Understanding Your Credit Score了解你的信用评分.docx

UnderstandingYourCreditScoreWhatdoesyourscoremean?Thisratingsystemisasnapshotoftheriskyoucurrentlyrepresenttoalender.Severalparametersinyourcreditfile,includinglengthofcredithistory,numberofopenaccounts,loans,mortgages,publicrecords,andothersareformulatedtoproduceathree-digitscorebetweenabout300and950.ThereareotherscoresusedbylendersandinsurancecompaniessuchasApplicationandBehaviorscores.Theseotherscorestakeotherinformationintoaccount.Usuallyalenderwilluseacombinationofyourcreditscorewithotherfactorswhendeterminingyourrisk.Theyallhavethesameobjective,todeterminethepotentialriskoftheborrower.Regardlessofhowthescorewasgenerated,theyallyieldanindustrystandardthree-digitscore.Thisscoreplacestheborrowerinoneofthreemaincategories.Prime,Sub-Prime,andCautiousPrimeIfyourcreditscoreisabove680,youareconsidereda"Primeborrower"andW川havenoproblemgettingagoodinterestrateonyourhomeloan,carloan,orcreditcard.Sub-PrimeIfyourcreditscoreisbelow680,youare"SubPrime*',andwilllikelypayamuchhigherinterestrateonyourloan.CaUtiOIISBelow560istheCautiousscore.Atleastthatishowmostlendersandcreditissuersperceiveit.Youcanstillgetacreditcardbutyouwilllikelybehitwithasecuritydepositorhighacquisitionfee.Inadditiontothatyourinterestratewilllikelybe22to23%.Youcanforgetaboutmosthomeloansandthemajorityofnewcarloansatthisscore.Below560isnoplacetobe.Youwillpaymuch,muchmoreinhigherinterestandunnecessaryfees.Youmayevenpaymoreforyourinsurancerates.Averylowscorecanevenpreventyoufromgettingajobwithmanycompanies.Howmuchdoesalowscorecostyou?CreditCardSMostifnotallprimecreditcardsareentirelyoutofreachtoconsumerswithbadcredit.Andthefewcreditcardsthatareavailabletothem(knownasusub-primecards)typicallyrequireexorbitantsetupfeesorrecurringmonthlyfees,offerverylowcreditlines,oftenrequirecashdeposits,andinmostcasesdonotevenreportyourpositivecreditactivitytothecreditbureaus.AUtOmObileFinanCinaIfyouaremakingpaymentsonacar,youareprobablypayingbetween$5,000and$9,000morejustforhavingbadcredit.Thisaddedinterestshowsupeverymonthinahigherpayment.Takealook.$20,000carpaidover5years:CREDITSTATUSRATEPAYMENTCOSTOFBADCREDITPerfect10%$424.94$0.0()MildlyDamaged14%$465.37$4,722.54Damaged20%$529.88$8,593.30HOmeMOrtaaaeBadcreditinautofinancingcanreallyhurt,butitisnothingcomparedtothecostofbadcreditwhenahomeisinvolved.Atypicalhomecancostbetween$50,000and$130,000moreininterestifyouarebuyingthehomewithbadcredit.$100,000homepaidover30years:CREDITSTATUSRATEPAYMENTCOSTOFBADCREDITPerfect7%$655.30$0.00MildlyDamaged9%$804.62$50,155.24Damaged12%$1,028.61$130,791.63Asyoucansee,alowscorecancostyouhundredsofdollarspermonth.Itisimportanttoobtainandmaintainashighacreditscoreaspossible.Howarecreditscorescalculated?Themethodsofcalculatingyourcreditscoremaydifferslightlydependingonthecreditbureau.Whenobtainingyourscoreitisadaptedtoeachbureauandisgivenitsownname:Equifaxuses“Beacon"，TransUnionuses“Empirica'',andExperianusesuExperianZFairlsaac.nThesescoresarealsoreferredtoasyour"BureauScores.nSinceyourscoreisderivedfromyourbureaudata,itwillchangeeverytimeyourreportschange.Howeveryourscoreiscalculated,itwillalwaystakeintoconsiderationmanycategoriesofinformation.Noonepieceofinformationorfactordeterminesyourscore.Astheinformationinyourcreditreportchanges,theimportanceofoneorseveralfactorsmaychangeinyourcreditscore.Lenderslookatmanythingswhenmakingacreditdecision,includingyourincomeandthekindofcredityouareapplyingfor.However,yourcreditscoredoesnotreflectthesefactsasitonlyevaluatestheinformationretainedbythecreditreportingagency.Whatfactorsaffectyourcreditscore?Therearefivefactorswhichareusedincreditscoringcalculationsthatdetermineyouroverallcreditscore.PreViOUSCreditPerfOrrnanCe(PaVmemHiStOrV)35%Alenderwantstoknowwhatyourpaymenthistoryislike.Haveyoupaideverythingontime,areyoulateonanythingnow,etcEYourpaymenthistoryisjustonepieceofinformationusedincalculatingyourscore,althoughitcanbetheveryimportant. Paymenthistoryonyouraccounts.Theseincludecreditcards,retailaccounts(departmentstorecreditcards),installmentloans,financecompanyaccountsandmortgageloans. CollectionitemsandPublicrecords.Thisincludesjudgments,bankruptcies,suits,liens,collectionitemsandwageattachments.Mostoftheseareconsideredquiteserious,althougholderitemscoudlessthanrecentones. Itsallinthedetails.Thisincludesspecificdetailsonlateandmissedpayments.Negativeinformation/latepaysaredeterminedusingthreefactors.oRecency-Howlongagowasthelastdelinquency?Howoldisthelatepay?A30-daylatepaymentmadejustamonthagowilleffectyourscoremuchmorethana90-daylatepaymentfromfiveyearsago.oSeverity-Whatlevelofdelinquencywasreached?Howlatewasthepaymentmade?30days,60days,90daysorworstofall,isthepaymentstilloutstanding.oPrevalence-Howmanycreditobligationshavebeendelinquent?Theamountofnegativeitemsascomparedtoyourtotalamountofavailablecredit.Forinstance,5accountsshowing3latepaymentsismuchworsethan10accountsshowing4latepayments.Oneofthebiggestsubfactorsishowmanyaccountsshownolatepayments.Agoodtrackrecordonmostofyourcreditaccountswillincreaseyouroverallcreditscoresubstantially.CUrrentLeVelOflndebtedneSS(AmOUntOWed)30%Howmuchistoomuch?Cantheborrowerpaymeandstillaffordtopayhisotherbills?Notnecessarily.Havingavailablecreditcanactuallyhelpyourratioofdebttoavailablecredit.Thesearethetypesofquestionsthatmostborrowerswanttoknowandtheanswersarealmostasimportantasyourpreviouscredithistory. Totalamountowedonallopenaccounts.Payingoffyourcreditcardsinfulleverymonth,doesnotmeanthattheywon'tshowabalanceonyourreport.Yourtotalbalanceonyourlaststatementisgenerallytheamountthatwillshowinyourcreditreport. Specifictypesofaccounts,suchascreditcardsandinstallmentloansarescoreddifferentlyandinconjunctionwiththeoverallamountowedonallopenaccounts.Thisalsofactorsintoyourbalanceoneachspecifictypeofaccount.Forinstance;youhaveacreditcardwithaverysmallbalanceandnolatepays.Eventhoughthebalanceislow,thisstilllooksverygoodasitshowsthatyouareabletomanageyourcreditresponsibly Howmanyaccountsdoyouhaveopenandhowmanyhavebalances?Alargenumberofopenaccounts,evenwithsmallbalances,canindicatehigherriskofover-extension.Thisisweightedinyourcreditscorebutmostlendersleaveittotheirdiscretionastheyhaveaccesstoyourincomeamount.Forthemostpartthoughitisgoodnottohavetoomanycreditcardaccounts,threemaximum. Howmuchofthetotalcreditthatisavailabletoyouareyouusing?Inotherwords,Areyouclosetomaxingout?Forexample,ifyouhaveacreditcardwithanavailablecreditlineof$1000dollarsandyouhaveacurrentbalanceof$850.00ormore,thenyouarenearlyumaxedout.Severalcreditcardsorotherdebtswithbalancesapproachingthecreditlimitwilleffectyourscorenegatively.Evenifyouhavemadeyourpaymentsresponsibly.Yourcreditscorewillfactoryouroverallratioofdebttoyouroveralllimits.OverallRatioAccountAmountowedLimit/LoanamountPercentageVisa$500$100050%Mastercard$50$10005%Carloan$11,000$25,00044%Homeloan$95,000$145,00065%Total$106,550$172,00061%AmolIntOfTimeCreditHaSBeenInUSe(LenathOfCredit)15%Generallyspeaking,thelongerthecredithistorythebetteryourscore.However,thisfactoronlymakesup15%ofyourtotalscoresoevenyoungpeople,studentsorotherswithshorthistoriescanstillscorehighoverallaslongastheotherfactorsshowgood.Ifyouarenewtocreditthanthereislittleyoucandotoimprovethispartofyourscore.Openanaccountandbepatient. Howlongyourcreditaccountshavebeenopenorthenumberofmonthsyouhavebeeninthecreditbureau,sfile. Theageofyouroldestaccountandtheaverageageofallyouraccountsaretakenintoconsideration