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Why Your Credit Score Might Not Be As Wonderful As You Think

Credit Score highlighted in yellowYou say that you checked your credit score recently and that it’s great. Maybe you got your FICO score and it was 790. So you feel as if you were sitting on top of the credit world. Well, you might need to think again.

Great could be mediocre

As an example of this, your FICO score of 790 could be just mediocre on the VantageScore, which goes to 990. Beyond this, the eight credit scores most commonly used by lenders range from as low as 150 up to 990. Why is this? It’s because the three major credit bureaus – Experian, Equifax and TransUnion –have their own scoring models. The credit bureau TransUnion has its TransRisk scores that range from 300 to 850, while Equifax’s Credit Score goes from 280 to 850. In addition, there is an Experian score that goes from 360 to 840 and another that ranges from 330 to 830. And then there’s the VantageScore that the three credit bureaus created and that goes from 501 to 990.

What this means to you

What all of these scores mean to you is that it’s hard to determine how you would actually be evaluated by a potential lender. It’s true that most of them check FICO scores to determine how much risk an applicant represents but we consumers often get our scores from the credit bureaus and consumer websites such as CreditKarma.com or CreditSesame.com. While these non-FICO scores should be close to our true FICO scores, it can still be confusing.

Doesn’t make much sense

We’ve all grown up with systems that are A through F or 0 through 100 but now we have all these different ranges that can be bewildering. You might think you have a terrific score of 800 and then learn that it’s a VantageScore and maybe not so good. Or you might see that you have a score of 900 and think that this is wrong because you know that the FICO score tops out at 850. The problem is that you may not realize that the score you got was the VantageScore with it’s higher range.

In the same ballpark

Most scoring models – aside from the VantageScore – are not much different from the FICO’s range of 300 to 850. This means it’s generally okay to assume that your non-FICO score will be at least in the same ballpark. However, if you get a VantageScore and you assume that it’s identical to your FICO score, you may be in for a disappointment when you next apply for credit.

To see where you stand

If you want to get an idea of how you stand vs. credit applicants, you need to look at where you fall relative to the national percentile. As an example of this, to get the best credit you generally would need to fall in at least the 50th percentile. This converts to a FICO score of around 720.

This video from TransUnion explains more about credit scores, why they can different and why it’s important to pay your bills on time every month.

49 FICO scores

To make matters even worse, lenders aren’t neessarily looking at the same scores themselves. Within the FICO category, lenders could look at one of more than 49 different scores to assess your risk. In comparison, consumers usually get just their one standard FICO score. And research has shown that 20% of consumers will receive a score that is “meaningfully different” from the score that was used by the lender when deciding whether or not to grant credit.

Why so many FICO scores?

This is due to the fact that a potential lender can look at a different FICO score depending on the type of credit that you’ve applied for. If you apply for an auto loan, the lender might look up your FICO auto score. If you apply for a new credit card there is a specific FICO bankcard score your lender could check. There are also FICO mortgage loan scores and installment loan scores that focus on your history of how you’ve used finance companies. Plus, there is your generic FICO score, which is the most widely used, and is calculated based on your history with all the types of credit you’ve used.

How your FICO score is calculated

Your generic FICO score is based on five components.

  • Payment history
  • Credit utilization
  • Length of credit history
  • Types of credit used
  • Recent searches for credit

The top two, payment history and credit utilization together account for 65% of your credit score. What this translates into is that the most important things you can do to have a good credit score is first, make all of your payments on time all the time. And second, don’t use up a high percentage of the credit you have available. As an example of this, suppose that you have total credit limits of $10,000. In this case, you should not have combined balances of more than $3000, which would yield a credit utilization ratio of 30%.

Who do you trust?stressed old man

So with all of these different credit scores and credit score ranges, who should you trust? The best answer is to get your generic FICO score. It’s available on the website www.myfico.com for $19.95 or you could get it free if you sign up for a free trial of the company’s Score Watch program. But you might want to supplement this by getting your free score periodically from one of the three credit bureaus or a consumer website. The reason for this is because your credit score is not static. It’s generated every time you apply for credit. This means it could change literally from week to week.

Are You Wasting Money Buying “Consumer” Credit Scores?

