A Credit Score Primer
A borrower’s credit score is one of the most important factors a lender considers when determining the interest rate they’ll offer. These scores represent an overall valuation of how a specific consumer handles credit and helps a lender determine the risk level associated with extending that consumer more credit.
Credit scores – often called FICO scores – are calculated using all the data from your credit report. The three main credit bureaus – Experian® Trans Union® and Equifax® – may not use the same credit scoring software, so your scores from these three bureaus may be different. Some lenders use one of these scores, while other lenders take the middle score.
Some of the credit report data that goes into analyzing a credit score are: the number of late payments, the length of time credit has been established, the amount of available credit, the amount of debt, and any negative credit issues such as bankruptcies and collections.
Generally speaking, your credit score is determined by a mix of these factors. Depending on your credit history, a certain factor may be more or less important than another. In addition, as your credit history changes with time, the relative importance of a factor may change too.
Credit scores normally range from 340 to 850. People with higher credit scores are thought to be better financial risks, and are often offered better interest rates. Due to the great number of loan products available, however, even if your credit score is low, you may still be able to obtain a mortgage loan.
If a consumer’s credit score is low, there are steps they can take to prepare for future loan requests. By making timely bill payments, not applying for credit too frequently, and reducing their credit card balances, a consumer may see an improvement in their score over time.
Since credit scores are directly linked to the information on a consumer’s credit report, it’s important to review these reports for errors. To obtain a copy of a report, a consumer should contact the individual credit bureaus (Experian®, Equifax® and Trans Union®) directly. You can find contact information for these companies by visiting their Web sites at:
Experian: www.experian.com
Equifax: www.equifax.com
Trans Union: www.transunion.com
GetSmart® offers a TrueCredit® service for consumers who wish to obtain copies of their credit reports and credit scores from all three credit bureaus. Learn more by visiting:
http://www.getsmart.com/creditreports.asp
For a fee, consumers may also obtain a copy of their FICO score by visiting www.myfico.com. FICO stands for Fair Isaac Corporation, the company that invented the credit risk score that many lenders use.
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