HowlongithasbeensinceyouusedcertainaccountsaswellasthemixofolderandnewtradelinesPUrSUitOfNeWCredit(10%)Creditismuchmorepopulartoday.JustlookatthenumberofcreditcardoffersyougetviatheInternetandinthemail.Consumerscannowshopforcreditandfindthebesttermstomeettheirneeds.Eachtimesomeonerunsacreditcheckonyou,itcreatesaninquiry.FairIsaachaschangedsomeofitscalculationstoaccountforthesenewtrends.Specifically,theytreatagroupofinquirieswhichprobablyrepresentsasearchforthebestrateonasingleloanasthoughitwasasingleinquiry(note:thisonlyappliestoautoormortgageloaninquiries.)Forexample,autoloaninquiresthatarewithin14daysofeachotheronlycountasoneinquiry.Yourcreditscoretakesintoaccount: Howmanynewcreditobligationshaverecentlybeenassumed?Openingseveralcreditcardaccountsatthesametimecanlookbad.Towhatextentisthisconsumertryingtoopennewcreditaccounts7 Howrecentweretheseefforts?Howlongithasbeensinceyouopenedanewaccount.Primaryconsiderationisgiventothefollowing:oNumberofinquiriesinlastsixmonthsoNumberoftradelinesopenedinlastyearoNumberofmonthssincemostrecentinquiry Therearenogoodinquiries.Inquiriesortypicallyseenasarequestforcreditandthusarefactoredasifyouaresearchingforcredit.Everytimeyoufilloutoneofthosecreditcardapplicationstogetafreehat,youarealsogettingafreeinquiry.Everytimeyoufilloutanonlineapplicationforacreditcard,orothertypeofloan,youaregettinganinquiry.Toomanyinquirieslooksbad.Whiletherearenogoodinquiresthereareneutralinquiries.Theseinquiriesaremostoftenknownas:oConsumerinitiated.Arequestforyourcreditreportshowsasaconsumerinquiry.Whenyourunacreditcheckonyourself,(providedthatyoudon'tcallyourmortgagebrokerbuddytopullyourreport)oPre-Approval.Ifapotentiallenderhasviewedyourcreditreportstodeterminewhethertheywanttoofferyoualoan,thesearenotfactoredintoyourscore.However,onceyoufilloutacreditapplication,yourfullreportW川bereviewedandaubadninquirywillappearonyourreports.oPeriodicReview.Manylenderswillperiodicallyreviewthecreditreportsoftheircurrentcustomerstoseeiftherehavebeenanymajorchangestotheircreditreports.Ifthelenderdiscoversthatyourcreditscoreisnowtoolowfortheirstandards,theymaycloseyouraccount.Theseinquiriescreatedasaresultoftheperiodicreviewsarenotsupposedtobefactoredintoyourcreditscore.#ofTypedays#ofinquiriesNotesagoDept.Store681Appliedforonedept,cardMortgage651Twomortgageappswithin30daysofeachothercountsasonlyMortgage56oneinquiryAuto251Auto9Notcountedatallifwithin30daysoffirstinquiry.Thesetwodon'tcountatallasAuto7theywerewithin30daysofthefirstappandwithin15daysofeachother.Bankcard51Howinquiriesarecomputedissomewhatcomplex.Theabovetableismeantasabasicguidebutdoesnotcoverallthedifferentcalculations.Asareasonablemeasureyoushouldavoidunnecessaryinquiries.Thesystemisdesignedtotakeintoaccountrateshoppingbutthingslikeapplyingtocreditcardofferswilladdinquirestoyourfile.TVPeSOfCreditEXPerienCe(10%)Ahealthymixofdifferenttypesofcredit,installmentloans,retailaccounts,creditcards,andmortgage.Thisscoreisnotnormallyakeyfactorindeterminingyourscorebutitcanhelpaclosescore.Itsnotagoodideatotryandopendifferenttypesofaccountsjusttotryandmakethisfactorbetter.Itwilllikelyreduceyourscoreinotherareas.Youshouldneveropenaccountsyoudon,'tintendtouseanyway.Whattypeofaccountsyouhave,andhowmany,canmakeabigdifference.Theoptimalratioofinstallmentversusrevolvingaccountsdependsonyourprofileanddiffersfrompersontoperson.Onefactorthatseemstohavesignificantinfluenceisyourpercentofopeninstallmentloans.Toomanycanlowerthisportionofyourscore.CrackingthecodeIfyouaredeniedcredit,youwillreceivefourreasoncodeswhichindicatewhyyouweredenied.Thesecodesappearinorderofimportance,below.Thefirstcodehasthestrongestimpact,followedindecliningimpactbythesecond,thirdandforthreason.Atypicalreadoutyourlendermightviewfollows.Thisparticularreadoutpresentsinformationfromallthreecreditagencies.Intheexamplebelow,theindividualfailedtoqualifyforeachcreditagencyandthereasonsarelistedindescendingorder.