Most Consumers Do Not Know Their 3-Digit Credit Score

We have all become familiar with the infamous FICO score, as we are consistently reminded of it every time we turn on the television and some obnoxious guy brags during an annoying commercial about how high his three digit score is. We are also forever reminded of how important this score can be when applying for credit of any type from car loans and mortgages to credit cards and signature loans.

FICO was named after the firm, the Fair Isaac Corporation, who invented the three-digit credit summary system. It was concocted to easily reduce your entire financial life to a simple set of numerals.

Creditors can easily see whether or not you are a person of character that pays his bills on time or if you are a slacker that pays late or not at all. The complex mathematical model that evaluates your payment patterns can make or break you when you are attempting to make large purchases.

A credit worthy person will have a score of 720 to 800, and these groups of people are usually the lucky ones that receive a credit approval on just about anything within 60 seconds. They also get excellent interest rates that result in lower long term payments. The lower scores run between 300 and 549, and this class is considered the high risk group, and they will inevitably get offers for secured credit cards and cars loans that run in the 18% to 21 % range, resulting in higher payments, if they receive offers at all.

According to FICO, the difference in the interest rates offered to a person with a score of 520 and a person with a 720 credit score is in the ballpark of 4.36 percentage points. The end result means that on a $100,000, 30-year mortgage, a person with a lower credit score would pay more than $110,325 extra in interest charges over the course of 30 years, leaving a higher monthly payment of about $307.00 for the person with poor credit.

Unfortunately, when you apply for credit you will go through one of the three major credit bureaus, and each of them uses their own version of the FICO scoring method. Equifax has the Beacon scoring system, Experian uses the Fair Isaac Risk Model and TransUnion prefers the Empirica credit scoring system.

FICO Scoring System

FICO scores are what the majority of lenders use to determine if a person is considered a credit risk. You have three FICO scores, one for each of the three credit bureaus: Experian, TransUnion, and Equifax. These scores enable grantors to identify credit prospects with the best credit opportunities and avoid losses due to charge-offs, repossessions, collections, and bankruptcies. 90% of banks in the U.S. use FICO scores when making their decision on a credit prospect.

Beacon Scoring System

The Beacon score is based on your credit-related information, found within your credit report. Negative information is looked at carefully, but it is not exclusively used to determine your ability to payback a debt.

Through Equifax your credit score is calculated by several factors that include: Payment history, public record and the severity of collection items, recent and frequent delinquencies, outstanding debt, the number of balances recently reported, and the average balance of your credit lines.

Beacon scores typically range from 400 to 850, and having a score below 640 can adversely influence your credit potential. Credit risks which include bankruptcies, charge-offs, repossessions, loan defaults, and serious delinquencies are monitored carefully.

Empirica Scoring System

This scoring system was developed by Trans Union in association with the Fair Isaac Corporation. Empirica has been fully validated to predict the performance odds, slow pays, no pays, and bankruptcies with unprecedented accuracy.

Dissecting your Credit Report

Your credit report includes a multitude of valuable information from where you have worked and lived to requests for credit. The typical credit report for all consumers will include:

Consumer Information: This section of your credit report includes your name, birth date, all addresses that you have reported to employers, the IRS, or when applying for credit.

A Personal Consumer Statement: This is a message on your credit report that can include a fraud alert or an explanation for prior late payments that occurred during a period of time.

Various Account History Data: Detailed information about real estate purchases, installments, revolving credit lines or collection accounts. Each record will include the date that the account was opened, high balances, outstanding balances and the terms, along with your seven-year payment history.

Public Records: This section of your credit report may include records of bankruptcy, tax liens or judgment filings.

Inquiries: Each credit report contains a list of companies who have accessed your credit history for the purpose of an application in the last two years. This means that every single time you apply for credit, a record of the attempt will hit your credit report with the details.

Creditor contacts: The final section of your credit report contains mailing addresses and phone numbers of your creditors. This is helpful in the event that you need to contact a creditor to clear up a mistake or make good on an account.

There is no magical cure readily available to clean up your credit score. The bottom line on keeping a clean credit report is to pay your bills on time, and never over extend yourself where credit is involved. Maxing out credit cards and making late payments will result in over the limit fees, late fees, and quite possibly a higher interest rate down the road.

Once plastic money spirals out of control it can be difficult to put things back into perspective without the aid of a few large payments to get it back within reach. Work out a budget plan that you can afford and stick to it. Creditors are normally compliant with customers who get into a bind. If you are absolutely in over your head with mounting debts then you may want to consider a reputable credit counseling organization.

Educational materials, workshops and learning to manage your money and control your debts are all part of the organization's structure to get you on the path to good credit again. If you find that your money just will not stretch as far as you need it to, then you may want to consider bankruptcy.

One major change that occurred in late 2005 has affected the bankruptcy laws in which a person seeking financial relief must first get credit counseling from a government-approved organization within six months before filing for bankruptcy. You can find a state-by-state list of government-approved credit counseling organizations at http://www.usdoj.gov/ust/eo/ust_org/office_map.htm.

According to the Fair Credit Reporting Act no one can legally remove accurate and timely negative information from your credit report. The law allows you to request an investigation on information in your file that you believe to be inaccurate or incomplete.

Many sites lead you to believe that you can obtain a free credit report, and then leads you through a paper trail with a final destination that asks for your credit card number because it is not free after all. I have found a site that is in fact free, and it gives you all of the pertinent information right online needed to check out your credit status and other valuable information.

Simply choose the state that you reside in, click on the "Request Form" tab, and complete the required personal information form. You will then be allowed to view all of your personal criteria that has affected your credit from good to bad. The addresses of the creditors are listed so that you can clear up any inaccurate details that may have landed on your report for one reason or another. For your "Free" credit report, go to: https://www.annualcreditreport.com/cra/index.jsp.

The Three Major Credit Reporting Agencies:

Equifax: Phone: 1-800-685-1111

Experian: Phone: 1-866-200-6020

TransUnion: Phone: 1 800-888-4213