| Understand Credit Score |
| By Credit Federal |
Published
08/5/2007
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Credit Report
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Why you should understand credit scores
Most Americans do not understand the impact their credit score has on their ability to get credit and to get it at favorable terms and rates.
Even those people who have taken the initiative to get their credit score do not fully understand what their score means and how it is calculated.
For example, some recent survey respondents believe age, race, state of residence and education influence their scores. Of course, those factors do not determine scores. Debt-to-income ratios, payment history and credit lines do.
Did you know... The minimum score typically needed to qualify for a low cost mortgage is 700? Fair Isaac Corp.'s FICO credit score, the nation's most widely used formula, ranges from 300 to 850.
People with scores below 600 are typically charged high subprime loan rates, as they are considered bad credit risks. Those with scores exceeding 760 get the lowest rates.
Each person has more than one score, one from each of the three major credit bureaus; Equifax, TransUnion and Experian. If every person raised his score by 30 points, the total savings in interest would exceed $20 billion.
Unfortunately, it's easier to lower a score than to raise it... meaning it's easier to go from good credit to bad credit than to go from bad credit to good credit. All a person has to do is miss one single payment, which by itself can lower a score by 30 points.
Credit Score Improvement
In addition to creating a personal budget, here are more ways to improve credit score:
Pay all your bills on time, every time.
Don't max out your credit cards or other revolving debt.
Pay off your debt rather than transferring it to another account.
Do not open multiple new accounts within a short time frame.
Check your credit reports. Every year, all three main credit bureaus must give you one free report when you request it. Credit Report Phone Numbers:
TransUnion: 877-322-8228
Equifax: 800-685-1111
Experian: 888-397-3742
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