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How Much Is Your Credit Score Costing You? - Articles Surfing

I hate to say it but simply paying your bills on time is not good enough anymore. It used to be that all you had to do to have good credit was make sure you paid all your bills on time. Today, this is so far from the truth it isn't funny.

Now days, there are literally hundreds of factors that go into calculating credit scores, which also means there are lots of ways simple decisions on your part can cause bad things to happen to your credit score.

But, why? What is the average consumer missing that puts his or her financial livelihood in such peril? The truth is that although there are still right ways and wrong ways to do things in the credit world, those rights and wrongs have dramatically changed while we were focused elsewhere.

Unfortunately, while most consumers have a general idea of what credit scores are and that they are somehow important, we lack the specific information, tools and skills necessary to make the credit system work for us instead of against us.

So, that said, what are credit scores, who uses them, and why are they important?

A brief definition of credit scoring is that it is a numerical summary of how much you owe and how promptly you pay your bills.

That sounds pretty simple - short and to the point - but is it a little too simplistic?

I don't know about you, but for me that definition just doesn't seem to convey the level of importance credit scores can play in a person's everyday life. After all, credit scores can affect things like where you live, how you live, what you are able to buy, and how much you pay for it. These scores can prevent you from getting your dream job, your dream house or even whether or not you can buy insurance.

Something that can do all that is pretty darned important in my book! If you feel the same, read on*

Credit scores are all about risk and trust; they help lenders determine degrees of risk and trustworthiness when making decisions on questions like "Can I trust this person to follow through on his promise to do what he says he'll do? Is this risk worth taking?"

And, what verification do you suppose these companies rely on to illustrate that you are a trustworthy person? Your credit scores, of course!

Credit scores are widely used as an integral part of the decision-making process even though general rules each lender, insurer, employer and vendor uses will differ.

Credit scores are calculated by the "Big 3" credit reporting agencies Equifax, Experian, and TransUnion .

However, Equifax is the only one that uses the original (and I think the best) credit scoring software developed by Fair Isaacs & Co. Their scores are commonly known as FICO scores and range from 300 to 850. Scores of 720 or higher are considered excellent.

The other two, Experian and TransUnion, use their own proprietary software programs to calculate credit scores. It is not unusual to see differences of 50 points or more in the generic credit scores they generate. Although generic scores are based on similar criteria to the FICO score and can give you a general idea on how your credit history stacks up, they are not the scores most lenders use.

The majority of lenders, insurers, employers and vendors prefer to use Equifax's FICO scores. In fact, FICO scores are used by:

99 of the 100 largest banks in the United States
49 of the top 50 U.S. credit card issuers
More than 400 insurance companies
3 out of 4 U.S. mortgage loan originators
9 of the top 10 retail card issuers in the U.S.
More than 80 government or public agencies
More than 100 telecommunications carriers
To generate credit scores, the following kinds of information are used:

1. Payment histories provided by lenders and other creditors you have accounts with
2. Banks, stores, credit card companies, and others you have applied to for new credit
3. Public records, such as bankruptcy filings, judgments and liens filed against you, unpaid fines, and more

This information is constantly added to your credit file and then used to recalculate your credit score. Recalculation often occurs on a daily basis meaning your scores move up and down depending on the information reported.

About one third of your credit score is based on your payment history and is adversely affected by late payments. How severely your score is lowered depends on how late your payments are (30, 60 or 90 days or more), how recent the delinquencies are, how often your payments are late, and the types of accounts that have late payments. Bottom line: You still have to pay your bills on time, every time.

The second third of your score is based on the number of credit accounts you have, particularly unsecured accounts like credit cards, and the size of balances owed compared to balances available. Having a large number of credit cards can lower your credit scores but, much more important, is the adverse effect of carrying high account balances. Balances that are higher than 50% of your credit limits will count heavily against you. Bottom line: Owing too much lowers credit scores.

The final third of your credit score is made up of a myriad of factors. A few of these are:

1. How long your accounts have been open

2. Recency and number of credit applications

3. The number of inquiries attached to your credit report

4. The "mix" of your various credit accounts (house, car, credit card, lines of credit)

5. How long you've lived at your current address

6. How long you've work at your current job

7. Judgments, tax liens, bankruptcies, and other adverse information reported in public records

In summary, your credit scores tell companies how well you are managing your financial life. They, in turn, make decisions about their risk and your trustworthiness. High credit scores can open doors to just about anything you want, while low scores create huge hurdles that are hard to climb over.

If you are willing to take control of your financial future instead of leaving it to chance, all it takes is a little knowledge about the "do's" and "don'ts" of the credit system. Repairing your credit takes a lot of time and effort. Using the right knowledge to make good credit moves in advance, is so much easier and so much more rewarding!

YOUR FIRST STEP: Get a copy of all three credit reports WITH YOUR FICO SCORE at http://got.to/getmyscore.

STEP TWO: Get a copy of our FREE minibook called, "Credit Secrets Bible Minibook" to learn some secrets about protecting your credit from identity theft and facts to know if you are considering using a credit repair company. You can pick yours up at http://myminibook.resourcez.com.

STEP THREE: Get "Credit Secrets Bible", a step-by-step guide to credit management. In addition to the information in the mini-book, "Credit Secrets Bible" gives you the tools to boost your credit score well over that excellent "720" credit score. Get yours at http://2creditfix.resourcez.com.

STEP FOUR: Start your new better life!


Carole Talley has been involved in real estate investment and financing for more than 20 years. Although this article does offer valuable insights into the credit industry, it does not offer any personal legal, tax or financial advice. If you have specific legal or financial needs, we recommend you consult a lawyer or CPA to verify our information and provide advice relating to your particular situation.

NOTE TO PUBLISHERS: Permission is granted by Carole Talley for publishers to reproduce this article (in full or in part) provided our website addresses http://creditsecrets.resourcez.com, http://got.to/getmyscore, and www.dendigroup.com are retained.

© Copyright 2008 by Carole Talley

Submitted by:

Carole Talley

Carole Talley has been involved in real estate investment and financing for more than 20 years.



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