Living Well 60+ January-February 2014 - Page 29

JAN/FEB 2014 Understanding Your Credit Score It’s more than just one number by Angela S. Hoover, Staff Writer A credit score is a number that summarizes your credit risk, based on your credit report at a particular point in time. Potential lenders use this score to evaluate the risk of extending credit to someone. There are three major reporting bureaus where all credit and payment histories are reported and stored: Equifax, Experian and TransUnion. All three agencies will have a different credit score based on the information of its credit report. Everyone has more than 40 different credit scores, not a single credit score as is often stated in advertisements. There are so many different credit scores because banks and other lenders use several different lenses to evaluate people’s ability to manage credit. A particular lender may use one or a combination of several credit scores to make a determination about an application. These scores come from the three bureaus and in-house models. The two most popular scores are the FICO and VantageScore. FICO, the oldest model, was established in 1956 by the Fair Isaac Corporation. Its primary business is selling proprietary scoring systems to lenders and credit bureaus to evaluate lending risk. Originally used to calculate mortgage default risk, FICO has evolved to apply to many different types of credit. Today, people have six FICO scores: generic, mortgage, auto, bankcard, installment loan and personal finance. Additionally, each of the three bureaus has their own models to change the FICO scores, each with distinct varia- tions for the six categories. This means everyone has a minimum of 16 separate FICO credit scores. The general weighted components of a FICO score are: • 35 percent – payment history • 30 percent – amounts owed • 15 percent – length of credit history • 10 percent – types of credit in use • 10 percent – new credit The VantageScore was launched in 2006 as a collaboration between the three credit bureaus to help them compete with FICO. Just as with the FICO scores, a VantageScore can be tailored for particular lenders and types of credit. In addition to these 20 or so FICO and VantageScores, there about 10 to 20 other direct-toconsumer, application risk and customer risk scores (also called behavior scores). Higher scores are better. This is the breakdown: • 760-850: Excellent • 700-759: Very Good • 660-699: Good • 620-659: Fair • 619 or less: Bad Each lender will have their own parameters from which to judge your credit scores. And with the flexibility to customize the FICO and VantageScore models for specific purposes, hundreds of credit scores are possible. Checking and Improving Your Credit Scores Everyone is entitled to one free credit report a year at www.annualcreditreport.com. You can also buy your report directly from each of the bureaus or all three at www.myfico.com. Widely adver- 29 tised third-party companies also offer free credit reports. Read the details to see which agency and score the company is providing. For instance, if the company uses Experian, you will either receive the FICO Experian Risk Score or the VantageScore. Here are some ways to improve your credit score: • Always pay in full and on time. • Increase your credit limit if possible. • Pay off balances and don’t carry revolving debt if you can avoid it. • If you have bad or no credit, don’t apply everywhere for credit; an inquiry deducts about five points off your score. To lenders, six or more inquiries indicates a likelihood of filing bankruptcy. • Don’t close old accounts; this could lower your score, and if you had a late payment it will not disappear from your credit 2 HAMBURG JOURNAL report just from closing the account. • If you must close accounts, close newer ones because longestablished credit relationships score well. • Avoid opening a lot of new accounts at once, especially if you don’t have a long credit history. A good rule of thumb is to have no more than five credit cards. • Fix bad credit. Work to have inaccurate information removed. For more serious issues, such as judgments, foreclosures or bankruptcies, seek a credit repair specialist for help. JANUARY 2O12 WWW.HAMBURGJOURNAL.COM Senior Retirement Community Rose Mary C. Brooks Place Rose Mary C. Brooks Place We’re Not Almost Home. We are Home. We’re not almost home. We are home. Schedule Your Free Tou r Today! NOW LEASING 1 & 2 bedroom apartments. 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