*borrower：smith,JOEm.*TUScore:00623Reason1=f022Reason2=016Reason3=028Reason4=004ExperianScore:00629Reason1=022Reason2=016Reason3=028Reason4=032EQUIFAX:00617Reasonl=022Reason2=016Reason3=028Reason4=032Allthreecreditagenciesdonotalwayshavetheexactsameinformationthereforeyourthreescoreswilldifferslightly.Asageneralrulethough,ifyoufailtoqualifyatoneagencyyouarelikelytostillbedeniedifoneoftheotherbureausischecked.Mostmortgageloanscompanieswillrunallthreecreditagenciesandtakethelowestscore.ReasonExperianTUEquifaxAmountowedonaccountsistoohigh111DelinquencyonAccounts222Toofewbankrevolvingaccounts3N/A3Toomanybankornat,lrevolvingaccounts4N/A4Toomanyaccountswithbalances555Consumerfinanceaccounts666Accountpaymenthistorytoonewtorate777Toomanyrecentinquirieslast12months888Toomanyaccountsopenedinlast12months999Proportionofbalancestocreditlimittoohigh101010Amountowedonrevolvingaccountsistoohigh111111Lengthofrevolvingcredithistoryistooshort121212Timesincedelinquentistoorecentorunknown131313Lengthofcredithistoryistooshort141414Lackofrecentbankrevolvinginformation151515Lackofrecentrevolvingaccountinfbnation161616Norecentnon-mortgagebalanceinformation171717Numberofaccountswithdelinquency181818Toofewaccountscurrentlypaidasagreed192719Timesincederogatorypublicrecordorcollection202020Amountpastdueonaccounts212121Seriousdelinq.,derog.publicrecordorcollection222222Toomanybankornat'lrevolvingacctsw/balancesN/AN/A23Norecentrevolvingbalances242424Proportionofloanbalancetoloanamt.toohigh33333Lackofrecentinstallmentloaninformation32432DateoflastinquirytoorecentN/A19N/ATimesincelastaccountopeningtooshort303030Numberofrevolvingaccounts26N/A26NumberofbankrevolvingorrevolvingaccountsN/A26N/ANumberofestablishedaccounts282828NorecentbankcardbalancesN/A29N/AToofewaccountswithrecentpaymentinformation31N/A31Notethatthesecodeschangeoften,andmaynotrepresentthecurrentcodesasofthiswriting.ImprovingyourcreditscoreNowthatyouknowhowyourscoreiscalculated,youcanbeginmakingchangestoyourcurrentfinancialplanning.Thebestthingsyoucandoaresimple. Payyourbillsontime.Soundssimple,butthisisthebiggestthingyoucandotokeepyourscorehigh.Delinquentpaymentsandcollectionshaveamajornegativeimpactonascore. Keepyourbalanceslowonunsecuredrevolvingdebtlikecreditcards.Highoutstandingbalancescanaffectascore. Theamountofyourunusedcreditisanimportantfactorincalculatingyourscore.Youshouldonlyapplyforcreditthatyouneed. Makesuretheinformationinyourcreditreportiscorrect.Ifitsnot,disputeitwiththecreditagenciesand/orwiththecreditordirectly. Removingnegativeitemsonyourcreditreportshasthebiggestimpactonyourcreditscore.Generally,negativeitemsstayonyourreportsforsevenyearsbutyoucanhireaprofessionalcreditrepairservice.CreditScoringFacts Payyourbillsontime.Soundssimple,butthisisthebiggestthingyoucandotokeepyourscorehigh.Delinquentpaymentsandcollectionshaveamajornegativeimpactonascore. Keepyourbalanceslowonunsecuredrevolvingdebtlikecreditcards.Highoutstandingbalancescanaffectascore. Theamountofyourunusedcreditisanimportantfactorincalculatingyourscore.Youshouldonlyapplyforcreditthatyouneed. Makesuretheinformationinyourcreditreportiscorrect.Ifitsnot,