Ever wonder how a creditor decides whether to
grant you credit? For years, creditors have been using credit scoring
systems to determine if you'd be a good risk for credit cards and auto
loans. More recently, credit scoring has been used to help creditors
evaluate your ability to repay home mortgage loans. Here's how credit
scoring works in helping decide who gets credit -- and why. What is credit scoring? Information about you and your credit experiences, such as your
bill-paying history, the number and type of accounts you have, late
payments, collection actions, outstanding debt, and the age of your
accounts, is collected from your credit application and your credit
report. Using a statistical program, creditors compare this information
to the credit performance of consumers with similar profiles. A credit
scoring system awards points for each factor that helps predict who is
most likely to repay a debt. A total number of points -- a credit score
-- helps predict how creditworthy you are, that is, how likely it is
that you will repay a loan and make the payments when due. Because your credit report is an important part of many credit
scoring systems, it is very important to make sure it's accurate before
you submit a credit application. To get copies of your report, contact
the three major credit reporting agencies:
These agencies may charge you up to $9.00
for your credit report. Why is credit scoring
used? How is a credit scoring
model developed? Under the Equal Credit Opportunity Act, a credit scoring system may
not use certain characteristics like -- race, sex, marital status,
national origin, or religion -- as factors. However, creditors are
allowed to use age in properly designed scoring systems. But any scoring
system that includes age must give equal treatment to elderly
applicants. What can I do to improve
my score? Nevertheless, scoring models generally evaluate the following types
of information in your credit report:
Scoring models may be based on more than just information in your
credit report. For example, the model may consider information from your
credit application as well: your job or occupation, length of
employment, or whether you own a home. To improve your credit score under most models, concentrate
on paying your bills on time, paying down outstanding balances, and not
taking on new debt. It's likely to take some time to improve your score
significantly. How reliable is the
credit scoring system? Although you may think such a system is arbitrary or impersonal, it
can help make decisions faster, more accurately, and more impartially
than individuals when it is properly designed. And many creditors design
their systems so that in marginal cases, applicants whose scores are not
high enough to pass easily or are low enough to fail absolutely are
referred to a credit manager who decides whether the company or lender
will extend credit. This may allow for discussion and negotiation
between the credit manager and the consumer. What happens if you are
denied credit or don't get the terms you want? If a creditor says you were denied credit because you are too near
your credit limits on your charge cards or you have too many credit card
accounts, you may want to reapply after paying down your balances or
closing some accounts. Credit scoring systems consider updated
information and change over time. Sometimes you can be denied credit because of information from a
credit report. If so, the Fair Credit Reporting Act requires the
creditor to give you the name, address and phone number of the credit
reporting agency that supplied the information. You should contact that
agency to find out what your report said. This information is free if
you request it within 60 days of being turned down for credit. The
credit reporting agency can tell you what's in your report, but only the
creditor can tell you why your application was denied. If you've been denied credit, or didn't get the rate or credit terms
you want, ask the creditor if a credit scoring system was used. If so,
ask what characteristics or factors were used in that system, and the
best ways to improve your application. If you get credit, ask the
creditor whether you are getting the best rate and terms available and,
if not, why. If you are not offered the best rate available because of
inaccuracies in your credit report, be sure to dispute the inaccurate
information in your credit report. © Copyright - www.deleteuglycredit.com Omar M. Omar is the owner of http://www.deleteuglycredit.com
and - Author of "The
Credit Repair Bible" book. The website is dedicated to providing credit
consumers free advice on how to repair
credit. It also provides credit consumers numerous information about their
credit report, credit laws, and their rights as a consumer. You
have permission to publish this article electronically or in print, in your
Newsletter, on your website, or in your E-Book, as long as the author's Resource
Box is included with the article.
Credit scoring is a system creditors use to help determine whether to
give you credit.
Credit scoring is based on real data and statistics, so it usually is
more reliable than subjective or judgmental methods. It treats all
applicants objectively. Judgmental methods typically rely on criteria
that are not systematically tested and can vary when applied by
different individuals.
To develop a model, a creditor selects a random sample of its customers,
or a sample of similar customers if their sample is not large enough,
and analyzes it statistically to identify characteristics that relate to
creditworthiness. Then, each of these factors is assigned a weight based
on how strong a predictor it is of who would be a good credit risk. Each
creditor may use its own credit scoring model, different scoring models
for different types of credit, or a generic model developed by a credit
scoring company.
Credit scoring models are complex and often vary among creditors and for
different types of credit. If one factor changes, your score may change
-- but improvement generally depends on how that factor relates to other
factors considered by the model. Only the creditor can explain what
might improve your score under the particular model used to evaluate
your credit application.
Credit scoring systems enable creditors to evaluate millions of
applicants consistently and impartially on many different
characteristics. But to be statistically valid, credit scoring systems
must be based on a big enough sample. Remember that these systems
generally vary from creditor to creditor.
If you are denied credit, the Equal Credit Opportunity Act requires that
the creditor give you a notice that tells you the specific reasons your
application was rejected or the fact that you have the right to learn
the reasons if you ask within 60 days. Indefinite and vague reasons for
denial are illegal, so ask the creditor to be specific. Acceptable
reasons include: "Your income was low" or "You haven't
been employed long enough." Unacceptable reasons include: "You
didn't meet our minimum standards" or "You didn't receive
enough points on our credit scoring system."
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Get Your Credit Score To Soar In The Twinkling of An Eye
Ever wonder how a creditor decides whether to
grant you credit? For years, creditors have been using credit scoring
systems to determine if you'd be a good risk for credit cards and auto
loans. More recently, credit scoring has been used to help creditors
evaluate your ability to repay home mortgage loans.
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Debt consolidation is not for everyone, there are some debt situations that should not be solved via a debt consolidation program because the benefits that debt consolidation provides are not applicable to every form of debt. Learn how to find out whether you will be able to take advantage of a debt consolidation program or not. Before contacting a debt consolidation agency you need to make sure that by consolidating your debt you will be improving your financial situation. Otherwise you will need to resort to other forms of credit and debt repair. Since debt consolidation is mainly based on debt negotiation, you have to make sure that the type of debt you have is suitable for this method of debt reduction.
Credit Card Or Secured Credit Card? Which One Is Best For My Lifestyle
Are you pondering on whether you should apply for a credit card? Well, the answer quite simply is - ?Yes? - you should apply for a credit card (this is true for most people). The credit cards seem to have transformed our lives. In fact, one can term credit cards as a revolution. Today, you find ads in TV/newspapers/website/shops and almost anywhere and everywhere; all asking you to apply for a credit card. When you look around, you see that most people have credit cards. In fact, most people have multiple credit cards. Everyone seems to apply for a credit card. So, why should you apply for a credit card?
Mortgage: Effective Household Investment for Financial Autonomy
If finances had a copyright, we would have bought it by now. But it is hardly sold anywhere near the place we live.
Debt help in UK
Getting into debt is very easy. If an individual misses payments for a couple of months or overspends on certain occasions, he/she ends up in a web of bad debts. However getting out of debt is far more difficult and the process could leave a borrower stressed and anxious about his/her future. But debt help ensures that the debtor is back on his feet and has steered his/her finances away from more trouble.