Man climbing range of credit scoresMost people today understand that they have a credit score and that it’s important they know it. But there can be differences between what are called “consumer credit scores” and FICO scores, which are what banks, credit unions and auto loan providers use when they decide whether or not to give you a loan

What you will learn in this article

  • Where your credit scores come from
  • Why there are different versions of your credit score
  • Whether consumer credit scores are worth the money
  • How you could get your score free – sort of
  • Why some of the “free” credit score websites require payment information
  • How to get your score totally free
  • What’s a good credit score

Where these scores come from

To understand this whole credit score thing, you need to know where they come from. FICO (formerly known as the Fair Isaac Corporation) has been using its algorithms for decades to predict default risks. To put this another way, the reason why your credit score is important to a lender is because it’s a predictor of risk – or how likely you are to pay back the loan. In addition to FICO there is now another credit score called the VantageScore, which was developed by the three credit reporting bureaus. While both the FICO and VantageScore systems are updated periodically some lenders don’t necessarily buy the most recent version. They may actually stay with an older version if they’re happy with how it works. The VantageScore as well as scores you would get from sites like freecreditreport.com and credit.com are the “consumer” scores.

Different versions

As you can see from this, there are a number of different ways to measure your credit score. It could be FICO’s most recent version, a FICO version from several years ago, last year’s VantageScore or its most recent iteration.

Still worth the money

Despite all of this, your credit scores are still reliable snapshots of your financial life. Of course, they’re not perfect. But they are better than nothing. If you pay around $15 for your credit score, this still represents a relatively cheap way to assess your credit worthiness.

Getting your credit score free – sort of

You can get your true FICO score for $19.95 at the website www.myfico.com or get it free if you’re willing to sign up for a trial subscription to the company’s Score Watch program. There are other websites where you can purchase your credit score for around $15 as noted above. There are also sites where you can get your scores free – sort of. For example, the website www.freecreditreport.com offers two options: You can get a free “Two Day” credit score or an instant credit report and score for $1. In both cases you will have to create an account before you see your score, which means typing in your name, address and email address. You will also have to add your Social Security number, date of birth and in the case of the $1 report, your payment information. Then there’s the fine print, “When you order your $1 Credit Report and free Score here, you will begin your trial membership in freecreditreport.com. You will be billed immediately $1 for your Report and Score. If you don’t cancel your membership within the 7-day trial period, you will be billed $19.99 for each month that you continue your membership”

The website www.credit.com also offers a free credit report and credit score but it turns out that free costs $1. If you fill in your name, address and email address, you’ll end up on a screen where you’ll have to provide the requisite payment information. And then again comes the fine print, “You will be billed immediately $1 for your Report. If you don’t cancel your membership within 10 days, you will be billed $12.95 for each month that you continue your membership.”

What these companies rely on

What these two companies and others like them rely on is that you’ll forget to cancel your membership so they can continue to bill you $12.95, $19.99 or whatever a month until you notice the charge on your credit card and cancel your membership.

 

Where free is really freeMiddle age couple happy about insurance

There are several sites where you can actually get your credit report free without the fine print. One that we like is www.CreditKarma.com. It will not only provide your credit score free but if you type in your credit card and loan numbers it will show you their balances and the total amount of your debt and the history of your credit score. However, do keep in mind that this will be your Experian score and not your FICO score.

All three at once

There is also a site where you can get all three of your credit reports simultaneously. It’s www.annualcreditreport.com. You will not be able to get your credit score there but you will be able to get all three of your credit reports free – at least once a year. If you need to see your credit reports more often than annually, you’ll have to pay for them. Many people choose to get their reports at the rate of once every four months, which is a sort of way to continually monitor your credit.

Here’s a video with good information about getting your credit report and credit score free.

What’s a good credit score?

When you do get your credit score, you may wonder whether you have a good one. If you’re not familiar with credit scores they range from 300 to 850 with the higher the better. They are generally grouped into ranges as follows.

• Between 700 and 850 – Very good or excellent credit score
• Between 680 and 699 – Good credit score
• Between 620 and 679 – Average or OK score
• Between 580 and 619 – Low credit score
• Between 500 and 579 – Poor credit score
• Between 300 and 499 – Bad credit score

8 Things You Should Know About Credit

Credit ReportOur bodies cannot live without blood and our economy cannot live without credit. In fact, it’s no exaggeration to say that if we didn’t have credit, we wouldn’t have an economy. Most transactions today are done on credit cards, houses are purchased on credit (mortgages) as are automobiles. For that matter, countries actually grant credit to one another. Here are eight things you need to know about credit that are covered in this article.

1. The biggest benefits of credit
2. Your credit report
3. Credit scoring
4. How your credit score is computed
5. How to get approved for a credit
6. Other ways that your credit report affects your life
7. How to get your credit report free
8. How to improve your credit score

The biggest benefits of credit

The biggest benefit of having credit is that it gives us the ability to purchase something now and then pay for it later. The two most obvious examples of these are mortgages and auto loans. Both allow us to have something we need now but then take years to pay for them. A second important benefit of credit is that believe it or not, it can help in getting a job. Employers today routinely use credit reports in screening job applicants. If you were to not have credit in the form of a credit report, you might find it virtually impossible to get a decent job.

