How your credit score information and your credit score affects your buying power.

Did you know that your credit score information and your credit score affects your buying power?

Do you know what your credit score means and how that's determined? 

Did you know that there are ways to improve your credit score?

No, you say!  OK, don't worry...read on then and you will.

Your credit score is a reflection of your creditworthiness or conversely the likelihood you’d default on a loan.  A high score = lower loan rate to you while on the flip side a low number means you’ll be paying more to the loan company for the grand privilege of them giving you a loan.

For starters, I strongly suggest you get a copy of your credit report from the three credit reporting companies (Trans Union, Experian and Equifax) and look over your credit score information.  These companies are all now required to provide you with a free credit report every 12-month period by law; you used to have to pay for this.

You can use a service like freecreditreport.com, which is a subscription service and, by the way, not really free…or…I myself have used a service called annualcreditreport.com.  It was fast and easy.  I was able to access all three credit company's websites from this one portal site, provide the requested information and print the credit reports out directly from my printer. 

Like I said…the reports are free, but interestingly a free credit score is not.  And that's the way it is with these services -- you have to pay extra for more detailed credit score information. 

I did pay the fee for calculation of my credit score as it is very important to know.  I had the option of viewing my reports on line for up to 30 days; you must register first, though, which is quick and easy.

In general you should always stay on top of what creditors are saying about you in the three credit reports.  But this isn't the only reason...identity theft has become a serious issue and to protect yourself against fraudulent charges, you need to routinely monitor your credit reports and the credit score information contained within. 

...So you may want to join a service that helps you do this for a monthly fee.

Big dividends will be gained here in you purchasing power, so clean up your report of erroneous credit score information and improve your buying power by following these three simple tips:

  • Tip 1 - Get wrong credit score information removed or corrected.
  • Tip 2 - Pay down those high credit card balances.
  • Tip 3 - To help clarify things in your favor, have explanations attached to dings on your credit report that can't be removed and were out of your control.
Side Note: A common misconception for those of us who've ever had a judgment or lean appear in a credit report is that once it's paid off it goes away...no, no, no...this ain't so.  It probably will be reported way long after that -- usually up to seven years.

There are services out there that will help you clean up your credit reports for a fee -- maybe two to three hundred dollars or more.

Ouch!

I would recommend you save your money and clean up your credit reports yourself. 

The three credit reporting companies make it easy for you to challenge wrong credit score information and get it removed or corrected.  You may want to join a service that gives you access to do this for all three credit reports, then provides ongoing monitoring of them for a fee.

Here’s what your score means.

Now, there’s a mathematical formula that’s applied to your credit history kept by the three credit reporting companies.  To arrive at a score, values are first assigned to the variables contained in your credit report; mathematical processes then crunch the numbers, assigning each variable a weight that reflects its assigned relative importance.

FICO (Fair, Isaac & Co.) is the most commonly used assessment score.  You will often hear the credit score referred to as "FICO score".

There are five factors involved in FICO's score calculation: payment history, which is about 35 percent of your score; outstanding balances, which are about 30 percent of your score; credit history, which is about 15 percent of your score; new credit, which is about 10 percent of your score; and credit type, which is about 10 percent of your score. 

OK...still with me, good!

When you find out your credit score, here’s what the number generally means:

  • Scores range from 300 to 850. The higher your score, the better your loan rate will be.
  • A score of 720 or above is in the excellent category and you folks fortunate enough to have a score like this can easily get the best rates.
  • A score of less than 620 is considered sub-prime by many prime lenders; so don’t waste your time applying to these lenders as you’ll only be turned down. 
Find yourself a sub-prime lender willing to give you a loan…at a higher interest rate of course.

You’ll know who they are when you come across wording like: “if you had credit problems in the past”, “no credit or bad credit OK”, “even if you’ve had problems in the past”, “prior bankruptcy OK”, etc. 

A good credit score or an average credit score would be between 620 - 720 or some where around 650.  The closer you are to that excellent category, the better your loan rate.

Regardless of your credit (FICO) score or if you’re prime or sub-prime, shop around to get the lowest rate from lenders who deal with your type of credit history... because each one is different with how they weigh the factors and their score cut-off points may be different as well.

Lender shopping tips worth their weight in gold.

Here’s a few very important parting notes for you to remember when you’re shopping around for a lender:

  • Each credit reporting company maintains a different credit history on you; in other words...not all your creditors will report your information to all three credit reporting companies. And even if they do, the information reported my not be the same.  So guess what – you may have three completely different scores from each!  

If all three credit scores are in the excellent category, then it doesn't matter much which one your lender uses; but if only one of your credit scores is sub-prime and that's the one your lender uses, then it would be better for you to move on to another lender that uses one of your prime credit scores.  

So...before you have a lender pull a credit application, ask them which credit reporting company they use; hopefully it will be the one that gave you the highest score.  But more than likely if they use all three credit reporting companies, they’ll use a composite score of the three with more weight possibly being given to the one they trust the most...ask if this is the case.
  • Having multiple lenders run a credit application on you shows up in your credit reports and negatively impacts your credit score information, so decide which lender you’ll go with first before giving any permission to run a credit check and pull your credit history.  It's a good practice for you to keep in mind.
  • If you’re one of the lucky few who meet a prime lender’s loan requirements then don’t…I repeat…don’t, make the mistake of getting your loan through a sub-prime lender because you’ll pay a much higher loan rate than you really should, and they probably won't inform you of this either.



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