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Credit Score- The Truth About It
Home Finance Wealth-Building
By: Thomas Cumberland Email Article
Word Count: 1075 Digg it | Del.icio.us it | Google it | StumbleUpon it

  

Although only numbers, your credit score is a profile of your credit worthiness, and can make a big difference in what and how you purchase. This score is based mostly on credit history and reporting criteria obtained from credit bureaus.

Banks and other lenders use credit scores to calculate the possible risk presented by lending money to consumers, and to determine who qualifies for loans, what the interest rates will be, and how much credit is offered.

Many other institutions and organizations, such as insurance companies, landlords, mobile phone companies, government departments, and even employers. also use credit scoring for evaluating potential customers, tenants, or employees. They even use the same techniques as the credit reporting bureaus.

The most widely used and commonly known credit score model is the FICO, and they control most of the credit score model. There are some competitors, but they collectively share the rest of the smaller percentage.

FICO is a publicly traded company that has set the standard for credit scores, and this model is followed by the three largest credit repositories in America- TransUnion, Equifax, and Experian.

In the US, FICO scores range from 300-850. Basically, the higher the score, the less the risk lenders believe you will be to go 90 days past due on any payment or worse, on any loan within 2 years from the date the score was determined.

There are different algorithms used to determine a credit score, so that is why there are discrepancies between the different lenders and their scores. This also makes it a little more difficult to determine what exactly the lenders are looking for to obtain and keep a high credit score.

The two main categories rates fall under are "prime" and "sub-prime", and the general consensus requires a score above 620 to qualify for prime rates. Due to recent economic upheavals caused by shady lending tactics, the whole scene has changed and lenders may require a higher score for certain scenarios, especially when borrowing for the purchase of a home.

In the US, people are allowed one free credit report within a 12-month period. If you want to obtain a free credit score, you have to go to a different agency. These type of companies offer a free credit score, but you do have to subscribe for credit protection with an email and credit card. The trick is that you have to cancel the free subscription for their services before they charge you.

The three credit bureaus that report your score run the free credit report, so you will get all 3 companies in your free report. To obtain a free credit score from them, it can be around $10 or so, as they are regulated by the FTC and cannot charge an exorbitant fee.

There are a few myths that should be cleared up, as well.

A friend of mine once asked me to accompany him on a car purchase, as he had no other willing volunteers. I had time and felt it could be a good learning experience, as these occasions always are.

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