Your credit report

Speaking of credit reports if you ever purchased anything using credit, the three credit reporting agencies (Experian, Equifax and TransUnion) all have credit files on you in the form of credit reports. Whenever you apply for credit of any kind, the first thing the potential lender will do is pull your credit report. If you have a good, clean credit report – with no or very few negative items – you should be able to get the credit you applied for. Conversely, if your credit report shows a lot of accounts turned over for collection, late payments, judgments or liens, it’s unlikely you will get that new credit.

Credit scoring

Credit scoring is based on your credit report. In fact, it’s a mathematical representation of your report in the form of a three-digit number. Most people don’t realize this but you actually have a different credit scores. The most important of these is your FICO score, which ranges from 300 to 850. You may have seen the commercial with the children sitting around a table who all agree that more is better. The same is true of your FICO score. More or in this case higher is better. If you don’t know your credit score, it would pay you to get it. It’s available on the website www.myfico.com for $19.95. Or you can get it free if you’re willing to sign up for a trial subscription to the company’s Score Watch program.

How your credit score is computed

Only FICO and the three credit reporting bureaus know precisely how your credit score is computed. This is because it’s done using a formula or algorithm known only to them. However, it is known that your credit score consists of five components. They are.

• Credit history – on time vs. late payments)
• Capacity used – how much credit you have available vs. how much you’ve used
• Length of credit history – or how long you’ve had credit
• Types of credit used
• Credit applications – or how many times your credit report has been requested and by whom

For more details about your credit score, watch this video featuring the CEO of Equifax – which is one of the three credit reporting bureaus.

How to get approved for credit

The most important requisite for getting credit is your credit score. If you have a score of 750 or above, you should be able to get just about any type of credit you wish from a home mortgage to a platinum credit card. Conversely if you have a poor or bad credit score of 580 or less, you may find it difficult to get any credit.

girl thinkingOther ways your credit report affects your life

As you have read, your credit report will dictate whether or not you are able to get new credit. But it doesn’t stop there. Your credit report (or score) will also have a large impact on the interest you are charged on any credit you are able to get. As an example of this, you might be able to get a mortgage with a poor credit score but your interest rate would likely be 2% or even 2 1/2% higher than if you had a good or excellent credit score. Insurance companies are now routinely checking credit reports when they calculate your premiums. And as noted above, you might not get a new job or be passed over for a promotion based on your credit report.

How to get your credit reports

You can get your credit reports free by contacting the three credit reporting bureaus individually. However, a simpler solution is to get all three simultaneously at the website www.annualcreditreport.com. These reports are free but only once a year. If you want to get your credit report more frequently than annually, you will need to contact one or all of the credit bureaus and pay for your report.

How to increase your credit score

There is no magic secret for having a good credit score. You just need to use credit sensibly. This means making all of your payments on time and paying off your balances at the end of each month. Where most people get in trouble with debt is carrying balances forward from one month to the next. The reason for this is that when you carry balances forward, you incur interest charges that will be added to your balance due. If you’re not careful this can spiral into a huge amount of debt in practically no time at all.

What You Don’t Know About Your Credit Score Could Hurt You

Businesswoman reviewing paperwork at deskYou might think that everyone understands credit scores. But you’d be wrong. According to an article I read recently, there is a great deal of confusion about credit scores.

Why is your credit score important?

Credit scores are incredibly important because they determine whether or not you can obtain credit and how much you will pay for it. The reason for this is because the first thing any potential lender will look at is your credit score. A bad credit score could stop you from getting a credit card or even renting an apartment. It will also increase how much you have to pay for services such as electricity, cable and your cell phone. It can even have an effect on your auto insurance premium.

40% don’t know how credit scores are used

This article referenced a study done recently by the Consumer Federation of America and VantageScore Solutions. It found that two-fifths of those surveyed were not aware that mortgage lenders and credit card companies use your credit score to decide whether or not to grant credit and how much the credit will cost. Two-fifths thought that their personal characteristics such as marital status and age were used in computing their credit scores, which is totally inaccurate.

What lenders are required to do

Did you know that lenders must inform you of the credit score that was used when they made their decision about lending to you? Between one-quarter and one-third of those surveyed did not know this. But the fact is if you try to get a mortgage, are refused a loan or didn’t get the best terms or price, the lender must tell you which credit score was used in making its decision. This is important because it will tell you which of the three credit bureaus you will need to contact to get and review your report.

