Things You Don’t Know About Your Credit Score, But Should
Credit Score Mistakes to Avoid
The credit scoring process has been stacked against everyone and remains to be a "mystical" process. The big three credit credit bureaus refuse to release the exact formula they use to determine your credit score. They just recently started to disclose the primary criteria used in the formula. Prior to the release of this information of how they assign a credit score, professionals such as lenders, mortgage underwriters, and credit experts had to use the old SWAG method (Some Wild Ass Guess) or an educated guess on what factors determined an individual's credit score. To their credit , they were correct more times than not, but unfortunately not always. Due to this issue, most borrowers are confused about the rules of the the credit score game.
But there is hope.
First and foremost you need to know your credit score. But where do you get it? The big three (TransUnion, Equifax, and Experian) are responsible for monitoring credit activity and reporting credit scores. But here again, not all creditors provide information to each bureau, so each one will have a different credit score. What they don't tell you is that there are different scores and formulas for the different inquiries into your credit score. Consumer Formula is used for your inquiry, Auto Formula is used for automobile and installment loans. Tenant Formula is used for landlords considering you for renting their property. But the important on is your FICO score. This score maybe 30 points lower than the consumer score that you get when you pull your report online. So look for your FICO score and manage it and you will be OK.
But doesn't it count against me if I pull my report? Yes, but the number of times and the frequency that they are pulled will only account for less than 10% of your credit score. Contrary to what everyone has been telling you, YOUR inquiries into your own credit will not hurt your credit score. YOU can pull your credit report everyday for months and it won't affect your credit score. It is true, having to many lender inquiries will hurt your score.
Secondly you need to check for errors. Failing to do this will affect you the most. It's been reported that 80% of people have an error on their credit report, with 25% of those errors being serious enough to stop them from getting a loan or even a job. Oh yes, most employers now check your credit report prior to hiring new employee's.
Thirdly, waiting to improve your credit is inexcusable. Just because your not ready to buy a house doesn't mean you don't need good credit. Remember, I mentioned employers not hiring candidates with low credit scores. How about auto loans and credit card interest rates being higher, auto insurance premiums in some states are even higher for lower credit scores. Landlords are hesitating to approve applications from individuals with poor credit.
I could go on with more mistakes people make concerning credit scores, but I think you get the picture. My suggestion is to pull your FICO credit report and check for errors. If you find problems address them immediately. If your confused or don't know where to start, check out some of the programs available online to improve your credit.
Check these books out for more information.
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