How to read your Credit Score

How to read your Credit Score

Your credit score is one of the primary tools a creditor uses when determining the risk in lending money to you. Creditors use your credit score, among other things, to determine whether or not to grant you credit and, if so, how much credit and at what rate. Creditors will also access and consider your credit report, which can provide further substantiation on a given component of a credit score that could affect their final decision. However, as most credit decisions are made very quickly, it is a credit score that is most often used. The strange thing is not every consumer has a credit score. There are certain situations where a credit score cannot be calculated because one or more of the following has occurred:

Your credit report does not contain at least one account
A remark on one of your accounts references a person who is deceased
The Social Security number on your credit report matches a Social Security number in the Social Security Administration's "Death Claim Index" How Your Credit Score Is Determined:
1. Payment History: Approximately 35% of your score. 2. Amounts Owed: About 30% of your score. 3. Length of Credit History: About 15% of your score. 4. Pattern of Credit Use: About 10% of your score. 5. Types of Credit in Use: About 10% of your score.

Credit Score Guidelines

650 and Above

In general, a score of 650 or above indicates a very good credit history. People with these scores will usually find the loan process quick and easy, and will have a good chance to obtain a loan at a relatively low rate of interest.

620 to 650 Scores between 620 and 650 indicate basically good credit. (Average FICO scores fall into this range.) People with scores in this range have a good chance at a loan at a good rate, but may have to provide additional documentation and explanations to the lender before the loan is approved.

Below 620 A score below 620 may prevent a borrower from getting the best interest rates, as they may be considered a greater credit risk-but it does not mean that mortgage funding can't be found.

FICO Credit Score

FICO credit score from the Fair Isaac Company is the most widely used credit scoring system. The FICO credit score is a number lenders use to help them decide whether or not you should be considered credit worthy. A FICO score is a snapshot of your credit risk picture at a particular point in time. The higher your FICO credit score, the lower the risk to lenders. Fair, Isaac and Company Inc. develops the mathematical formulas used to produce FICO scores.

There are several things you can do to raise your FICO credit score. Your FICO credit score analysis will suggest things you can do to improve your score over time. Generally, people with a high FICO credit score consistently:

Pay bills on time.
Keep balances low on credit cards and other revolving credit products.

Apply for and open new credit accounts only as needed The FICO credit score considers five main kinds of credit information. Listed from most important to least important, these are:

Payment history.
Amount owed.
Length of credit history.
New credit.

Types of credit in use. Why Is Your FICO Credit Score Important? You can get your FICO credit score from your Equifax credit report. A FICO credit score ranges from 300 to 850. The higher the FICO credit score, the lower the predicted credit risk for lenders. A FICO score provides an extremely valuable guide to future risk based solely on credit report data. The higher the consumer's score, the lower the risk to lenders when extending new credit to that consumer. Sound like the same thing? Well that's just to show you that your FICO credit score is really important.

Beacon Credit Score

The Beacon credit score is a type if FICO credit score. You can get your Beacon credit score with an Equifax credit report. Creditors determine your Beacon credit score using a statistical program that compares this information to the credit performance of consumers with similar profiles.

A Beacon credit score or any other credit score enables creditors to evaluate millions of applicants consistently and impartially on many different characteristics. But to be statistically valid, a Beacon credit score or any other credit score must be based on a big enough sample. Remember that these systems generally vary from creditor to creditor.

Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed. And many creditors design their systems so that in marginal cases, applicants whose Beacon credit score or other credit score is not high enough to pass easily or is low enough to fail is absolutely referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the consumer.

What Happens If You Are Denied Credit Based On Your Beacon Credit Score? If you are denied credit based on your Beacon credit score, the Equal Credit Opportunity Act requires that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. Acceptable reasons include: "Your income was low" or "You haven't been employed long enough." Unacceptable reasons include: "You didn't meet our minimum standards" or "You didn't receive enough points on our credit scoring system."

If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your balances or closing some accounts. Your Beacon credit score considers updated information and changes over time.

Sometimes you can be denied credit because of information from a credit report. If so, the Fair Credit Reporting Act requires the creditor to give you the name, address and phone number of the credit reporting agency that supplied the information. You should contact that agency to find out what your report said. This information is free if you request it within 60 days of being turned down for credit. The credit reporting agency can tell you what's in your report, but only the creditor can tell you why your application was denied.

If you've been denied credit, or didn't get the rate or credit terms you want, ask the creditor if a credit scoring system was used. If so, ask what characteristics or factors were used in that system, and the best ways to improve your application. If you get credit, ask the creditor whether you are getting the best rate and terms available and, if not, why. If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information in your credit report.