A Bit Of Facts About Consumer Credit Ratings
While lenders ultimately consider several factors from your credit report when evaluating you as a borrower, the first thing they see is your credit ratings. In fact, many lenders rely on FICO scores to pre-screen borrowers for credit offers, so if you’ve got low FICO scores, a lender may never even look at your credit report. If you want to get the best credit offers, you need to understand your credit score. If you’re thinking of buying a car or a new home, you need to know what your credit says to lenders. Are you a good risk? Can you get a decent annual percentage rate?
What are credit scores, and why are they so important?
credit scores are a method of determining creditworthiness created by Fair Isaac and Company; hence the name credit ratings. credit scores take the information in your credit report and boil it down to a number, somewhere between 300 and 850, depending on your credit history. FICO scores are reported by three major reporting bureaus; TransUnion, Experian and Equifax. It’s possible to have three different FICO scores with the three different reporting agencies.
Lenders use your credit scores to determine how likely you are to repay your credit. Some lenders don’t even offer credit to borrowers with low credit scores, using the data to pre-screen potential borrowers. If you do have low credit ratings, chances are good that you’ll get a higher interest rate or smaller loan amount or credit limit, or be ineligible for credit.
It’s all a numbers game; how credit ratings are determined.
Your credit history is evaluated and assigned a score, based on a model similar to your credit history. While Fair Isaac and Company declines to release information about these models, financial industry insiders report that there are literally thousands of potential models for your FICO ratings. By changing your credit history, such as disputing an inaccurate item or closing a long-standing account, you can potentially change the model under which your FICO rating falls. Sometimes this increases the credit scores, but it can actually lower the credit ratings if your new model is less favorable, or if you perform differently under the new model compared to other people within the model.
Getting your FICO rating.
If you’re thinking about taking out an auto loan or buying a home, you should start by getting your FICO scores. While some states are entitled to a free copy of their credit report once a year, these free reports do not include credit ratings. You can purchase a report containing your FICO scores directly from the reporting bureaus, or you can sign up for a credit monitoring service that includes access to your credit ratings. With the increasing threat of identity theft, many banks are now offering privacy protection services, which you can use to monitor your credit report on an ongoing basis and ensure no fraudulent activity occurs. Many of these services bundle FICO scores into monthly or quarterly reports.
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