The Importance of Credit Scores

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If you want to buy a car or a house you need to have credit. The better your credit score the more favorable terms you will get on home and car loans as well as other forms of credit. It can affect your insurance rates and can even have a bearing on your employment.

A credit score is a number derived from a person’s credit report that represents their apparent creditworthiness. Credit report data comes from three primary credit bureaus: TransUnion, Equifax and Experian. These reports are evaluated to determine how likely it is that a person will pay their debts.

The first credit scoring system was created in 1958 by the Fair Isaac Corporation (FICO). It was used for investments. In 1970, American Bank and Trust created a credit scoring system for bank credit cards.

The FICO credit scoring system is the most popular and widely used. It is considered the standard of US consumer risk. FICO scoring is based on the following criteria:

Payment History (35%)
Credit Utilization (30%)
Length of Credit History (15%)
Types of Credit Used (10%)
Recent Searches for Credit and/or Amount of Credit Recently Obtained (10%)

If the loan or credit applicant’s FICO score is low, the bank may deny credit, charge higher interest rates, and request more detailed financial information or require collateral.

Each of the three top credit bureaus use the FICO credit scoring system. However, credit scores can vary from one credit bureau to another because each company has its own databases and procedures for gathering reports from different creditors.

It is prohibited by law to base credit scores on race, religion, national origin, sex and marital status.
US residents are also legally allowed to view their credit scores once a year at no cost. You can see your credit score for free by visiting http:www.annualcreditreport.com.

Credit scores are used to decide who qualifies for a loan, and at what interest rates and credit limits. The higher the score, the more likely you will be able to purchase a product or service with credit.

Chris is a consumer advocate for ethical debt settlement and credit repair practices, a personal finance blogger (http://www.mymoneymess.com) and author of the book "The Debt Survival Kit."

Article Source: http://depositarticles.com/

For more than two decades, Chris has used his extensive executive training to successfully manage small businesses and non-profit organizations. He is also a licensed real estate sales agent with first-hand experience helping individuals and families qualify for mortgage loans and home financing. In 2004, seeing the impact of the growing US financial crisis on friends, family and co-workers, Chris, along with partner Duane Anderson, launched CarePlus Financial to help people have a better financial future. A self-taught debt settlement and credit repair expert, Chris has spent hundreds of hours scrutinizing both industries, and conducting extensive legal research to find the most effective ways to handle debt and credit problems. Chris has also developed relationships with dozens of bank executives, collection agencies and law firms across the country on his personal mission to help people not only survive, but prosper, during tough economic times. Chris is a consumer advocate for ethical debt settlement and credit repair practices, a personal finance blogger (www.mymoneymess.com) and author of the book "The Debt Survival Kit."

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