How Your Credit Score Determines The Size Of Your Bank Account
By Kevin Erickson, Thu Dec 8th
Every time you apply for any type of loan or you are issuedcredit or you pay any bill, it becomes a part of the equationthat determines your credit rating.
The primary or big three credit agencies are: Experian, Equifaxand Trans Union. The they determine is what allmajor lenders and most companies use when deciding if they willlend you money or issue you credit and the terms that creditwill have.
Your Credit Rating - What Does It Include? All of your currentdebts are included when determining your credit rating.Basically, your credit rating is a history of all your debts,with special emphasis placed on anything that has gone wrong.
A few of the primary factors that determine your overall ratinginclude: Late Payments - The number of times you've been 30, 60,90 or more than 120 days late on any payment. This could includerent, mortgage, phone bills or any type of credit card.Defaulting (never paying) on a debt will clearly hurt yourcredit rating for a period of time. In some instances, up to 7years but each company issuing credit has their own guidelinesand in many cases it will cause a negative impact for 2 - 3years. Owing a high percentage compared to your credit limitalso brings down your credit score. For example: If you owe$10,000 on your credit cards you are much better off to owe$3,000 on two different cards with a credit limit of $5,000 eachand 4,000 on another card with a credit limit of $6,000 than toowe the entire $10,000 on one card with a credit limit of$10,000.
It is also worth considering that the credit report of anyoneyou live with or more precisely anyone with whom you share adebt obligation with is also linked to your report and if theydefault or have a late payment, it will reflect on your creditscore. This happens with when couples get divorced and one partydecides to stop making payments.
What is FICO? The standard method for expressing your creditrating is called FICO. In a nutshell, it's an acronym forexpressing your credit worthiness with a number. FICO was namedafter the Fair Isaac Corporation, who invented it.
One common misconception about is that every timeyour credit is pulled is that it hurts your credit score. Thisis how it works.
If it's pulled by a lender then it doesn't hurt your scorebecause it's assumed they would only be pulling it to determineif you qualify for a mortgage. On the other hand, if youcontinually apply for department store credit cards or car loansor similar types of credit and those types companies pull itthen it can hurt your credit score, if it's pulled too manytimes in a short period of time. The exact number of times itcan be pulled in a particular time frame before it hurts yourscore is an industry secret but if you use common sense anddon't over apply then you should be ok.
Why Your Credit Rating is So Important Any time you get turneddown for a any type of loan, chances are that it was because ofyour credit rating. Companies that are considering giving you aloan rely almost exclusively on this rating when making thedecision whether or not to issue you credit. Regardless, thebottom line is this. In virtually all cases, the lower yourcredit score the higher the interest rate.
Your directly determines the credit terms you'llreceive for any type of loan - mortgage, car, credit cards, etc.And remember, all bills affect your credit rating so if youdon't pay your phone bill or your utilities or your rent on timeit will have an effect on the terms you receive or even if youqualify for a mortgage or car loan. So get into the habit orpaying your bills on time and get a solid credit rating becausethe amount of money you'll save over your lifetime in interestcharges will be huge.
Free Credit Reports One of latest trends in credit reporting isfor companies to offer individuals a free credit report. In andof itself, there's nothing wrong with this but I would like topoint out a vital point that you need to be aware of.
I mentioned earlier that there are 3 primary credit agenciesthat lenders rely on looking at your credit. The key factor hereis three and that's where you can run into trouble when you getyour Free Credit Report. When you get a Free Credit Report youwill only be getting the results from one of the primary creditagencies and this can misleading.
The reason it's misleading is because virtually ALL lenders willpull what's called a tri-merge credit report when you apply fora loan. They do this in order to get the full picture of yourcredit history. Then they throw out the high and the low scoreand use the middle score to determine your credit rating.
When you get your Free Credit Report you will only be given acredit report pulled from one of the agencies and so you have apretty good chance of being misled as to what your actuallycredit score is. Unless, the credit agency that was used justhappened to be the one with the middle you won'thave your 'true' credit score. And the reason this matters isbecause the difference between the three scores can besignificant. So be wary of single agency credit reports and whenapplying for a loan always ask for your middle credit scorebecause that's the only one that really counts.
About the author:Kevin Erickson is a contributing writer for:http://www.debtmgmtresources.com and http://www.aneyeondebt.comand http://www.debtmergeresources.com. This article may bereproduced only in its entirety.
