file?Delinquent payments are listed on your credit file for seven years from the date of delinquency. Positive account information will remain on your credit file for at least 10 years.
Collection items are listed on your credit file for seven years from the date the account was 180 days delinquent with the original creditor.
Judgments are listed on your credit file for seven years. A tax lien is listed for seven years from the date paid. Most bankruptcies (Chapters 7, 11, and 12) are listed for 10 years. A Chapter 13 bankruptcy is listed for 7 years.
Inquiries are listed on your credit file for up to two years. |
|
Back to top |
|
Inquiries occur when someone requests a copy of your credit file. Too many inquiries may be considered a negative factor by lenders thinking of extending you credit, as they may indicate that you are becoming overextended.
Inquiries made by companies for marketing purposes are considered promotional inquiries. These inquiries are not shown when another creditor looks at your credit information, and therefore have no impact on your credit rating. |
|
Back to top
|
|
Continue to Page 2 for:
Abbreviations used on a credit profile
Thinking of using a Credit Repair Agency? You may want to think again.
Credit Education Specialists
Credit tips for homeowners
Credit tips for college
Credit tips for job applicants
The Fair Credit Reporting Act (FCRA) |
|
|
