Your credit history
affects your ability to borrow and even creeps up to attack how much
money it costs you to borrow once you find yourself actually approved
for something. Every creditor, lender or individual interested in
someone as a prospective customer has a credit scoring system in place
to use with the information you provide when submitting your application.
An individual's credit report is essential to anyone out there seeking
credit and is very important to any loan officer.
Many think of
credit scoring systems as very vague "Wizard of Oz" type
all powerful machines which control your number at a high speed. These
credit scores are based on a statistical system however and are as
easy to explain as the mystical "wizard". The systems that
were created to calculate your credit score use real world data and
enable the lendor or creditor to view the individual objectively.
Some of these
include the number and the different types of bank accounts an individual
has, outstanding debts, history of bill paying, debt to credit ratios,
any collections accounts that have been brought against the individual,
bankruptcies and other factors determined more by the individual and
his or her financial portfolio.
By comparing
the history and background of one individual against the background
of thousands of other consumers with financial situations and payrates
that are similar, one can better predict the outcome of a loan offer
made to this individual. It is easier to predict future habits based
on the person's ability in their past and see whether it is likely
that debt will be managed well and repaid in the agreed upon time.
The mathematical
system used by credit scoring systems has proven to lenders that it
can be a strong predictor of one's future ability to repay their credit
or debt to an individual company. The system created was designed
to place more emphasis on history and less emphasis on individual
statistics, which are variable.
You can request
your credit report through a number of ways but it will not help if
you do not have the education and knowledge in order to read it and
determine what you can do to raise your own credit score. Make sure
to arm yourself with the knowledge through the right book, audio tape
or program and you can put your credit report to work for you and
be on the path to a better credit score.
Consumer
Credit Report Applications & How they Score
A consumer's application is taken and scored separately
by their individual credit history. Credit report final scores are
reflective of many differing factors in your financial history and
current status. Generally, credit scoring systems determine whether
someone is creditworthy using analytical tools and statistics to produce
results and insight into the future dealings with a particular consumer.
Each scoring system is unique and usually based on the particular
needs of the financial institution or creditor. Some credit scoring
systems award fewer points for example to people who have attained
a certain age, such as late thirties or forties, with the thought
that the older generation often has a relatively higher amount of
debt.
While the law still permits these creditors to award points to age
groups, they are required to use properly designed scoring systems
when doing so and people who have reached the age of 65 or older must
receive the maximum number of points in this situation. Your age can
help or hurt your credit score based on your current financial status
compared to others of your age group.
Most credit scoring systems consider a lot more factors than just
the few named above. Sometimes your score can be based on as many
as 15 or 25 different factors that relate to your credit past and
present and financial status currently. All of the different factors
that are taken into account simply predict your credit worthiness
and help the lender to predict your future re-payment habits.
Watch which questions you are asked on your credit application to
try and determine which factors are used to determine your credit
score. Every credit application varies due to the nature of the scoring
system and the type of information needed to make their statistical
guesses. Each of the questions you see on the application has a purpose,
consider your answers carefully. The creditor or lender is trying
to determine what type of financial borrower you will be once they
give their money to you.
While there are rules and acts put into force and designed to help
the consumer, scoring systems are known for using such unique factors
such as the type or year of car you drive to be a factor in determining
your credit score. As long as they do not illegally discriminate on
race, sex, martial status, national origin, religion, or age, they
are allowed to use whatever category of factor they wish to figure
your score.
