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Credit Scores

by Chris Green
July 04, 2009
A lot of the things in this world revolve around credit. Every time you apply for credit, be it for a house, a car or as simple as a credit card, the creditor will look at your credit scores.

Your credit score sums up your credit rating in a single three digit number which can range from 300 to 850. Fair Isaac Corporation is the company that developed the first credit score as well as the FICO score.

Most people will have a score between 600 and 800. A higher credit score is always better. If you get a credit score of 720 or higher, you will get the most favorable interest rates on mortgage.

Lenders use different credit scoring models to assess your credit worthiness. Your credit score may vary because different credit scoring models will produce different scores.

There are three major credit reporting bureaus. These are Equifax, Experian and TransUnion. Each of these credit reporting bureaus use different scoring models. Your credit scores will be different from each company because they use different models. Equifax uses the BEACON score. Experian utilizes the Experian/Fair Isaac Risk Model to find your credit score. TransUnion uses the EMPIRICA score to come up with your credit score.

Another factor that comes into play and produces a different score for you is the credit information that each bureau receives. Equifax may have slight different information on you from TransUnion or from Experian. The information submitted to the credit reporting bureau will definitely affect your credit score.

Not all credit reporting bureaus have exactly the same information about you in their credit reports. The information they have about your credit will depend mostly on what is being reported to them. If you are applying for more credit and have been paying your dues diligently, make sure that your information has been submitted. If youâ€TMre new and are building your credit, make sure that the company you are with reports information these bureaus.

A new credit scoring model called VantageScore has been collaborated on by all three major credit reporting bureaus. This will create a uniform credit score as the same formula will be used by all three companies to calculate your credit score. This will remove the confusion caused by the different models used by Experian, Equifax and TransUnion.

The New VantageScore will range from 501 to 990. There will corresponding letter grades from A to F, similar to what schools use. Just like in school, the highly desirable score of 901-990 is given an A while a score of 501-600 is given an F.

No matter what credit scoring model is used, no matter which company produces your credit score, the only important thing is that you receive a good credit score. Your credit score will affect all your credit related activities. Even taking out a lease will require a credit check.

Your credit score will decide your success or failure in taking out credit. If you succeed at taking out credit, your credit score will affect the interest rates levied. If you have a high credit score or score in the higher ranges, you will get better rates on interest. The better your credit score is, the lower your interest rates become. If you are given credit but have a less than stellar credit score, your interest rates will be higher than a person who has a good credit score.

You can save hundreds to thousands of dollars on interest payments alone if you have a good credit score. Getting a good credit score requires a lot of work and planning though. If youâ€TMre just starting out, make sure that you understand how credit works.

If youâ€TMve stumbled a little on the way, you can still work on improving your credit score. This will take time and patience but the potential reward will have far reaching implications in your life.

If your credit report and your credit score are stellar, keep them that way. You will find that the better your credit score is, the more lenders will trust you.

In the world of credit, your credit score is an indicator of how trustworthy you are. Make yourself look good to creditors. Have good credit scores.


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