Whether you are buying a home, car, furniture, or pretty much anything that you will need financing on lenders will want to know your credit score. Today, even when you are shopping for insurance or applying for a job, your credit is being looked at and examined. With so much riding on your credit score it is important to know what your score is, how it arrived at the particular number, and how to improve it.
The most widely used credit scores are FICO® scores, the credit scores created by Fair Isaac Corporation. Lenders can buy FICO® scores from all three major credit reporting agencies. Lenders use FICO® scores to help them make billions of credit decisions every year. Fair Isaac develops FICO® scores based solely on information in consumer credit reports maintained at the credit reporting agencies.
In this day and age more than ever in history your credit score is very important in terms of what financing you can obtain, at what rate, and wit h what options. Unfortunately, some people that have always made their payments on time still fall victim to a lower credit score; this could be due to many factors including too many credit inquiries, too many accounts with balances, or the credit that is available to show history has too short of a history to really determine the borrowers credit worthiness.
The first start to knowing your credit score is to obtain a credit report from each of the three credit bureaus: Experian, Transunion and Equifax. Since your score can be different with each credit bureau it is important to obtain your credit report from each one. Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually. However, beware of some companies offering a free credit report; the fine print will tell you that in order to get your free credit report you must sign up for a monthly credit monitoring service which will cost you money. The best place to obtain information regarding your credit report is to go to the credit bureaus website directly( www.transunion.com; http://www.equifax.com ).
Even though you may make all your payments on time every month it is a good idea to check your credit report a minimum of once a year; mistakes can happen that are not your fault and the only way to be informed is to see a recent copy of your credit report. If you do find an error you should contact the creditor directly and find out what happened with the account. If after investigating you find out that the creditor made a mistake get the omission in writing and send the letter to each of the three bureaus immediately. Do not rely on the creditor to send the letter to the bureaus as this will most likely not happen.
There is a substantial amount of bad information out there on how to improve your credit score. The truth is every situation is differ ent and what might work for one situation might actually hurt another situation. Some of the fallacies out there about what will improve your credit score are:
• Closing old accounts with no balances. Although at first glance this may sound like a logical change that could improve your score the truth is it could hurt your score, the reason being is that these old accounts may not have a balance on them but if you have had them for several years and always made the payments on time this is a good indicator of your credit worthiness.
• Consolidate your accounts by transferring several accounts to one. Again at first glance may seem like it could work but could substantially hurt your score. If you transfer balances to one account you still owe the same amount of money and this would raise your balance on the one account and could be close to the limit. One of the largest negative factors that can affect your score is accounts with balances close to the li mit.
• Taking out new credit cards with low interest rates to transfer high interest rate cards to. This may help you financial and save you interest. However, a new account with very little history will negatively affect your score.
A lot of useful information on credit scores can be found online at the three bureaus websites. Another good step is to meet with a finance expert, have them pull your credit score and go through it with you. Remember every situation is unique and what may help one situation could hurt another so it is important to look at your information and ask for advice on how your situation can be improved.
Dan Krucek - Mortgage Professional dkrucek@dbdiamond.com
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