CREDIT 101
By Diaz Allen
FICO (Fair Isaac Corporation) has created the best-known and most widely used credit score model. The FICO score is calculated based on information fro
m a consumer's credit files. This score is used in credit decisions made by banks and other institutions for secured and unsecured credit. A FICO score is between 300 and 850, with 60% of the population between 650 and 799. The higher your FICO score, the lower your chances of credit denial, higher interest rates, requested collateral, or income and asset verification. Scores are often used to determine rates for auto and homeowner's insurance. Some agencies that generate credit scores have been generating specialized insurance scores, which insurance companies will use to rate the quality of potential customers. Some companies request permission from job applicants to run a credit check as part of their application process. The information can be used as an indicator of an applicant’s level of financial responsibility. Applicants have rights under the Fair Credit Reporting Act and are not required to consent to the credit check.
m a consumer's credit files. This score is used in credit decisions made by banks and other institutions for secured and unsecured credit. A FICO score is between 300 and 850, with 60% of the population between 650 and 799. The higher your FICO score, the lower your chances of credit denial, higher interest rates, requested collateral, or income and asset verification. Scores are often used to determine rates for auto and homeowner's insurance. Some agencies that generate credit scores have been generating specialized insurance scores, which insurance companies will use to rate the quality of potential customers. Some companies request permission from job applicants to run a credit check as part of their application process. The information can be used as an indicator of an applicant’s level of financial responsibility. Applicants have rights under the Fair Credit Reporting Act and are not required to consent to the credit check. The FACT Act (Fair and Accurate Credit Transactions Act), entitles each legal U.S. resident to one free copy of his or her credit report from each credit reporting agency once every twelve months. (Some states permit one free copy every six months.) There are three credit reporting agencies: Equifax, Experian, and TransUnion. Each of the agencies will have their own score. They usually differ from 50 to 100 points. Instead of visiting each agency’s website individually, go to annualcreditreport.com or call 1-877-322-8228.
Some tips for boosting your score are as follows:
1. Order a copy of each of your credit reports. You will be required to pay a small fee to find out your score. You may be surprised, so it is worth it.
2. Analyze the reports for errors. Look at previous addresses, all debt (paid and existing), and additional names listed. If there is anything that does not look familiar, dispute it. (Key: DISPUTE, DISPUTE, DISPUTE!)
3. Keep balances on credit cards at a median between zero and the limit. If you are not able to pay down the balance to that level, request a credit line increase from the lender (AND DO NOT USE IT!)
4. Contact creditors and ask for lower interest rates on credit cards. Do not hesitate and do not be rude. Consider doing a balance transfer to a card that offers a low balance transfer FIXED rate.
Experian Equifax TransUnion
888-397-3742 800-685-1111 800-888-4213
Understanding The Difference
Notice below how good credit will save you money. Interest rates accurate as of January 20, 2009 and payments are based on a 30-year fixed rate mortgage on $250,000:
| FICO® score | APR | Monthly payment |
|---|---|---|
| 760-850 | 4.612% | $1,283 |
| 700-759 | 4.834% | $1,317 |
| 680-699 | 5.011% | $1,344 |
| 660-679 | 5.225% | $1,377 |
| 640-659 | 5.655% | $1,444 |
| 620-639 | 6.201% | $1,531 |
Source: myfico.com
