Credit Scores Free

Many articles have been written about the importance of having healthy credit. And nowhere is the state of your credit more important than when you apply for a home loan. For most people, a house is the most expensive thing they will ever buy and the overall health of your credit determines whether or not a lender will offer you an affordable home loan. Since the most common measure of financial health is a credit score, most potential buyers are urged by well-meaning sources to “check your credit score before you apply.” Many would-be homebuyers head to the Internet to do just that, and seeing that their score is sufficient, they head off, score in hand, to meet with a lender to discuss potential loans.

And then the lender drops the bomb – “Sorry, but your credit score is too low. You don’t qualify for the best interest rate.”

What happened? How can the credit score you buy be higher than the one the lender receives? The answer is a simple one – there is more than one kind of credit score. Each of the three main credit bureaus – Equifax, Experian and Trans Union, uses a different method of determining credit scores. While the scale and criteria they use are roughly the same, the formula is slightly different at each bureau, so checking with all three bureaus could provide you with three different scores. Or even four – the three bureaus are now also making use of a unified scoring system. But which one is the “correct” score?

Mortgage lenders almost universally check the FICO score, created by Fair, Isaac, and Co. The FICO score is similar to many others, but it’s the one that lenders are checking. That means that if you want to know exactly where you stand ahead of time, you need to check your FICO score yourself. And you need to make sure that the number you receive is, in fact, your FICO figure and not some other arbitrary score.

How can you do that? There are many places on the Internet where you can obtain a credit score, but not all of them will offer the FICO figure. Make sure that the site you visit offers the FICO score before you agree to pay. Equifax makes the FICO figure available on their site, as does MyFICO.com. If you aren’t sure, you might check with one of those two Websites. Making sure you have an accurate representation of your financial health prior to applying for a home loan is a great idea. Just make sure that you are looking at the same measure of financial health that your lender will use – your FICO score.

A lot has been written in the past few years about the importance of both credit reports and credit scores. The credit report is a listing of all significant financial transactions by a consumer and whether or not those transactions were completed on time and as agreed. The score is a distillation of everything contained on the credit report, boiled down to a three-digit number. That number is supposed to indicate to a creditor or a lender, at a glance, whether or not the consumer in question is worthy of another loan.

Until recently, the three major credit bureaus, Experian, Trans Union and Equifax, all used different but similar systems to devise the credit score, which ranged from 300 at the low end to 850 at the high end. The different systems meant that a consumer checking his or her score with each of the credit bureaus would receive three different credit scores. This led to some confusion as to which score was the “correct” one. The bureaus have recently attempted to solve that problem by creating VantageScore, a unified scoring system that all three bureaus will use. This should result in a consumer receiving the same score no matter which bureau provides it.

But this hasn’t entirely stopped the confusion over credit scoring. Unlike the old systems 300-850 range, the VantageScore uses a different scale that ranges from 501-990. In addition to the numeric score, the VantageScore system will also provide a letter grade, ranging from A-F, as follows:

901-990 – A
801-900 – B
701-800 – C
601-700 – D
501-600 – F

Now the source of the confusion has changed. Many people have erroneously assumed that a score in the old system will be transferred to the new system. That means, to their way of thinking, that a top score in the high 700s or low 80s under the old system is now merely “average” under the new one. How, people are wondering, did a top score suddenly become mediocre?

The answer, of course, is that it didn’t and that comparisons between the old system and the new one are like comparing apples with oranges. The new system is completely different and will use a new set of criteria to create the new score from the ground up. A score in the 800 range under the old system will almost certainly become a score in the 900 range under the new one. Consumers have no reason to be alarmed, and in time, the new system will be better and more easily understood than the old one. After all, nothing tells you that you have done well better than being told that you have received an “A”.

Do you check your credit score and credit report before you go shopping for a car? You might find out that it is well worth your while to do so, as some auto dealers are taking advantage of the fact that many consumers do not know their credit scores.

No one likes buying a car; the entire process is awkward and cumbersome. Most items we buy are plainly marked with the price, but with cars, the price is often a mystery. Then you have to haggle with a salesman and hope that you have worked out the best price possible. Having done that, you have to arrange financing. You can often get an acceptable interest rate when financing through the dealer, but some dealers are padding their bottom line by offering loans at higher rates than they otherwise might.

The scam works like this – You negotiate your best price with the dealer and you agree to finance through them. You fill out the credit application and hand it over to the salesman, who has promised you some reasonable terms. He takes off to process the application and to check your credit report while you have a cup of coffee. He returns a few minutes later, shaking his head. He informs you that your credit score is only 600 and that you will not qualify for the interest rate he offered you. He says that you will have to pay a higher rate. And not knowing any better, you agree.

