Of late, you keep hearing about credit reports, credit scores, credit reporting agencies, credit repair, debt consolidation, FTC etc. All these terms must be very confusing for the lazy mind indeed. They were for me too, so here, we shall define some Credit related terms in as simplified a manner as possible, yet not losing the key fact of how credit score is critical to your financial health. What Your Credit Score Tells Of You. Your credit score ranges between 300 and 850 which enable lenders to rate how high or low you are as a credit risk to them when you apply a loan. The credit score also gives a benchmark on your ability the pay off your credit or debt. Of course, the higher your credit score, the better you credit risk and the higher the chance of you getting that loan at lower interest rates. Any score in the low 600s or lower, indicates that you may have problems getting credit and definitely require credit repair advice. Conversely a score of 720 or higher is a sure passport to the best interest rates in town. Your credit score derived from your credit report containing your past credit history, your past and present debts and repayments. How The Credit Score Is Derived. While Credit reporting bureaus use computers and mathematical calculations to derive your credit score in your credit report, most of them use the FICO system which is the de facto industry software leader which developed the credit scoring model. Hence, when you hear reference to FICO ratings, FICO scores, know that this is equivalent to the meaning of credit score. As the mathematical model of your credit score is based very much on researching patterns and actuarial components, in simplicity, this means that your credit score is similar in calculation used to derive your insurance premiums. Credit Reporting Bureaus and creditors follow similar patterns, examining your level of indebtedness and predicting your loan repayment abilities. If you are over laden with too much debt and credit, payment defaults are expectedly higher. What To Do Next. So to start you off your credit repair mission on the right track, begin by requesting one credit report from each of the 3 major credit reporting bureaus namely Experian, TransUnion and Equifax. Just run a search for the site address. You are entitled to 1 free credit report annually for the credit reporting bureaus so make the best of them. And finally, for the purpose of repairing credit, you need to understand the creditor or lender mindset, put yourself in their perspective and reinvent a new financially competent you.
In an ideal world, everyone would have lump sums of cashing floating around and have the ability to just drop $100,000 down on a house or $25,000 down on a new car. We can't all be rich, but the United States allows us to live like we are through a system of credit. This is often referred to as "purchase power" and to have a lot of purchase power, you will need to report credit score information prior to borrowing and be found to have good credit scores.
This credit scores range, between 300 and 850, will determine whether you can borrow, how much you can borrow, how often you can borrow and ultimately says something about the person, personally. There are many reasons to work towards clear credit and not get caught up in the hype of "free money."
You'll need to provide credit score information if you want to buy a house. According to "My FICO", if you're in the top credit score bracket of 760-850, then you can get a 30 year fixed-rate mortgage at an interest rate of 6.149%, so you'd pay roughly $609/month on a $100,000 house. However, if you're in one of the lower credit score brackets (500 - 579), then your interest rate will be 10.310%, making your monthly payments $901 on that same house, which means by the end of your loan period, you will have paid $105,120 more than the person with good credit!
A low rating credit score in the range of 300-500 means you won't get a home loan at all! In fact, in lieu of the mortgage meltdown, most financial institutions have raised the bar considerably, so you can't get a mortgage if your credit score is below 650! For many heartbroken ex-homeowners, this means they'll need to downsize their family into an apartment and wait for at least three years before their credit scores can rebound.
You will also report credit score information when you're opening a bank account. This may sound silly, but if you abuse your credit purchasing power, then you won't be able to open a bank account! If you have a history of overdrafts on your account, or bounced check fees and not paying monthly bills on-time, then no one will even offer you a place to rest your money.
If you think you can just leave one bank and walk into another, guess again! With their industry ChexSystems database, other banks will see your banking history, as well as your credit score report and will deny you all the same. Soon, you'll find yourself searching for a MoneyMart or payday loans center to take care of your banking needs. That's no way to live!
To secure the best interest rates for new credit cards, the industry will report credit score information to these companies offering you money. If you've ever missed one payment, then you'll notice how quickly your interest rate can go sour. You may start with an interest rate of 8% but see it skyrocket to 20% once you miss a payment and many of the 0% interest cards function this way.
So if you have a balance of $1,000, then you will go from paying $8 in interest to paying $20. You can see how easily that can escalate, especially if you have more than one credit card. Yes, they can all go up together if you owe more than a grand.
All the subsequent offers you receive will show that new high interest rate, which could jeopardize your entire financial future. Ensuring good credit history and good credit scores can help open doors for you.
Both Joey Lee & Mike Selvon are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Joey Lee has sinced written about articles on various topics from Hybrid Cars, Credit Repair Companies and Cars. Joey Lee is a CFP and MBA with 17 years of banking, financial, business & marketing experience and a Platinum Ezine Author. Learn authentic Credit Repair skills and comprehensive information on. Joey Lee's top article generates over 18100 views. to your Favourites.
Mike Selvon has sinced written about articles on various topics from Camping, Allergies and Personal Desktop. Mike Selvon's portal will expand your knowledge on when borrowing. Visit us and leave a comment at our. Mike Selvon's top article generates over 450000 views. to your Favourites.