Credit repair services

Finally, more than 33% thought that credit repair agencies would always or usually be able to help correct credit report errors and improve scores. This is also not true. You must review your credit reports on a regular basis. If you find errors, the burden is on you to see that they are corrected.

Raising your credit score

If you are interested in raising your credit score here’s what you need to do. First, as noted above, be sure to keep your credit card balances low and never apply for several credit cards at the same time. Maybe most important, be sure to pay your bills on time every month without exception.

How to get your credit score

You can get your credit score free but you will have to jump through some hoops. For example, if you sign up for a free trial of FICOs (www.myfico.com) Score Watch program you can get your score free. But – be alert – you need to make sure that you cancel Score Watch before the end of your free trial or you will automatically be charged for three months’ worth of the service. The website http://quizzle.com will give you your credit score free but it’s not your true FICPO score. It’s called your CE score. And the website http://CreditKarma.com provides what it calls your New Account Score but, again, this will not be your FICO score.

Get and understand your score

If you haven’t seen your credit score recently or ever, you need to get it immediately. This is a case where ignorance is definitely not bliss. What you don’t know about your credit score could definitely hurt you.

Good News – New Credit Modeling Score Could Help Millions

Smiling woman hugging sack of groceriesIf you’re one of the many millions of Americans who have problems getting credit because of a low credit score, there is good news.

A new VantageScore

There is a new credit-scoring model that could boost your credit score. It could even help if you have little or no credit history. This new model will be used in the latest version of VantageScore, which is the credit score that was created by the three credit reporting bureaus – Experian, Equifax and TransUnion.

Why this is different

Previous to this, if you had a debt that went into collection it would factor into your credit score for seven years. However, the new version of VantageScore won’t factor these into your score – assuming you paid the debt in full or as long as the balance is zero. In addition, people who suffered from a natural disaster such as the hurricane Sandy, who are making their payments on time will continue to be shielded against negative accounts.

Who’ll see their credit reports improve?

In addition to those consumers who were the victim of a natural disaster, millions of other people who have paid collection accounts are likely to see their scores improve. VantageScore has said that if you have a zero balance on collections and no other negative information in your credit report, you should see your credit score improve significantly.

Only your VantageScore

Unfortunately, you’ll see a boost in your credit score only if your lender uses VantageScore. This change will have no affect on your FICO score, which is still the most widely used touring model. However, VantageScore is gaining ground on the FICO score. In fact six of the top 10 companies that issue credit cards and four of the top auto loan and mortgage lenders are now using VantageScore.

Rent and utility payment records to be included

Another big difference is that this new model will also weigh utility payment records and rent and public records such as bankruptcies for people who have very limited credit histories. There are roughly 30,000,000 people who have not been able to get credit scores to date and this will probably help them qualify for both a score and more competitive credit rates.

Aligning itself with FICO

VantageScore is now aligning its scoring with that of FI CO so they will range from 300 to 850. While this is about the same as changing your speedometer from miles per hour to kilometers, it should make more sense for American lenders and consumers.

FICO is also changing

Meanwhile, FICO has said that it’s going to start looking into ways to factor in alternative records for calculating credit scores for people who are without or have very limited credit files.

What’s your score?

You know your credit score? If you don’t, you need to learn it. Whenever you apply for credit, the first thing the lender will do is check your credit score. If you have what’s considered to be a good credit score (750 and above), you’ll most likely get the credit that you applied for. But if your score is 580 or less, you may find it difficult to get new credit. And if you are able to get that loan or credit card, it will likely come with a much higher interest rate.

How to get your credit score

You can get your VantageScore from any of the three credit reporting bureaus. However, the only way to get your FICO score is at www.myfico.com. You can get it free by signing up for a free 10-day trial of the company’s Score Watch program.

“How can I get my current FICO score for free?”

how debt relief affects credit scoreIf you don’t know what a FICO score is, it’s that little three-digit number that rules your credit life. The name FICO comes from Fair Isaac Corporation, the company that originated the FICO score. It changed its name to just FICO a few years ago, which I guess is a shade better than Fair Isaac.

Nobody knows except FICO

Nobody but FICO knows exactly how it computes its scores. This is a trade secret that’s guarded by the company as carefully as the crown jewels. However, it is known that it’s based at least loosely on the following.