Had you done your homework by checking your credit score ahead of time, you would have known your actual credit score and you could have pointed out that the salesman’s assessment of your credit score was incorrect. At that point, you could insist upon receiving the more favorable interest rate or threaten to finance elsewhere. This is a common scam that works because most people really do not know their exact credit score.

Learning your credit score is easy. All you have to do is visit the Websites of one of the three major credit bureaus – Experian, Trans Union or Equifax. For a modest fee, you can receive a copy of your credit report with your credit score. Armed with this useful piece of information, you can shop for a car with a bit more peace of mind, knowing ahead of time whether or not you can qualify for the best financing.

Whether you are applying for a credit card, a car loan, or a mortgage, one of the first things that lenders will look into is your credit score.

What is a credit score?

This is a whole bunch of numbers arrived at by calculating such factors as:

* Payment history
* Amounts owed
* Length of credit history
* New credit
* Types of credit used

Credit scores are released by the three credit bureaus Experian, Equifax, and Trans Union each of which provide different scores, based on different factors and credit rating systems. As such, each person actually has more than one credit score.

How important is your credit score?

When lenders let you borrow money, this actually translates to an investment on their part. They collect from the interest as well as the principal. However, like all investments, lending money involves certain kinds of risk. For instance, a borrower may miss out on his monthly obligations, or he may file for bankruptcy. If either of this happens, the lender will have lost in his investment.

So to minimize the risk of loss, lenders want to know as early as possible whether you are a good investment or not that is, whether you are a good borrower who pays his monthly obligations regularly. One way for a lender to determine the likelihood of a borrower to repay his obligation is to get a hold of his credit score.

The credit score released by any of the three credit bureaus reflects how good an investment you are. Each score is based on information that the credit bureaus keep on file about you. Based on such score, the lenders will be able to calculate how much and what loan terms (interest rates, down payments, etc.) they will offer you at any given time.

Thus, low credit scores generally mean higher interest rates and more stringent requirements for approval of your loan application. On the other hand, high credit scores generally mean lower interest rates and lower monthly repayments.

Is credit scoring really necessary?

There are many instances where the importance of credit scoring is stressed. For one, the availability of credit scores helps people get loans faster. Since scores can be delivered quickly, lenders can then approve loans faster.

Another advantage to having the credit scoring system is that decisions involving credits are fairer. Lenders can now base their decisions on facts, not on personal feelings or factors like gender, race, religion, nationality, and marital status, thus reducing discrimination in credit approval processes.

Since lenders can now approve loans faster, this translates to more credit available. The less time it takes them to mull through each loan application means more loans getting approved, since credit scores gives them more precise information on which to base their decisions.

Your credit score will tell lenders how likely you are going to pay your bills. As such, the credit score becomes their basis whether they should approve your credit application or not. That is why it is extremely important that you keep tabs of your credit score scales. The better your score, the higher chance you have of getting approved for a loan and the better interest rates the lender is willing to offer. Whereas, the lower your score, the more likely you wont get approved for a loan.

How are Credit Score Scales Calculated?

Credit score scales are calculated through a complex mathematical algorithm using factors generally involved in making credit decisions. These factors include payment history, credit history, credit available, existing or current debts, bankruptcies if any, among others.

Who Evaluates Your Credit?

The top three credit bureaus that report credit score scales to banks and other lending institutions are Experian, Equifax, and Trans Union. All three are private companies that assign value to your credit rating based on information found in your credit report. The factors used to calculate the scores are basically the same. However, since these companies use their own unique system of credit score scales, your credit scores and reports may vary from company to company.

Moreover, some lenders do not rely solely on the credit score scales released by these three credit bureaus. They may have their own system of analyzing future credit performance that affect how they are going to approve your credit application with them.

The First Credit Score Scale

Regardless, the most common credit score scale system used (and the first ever) by credit reporting agencies is the FICO score, developed by Fair Isaac Corp. The FICO score has a credit score scale of 300-850 with 720 and above considered as good scores meaning, credit worthy. However, this does not mean that those who are scoring below 720 have no chance of getting credit, since lenders may still approve credits even if the applicants have low credit scores.

Why Credit Score Scales are Important

Credit score scales make it easier for lenders to make fast decisions concerning loan approvals. Since the scores represent the most precise information they need, they can make accurate decisions based on these scores much faster.

