What’s in a credit score? It could be the difference between having a checking account, auto insurance, paying a deposit for utilities, obtaining a cell phone or credit card, home ownership and financing a vehicle. Some of these depend on your credit history, but those requiring financing such as auto and home loans depend on your credit score. Your credit score could mean the difference between paying more in interest, i.e. higher interest rate on a loan than someone who has the magic credit score number. Some are discriminated against, but not because of their race or gender it’s all about the credit score.

You really know when your past has caught up with you in the aspect of late payments, no payments, why pay and other credit issues up to and including judgments and bankruptcies. What happens when your past catches up to you? It becomes a matter of financial freedom or the amount of money you will pay for the privilege of obtaining a loan be it personal or for a house or car.

If you want to purchase a vehicle, the interest rate on the loan could be 10% or more as compared to someone with the magic credit score above 700. That person’s interest rate would probably fall under the six or five percent. Can you imagine the amount of interest and not to mention how long it would take to pay off a loan? That’s why people need to be educated about their credit record and how the financial world operates…it’s all about money.

Your credit score is defined as a number that reflects your credit worthiness. The higher your credit score, the better the risk. Credit scores are based on the information found in your credit report. There are three CRAs (credit reporting agencies), all three have a different terminology for credit scores and they also determine your credit scores differently!

The general scoring range is from 300 – 850. There are five risk categories:

780-850 Low Risk
740-780 Medium to Low Risk
690-740 Medium Risk
620-690 Medium High Risk
620 and below – High risk or sub-prime

Depending on which expert you believe, the cut off could be a 740 credit score and the high risk or “sub-prime” borrower (people with a less-than-perfect credit history) is usually anything below 400.

Factors that may contribute to your credit score are payment history, amount owed to creditors, length of credit history, how much new credit and the type of credit. Some people believe that credit inquiries by creditors offering pre-approved credit offers lowers their credit score. This is not true which stands to reason because the inquiry is not self-initiated, therefore it is not part of your credit score. Other credit inquiries that don’t count are periodic reviews of your credit record by your current creditors or any employment related inquiries.

However, credit inquiries initiated by the consumer such as in-store department credit cards; auto loans etc. are part of the credit scoring. A red flag is sent up when it appears that you are applying for too much credit. This usually takes the form of six or more credit inquiries. In fact, industry experts predict that over six credit inquiries is a strong indication or predictor that a consumer is eight times more likely to declare bankruptcy than someone without the same number of inquiries.

In order to get around being penalized, the CRAs will not make note of the inquiries if they are appropriately timed. For example, if you are rate shopping for a loan. If you visit ten loan providers and if they review your credit report, you’re safe if the inquiries are performed within a 30 day time period. What happens is that, they are seen as one inquiry instead of ten inquires at one time!

September 2005 made it possible for all Americans to obtain a free copy of their credit report. You can receive a free copy of your credit report from Equifax, Experian and Trans Union from one source – The Annual Credit Report Request Service. However, keep in mind, this information does not contain your credit scores only the information that has been noted in your credit report. You will have to order your credit report from the three CRAs individually for a small fee in order to obtain your actual credit score.

I have worked with consumers who had no knowledge what was in their credit report or what their credit score was. They would blindly apply for credit and get turned down from credit cards to obtaining utilities because of their credit. Instead of checking into it, they would take a passive role in their financial matters by letting it go and just trying elsewhere maybe someone else would be more lenient when it came to credit.

I strongly encourage everyone to review their credit report for errors and any other information that has decreased your credit score and created questionable credit worthiness when applying for credit. Since the government has given us all a gift in the form of receiving a free credit report annually, you should take advantage of it.

Annual Credit Report Request Service (Does Not Distribute Credit Scores)
P. O. Box 105281
Atlanta, Georgia 30374-5281
1.877.322.8228
www.annualcreditreport.com
Reports from all three credit reporting agencies

Equifax
P. O. Box 740241
Atlanta, Georgia 30374-0241
1.800.685.1111
www.equifax.com

Experian (Formerly TRW)
P. O. Box 2002
Allen, Texas 75013-2104
1.888 .397.3742
www.experian.com

Trans Union
P. O. Box 1000
Chester, Pennsylvania 19022
1.800.888.4213
www.transunion.com

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