35% on payment history (how well you’ve handled your credit)
30% on credit utilization
15% on length of credit history
10% on types of credit used
10% on recent searches for credit

Review this carefully

If you review these percentages carefully, you will see that 65% of your credit score is based on how you’ve handled your credit. If you’ve had a number of late payments or have skipped payments, this will be reflected in your payment history. Credit utilization is a bit trickier as it’s the ratio of your total revolving credit (how much revolving debt you have) to your total available revolving credit or credit limit. What this translates into is that it’s better to have available revolving credit of, say, $10,000 and just $2,000 in revolving debt (like credit card debt) than to have $20,000 of total revolving credit but revolving debt of $12,000 in revolving debt.

Where to get your FICO score free

There is only one place you can get your FICO score free and that is on the website www.myfico.com. Except it’s not exactly free. You can get the score without spending a dime but only if you’re willing to sign up for a trial subscription of the company’s Score Watch program. While the trial subscription is free, you need to make sure you cancel out before it ends or you’ll be on the hook for $14.95 a month for three months or a total out-of-pocket of $44.85.

Where else to get your credit score

There are other ways to get your credit score besides going to www.myfico.com but – spoiler alert – it won’t be your true FICO score. For example, you could go to the site www.creditkarma.com, jump through some hoops and then get your score free. However, it won’t be your FICO score. It will be based on a formula developed by the three credit reporting bureaus and will be similar to your true FICO score but not exactly the same. Of course, free is free and you may not care if it’s not exactly the same as your FICO score.

Experian, TransUnion and Equifax

It’s also possible to get credit scores from the three credit bureaus – Experian, TransUnion and Equifax. However, each one will force you to jump through some hoops and may require you to sign up for a free trial of one of its services and, again, the scores won’t be the same as your FICO score. If you search Google on the term “credit score”, you’ll find many more options. Most will require you to do something before you get your “free” credit score. In other words, as the old adage goes, there is no such thing as a free lunch or a totally free credit score.

What Is MyFICO.com And Why Should You Care?

Man climbing credi score numbersFICO is the new name for what used to be called the Fair Isaac Corporation. It is a publicly traded company that provides decision-making services and analytics. Its best-known product is its FICO score, a formula that is used by the three credit reporting bureaus to create your credit scores.

What is a FICO score?

A FICO credit score is made up of five components. They are 35% payment history, 30% credit utilization, 15% length of credit history, 10% types of credit used and 10% recent searches for credit or hard credit inquiries. It also takes into consideration information on your record regarding court judgments, tax liens, bankruptcies and the like.

FICO takes all this “analog” information and plugs it into a complicated algorithm, which ultimately results in a three-digit FICO score that goes from 300 to 850.

Only one place to get your real FICO score

You might find websites advertising free credit scores. However, none of these will be your true FICO score. The only place you can get your true FICO score is on www.myfico.com.

It won’t be exactly free

The site offers two options. First, you can pay $19.95, which will get you one FICO score from Equifax® or TransUnion®, one credit report from Equifax or TransUnion and an explanation of the factors that affected your score.

Be careful of the big, red button

A second option is to press the big red button labeled Get my FICO score free. If you choose this option, you will go to a page where you can get a free trial of its Score Watch® product, which will get you two FICO credit scores, 2 Equifax Credit Reports, FICO® Score monitoring and alerts. But be aware that if you take advantage of this “free” offer, you’re signing up for Score Watch. If you fail to cancel this service during the ten-day free trial, you will automatically be signed up for three months at a cost of $14.95 per month. And this is a minimum subscription, meaning that if you fail to cancel the service within the free 10-day trial offer, you will be in the soup for a total of  $44.85.

Why get your FICO score?

All three of the credit reporting bureaus, Experian®, TransUnion and Equifax, base their credit scores on your FICO score. However, each has its own proprietary formula for calculating your credit score so you might see slightly different scores from all three.

Since Myfico.com is the only site where you can get your true FICO credit score, it’s a site you should visit periodically. Knowing your credit score is almost as important as knowing your heart rate or blood pressure. A good credit score means you will be able to get more credit, while a bad credit score could doom you to not getting any credit at all.

If you have a bad FICO score

A bad FICO score of 500 or less can make it virtually impossible for you to get new credit, an auto loan or even rent an apartment – not to mention a debt consolidation loan. If you have a low FICO score it’s probably because you’re heavily and haven’t been able to meet your payments. We can’t help you improve your FICO score overnight but we’ve helped thousands of people through debt relief. It doesn’t matter if you’re having a problem making the minimum payments on your credit cards. With our help, you should be able to reduce that increasing debt load and  start to see some light at the end of the tunnel.

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