Monitoring Your FICO Credit Score and Credit Reports
The term credit score usually refers to your FICO score, a number based on a formula developed by the Fair Isaac Corporation, which looks at a summary of all your credit accounts and payment history. Your FICO (credit) score determines your access to and cost of credit. Most lenders use it as the main basis for loan or credit approvals, so the higher the better and the lower the more problems. FICO scores range from 300-850.
While your credit score gives you a quantitative number for your credit rating, it does not tell you what goes into it and what good/bad credit items are recorded against you. To do this you need a credit report that is provided by the various agencies (you can get these for free once a year). In particular your credit report tells you credit history for the past several years along with all the merchant/credit transaction details.
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Your credit score and report are a dynamically updating set of information and while it is is important to know what your score is, it is equally important to monitor it. Particularly if you are planning to or in the midst of borrowing money. A bad credit score (<600) can cost you significantly in the longer run. Here are some providers that offer reasonably priced credit monitoring services and a one-stop way to get your credit scores from all the major rating agencies. You can try most of these for free, before incurring a monthly charge.
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How does your credit score rate? For the best rates on a loan or credit card, you want a score that’s above 750. The median US credit score is 720 (half the population has more than this, while the other half is lower). The next section looks at how to achieve a good score, but here how the various FICO score ranges compare:
Top Shelf Score: A score above 780 means you have excellent credit with an excellent history of paying back and managing debt. Even in this economy, ban
ks will happily lend to folks with 780+ credit scores, meaning they will get the best rates and easiest access to credit.
Middle of the Pack: FICO score from 700 to 780 is very good and above average (the FICO score is not a linear range). You may not get the best rate s, but if you have a stable job and little debt then you should get a very competitive rate. However focus on getting to the 780 level, using the simple tips that follow
Work to do: FICO credit score between 600 to 700. You won’t be denied loans on this score but the terms aren’t going to be too generous. You need to work hard to get your score into the higher ranges or face the prospect of years of rising debt payments, while your higher credit neighbors live the cheaper debt life.
In the Dog House: Credit score below 600. Once upon time banks used to love sub-600 borrowers because they could charge them the highest rates and reap the biggest profits. This group were called the “sub-prime” borrowers. Then we had a crisis with the same name, and the rest is history. Now banks and brokers won’t give you the time of day. You really need to focus on repairing your credit (it can be done!) or learn to live without it. Cash is your best friend and stay away from the loan sharks
Your credit score can determine if you can get a good or bad credit personal loan and the interest rate you will be offered. Related Posts on your credit score and how to improve it :
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Here are a few ingredients of a credit score:
• Payment History: Whether you pay your bills on time, including credit cards, student loans, utility bills, or any other lender or service provider that reports to the big three agencies. Getting this right is easy: don’t blow the due date.
• Amounts owed: The breakdown of your credit balances, and how they compare to the limits of what you’re allowed to take out. If you’re maxed out, it can hurt.
• Years of credit: The age on your accounts. The longer your credit history, the better lenders can gauge your ability to repay. Unfortunately, the formula knocks young borrowers who don’t have an established, detailed history.
• New credit: How many accounts have you opened recently, and how many lenders have inquired about your credit? The more activity, the more it appears you’re about to go on a debt binge.
• Types of credit: The mix of accounts you hold, such as auto loans, credit cards, student loans, or mortgages.
In general, higher credit scores equate to lower interest rates, meaning less cash you’ll have to fork over during the life of a loan. Recently, credit experts think any score above 720 will get you the optimum interest rate. In 2007, the national average FICO score is 723, and 58% of Americans have a score higher than 700, according to Fair Isaac.
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