Faster loan approval process benefits the consumer. Because lenders will spend less time mulling over one application, they can accept more applications for credits and approve more people. Of course, your chances of getting approved for a loan or a mortgage are dependent on whether you have a good credit score scale. Many lenders will charge higher interest rates if your credit score is lower than average.

Credit repair scams are popular business in todays business environment. The Internet, in mailboxes, on the TV, telemarketers, and flyers left on car windows report how credit repair from companies can make getting out debt easy, and by using their services it will erase all debt instantly. The old saying of if it sounds too good to be true it usually is, should certainly be applied with scammers of instant credit repair. Know what to look for with these types of scam artists, and be on the lookout for them.

It might not seem that at first that working with an instant credit repair service is all that bad, but in the end it will be. Going into debt to a while, even though it might seem it did not, and getting out of debt will take some time too. Also, it will take some effort and cold hard cash to work out of it. The goal is to get out of debt, but staying out of debt in the future is just as important. Repeating the same mistakes over and over will be a never-ending cycle of poverty and stress. Learning how to manage money now is the overall goal for life.

Buying a new car or home is a thrill, just like getting a new credit card, but if credit scores are slashed by late payments or judgments there will not be many offers in the future. A lot of people do not realize how far reaching a negative credit score can be. Denial of insurances, mortgages, credit cards, loans for education, vehicles, checking accounts, rents are just a few of the ways that negative credit can hurt. The scammers are unscrupulous, and will use their tactics to get what they want money.

One of the first warnings to look for with a fast slick credit repair scammer is that they will not say that credit repair can be done independent of their company. Legal rights are never stated, a say that by phoning, emailing or writing the three major reporting agencies of Experian, Equifax and Trans Union is silly. Usually they promote the idea that the companies are only just reporting agencies, and they cannot remove any inaccuracies anyway, so there is no use in talking with them. It is true that the agencies can not get rid of any negative true reports, so this ruse will does work, but it is just a lead in to there next tactic of scamming.

Next, all scammers will advise that to get a good one over on the reporting agencies, and to land some new loans and credit extensions on credit cards, is to just apply with the federal governments IRS (Internal Revenue Service) for a EIN (Employer Identification Number). This is not legal for the ordinary Joe because it is creating a separate identity, and the Social Security number being used will no longer be used for identity purposes. New credit identities under false pretenses can get jail time and huge fines for trying it, and getting caught.

There are so many ways to get into trouble with creating a false identity. If caught, prosecution charges will include mail fraud because of the use of the federal post office system, or even fraud of any wire transmissions too. Lies on any type of loan backed by a financial institution backed by the federal government will make a lot of hot water, as well as using an EIN under false reasons. It is just not worth the chance to nor is it morally right to lie just to get credit issues resolved.

Another favorite game of scammers of instant credit repair services is to ask for payment upfront without providing services first. They will state that services to do the work do require time and effort, and that they have to pay their employees too. All kinds of reasons will be given for payment of front, but do not fall for any of them. These are fly-by-night companies that will be here today and gone tomorrow with the cash. Many of them require payment of large sums of money, from a few hundreds to thousands of dollars for their supposed services. The best way to solve credit issues is to consult with a credit counseling service to see how to really fix credit problems and to work hard at getting the debt paid off.

An Average Credit Score It Is Important When Borrowing

The average credit score is the rating that the 3 major credit bureaus assign to your credit report. It is based on your borrowing and repayment habits and depends on how much money you owe and how many times you have applied for credit. If you have a low credit score, there are ways of improving it. In general, an average credit score tells creditors that you are a good risk for them to lend you money.

Computing a credit score is a scientific process that Experian, Trans Union and Equifax use and each one has its own unique system. The credit score range is between 375 and 900, with around the 600 mark being the average credit score. In order to find out what your credit score is, you need to request a free copy of your credit report. This will give you an idea of what creditors see when they do a credit check on you.

If you find that your average credit score is below 500, then you are in the lower part of the credit score range. It also means that you have to take steps toward improving credit scores. For example, if you plan to look for a loan for a new car within the next year, you should start now by making a diligent effort to pay all your bills on time. If you apply for a loan, even if you are accepted based on your earnings, every person that asks for your credit score shows up on your credit report. This deters some creditors because they think you are a compulsive borrower.

The higher your credit score, the better chance you have of being granted credit. This is why you should always know what your credit report says about you and what your average credit score is. The credit score range you fall in not only determines whether or not you get a loan, bit it also determines the interest rate you have to pay. When you understand what creditors are looking for, you can work towards improving credit scores. When your average credit score is good, you will save money in the interest rates charged on the loan.

An average credit score is fine, although you can always do better.