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A Crash Course On Credit Scores |
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Written by Brian Daniel
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Monday, 30 October 2006 |
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Word Count: 523 You sit down to look at your credit report for the first time. If you’re
scores are 750 or above, congratulations! You have excellent credit; stop
worrying. If you’re scores are not above 750, no problem—a journey of a thousand
steps begins with the first one. Take solace in the fact that the national
average score is around 676 according to the Gallup Organization. If you’re
scores are below 400, 500, or 600, there’s definitely room for improvement and
only one way to go—up!
If the numbers I’ve mentioned don’t make any sense to you or you have no idea
what they mean, don’t fret—I’ll explain. Credit scores range from 300 to 850.
All three of the credit bureaus—Equifax, Experian, and Transunion—offer FICO
credit scores using a complex mathematical formula developed by Fair, Isaac and
Company, but they each give the scores a different name: At Equifax, the FICO is
known as the Beacon credit score; at TransUnion, it’s called Empirica; and at
Experian, it’s called the Experian/Fair, Isaac Risk Model. All these scores are
determined by several factors: the number and type of accounts you have, your
bill-paying history, late payments, collections, outstanding debt, and the age
of your accounts. The credit scoring system for each of the bureaus awards
points for each “factor” and the total number—your credit score—is an indicator
of how likely you are to repay a loan.
Here are a few quick tips to help improve your credit scores:
• Pay your bills on time, especially your mortgage payment.
• Try to keep your outstanding debt low; don’t max out your credit cards.
• Generally, the longer the credit history, the better the score.
• Don’t apply for too many credit cards or accounts at one time.
• Try not to have too many credit cards, having two to three is ideal.
If you’re credit scores are above 750 you have excellent credit and will able to
get the best interest rates and terms available. As your credit scores drop, the
interest rate you’ll receive for a home loan will rise: this is known as tiered
pricing. The more of a risk the lender takes on you, the higher your interest
rate will be. In addition, all lenders have their own break points between
tiers. What this means is that one lender may raise the interest rate if a score
drops below 700, while another lender won’t give a higher rate until the score
drops below 690. In summation, you should do everything in your power to
maintain good credit scores, and be sure to shop around and do your homework
when looking for a home loan because all lenders are not created equal, and not
all lenders look at credit scores equally. Knowing that you have good credit
scores is a start. Knowing what kinds of interest rates you can get with your
credit scores is the next step.
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Brian Daniel is a loan officer/marketing coordinator for
http://www.bendmortgagegroup.com a mortgage company in Bend, Oregon. For
more helpful tips and articles visit
http://www.bendmortgagegroup.com/articles.
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