What are Credit Scores

There are many reasons that people need credit, whether it be home improvements, a car, or even a house.  Lenders much asses each unique person for their unique credit characteristics to see if they are a bad loan risk or whether the bank can reasonably make a profit from the transaction.  To standardize the process of evaulating each debt candidate, lenders use a Credit Score.  This single number determines your creidt rating score for securing credit (i.e. debt).

This number can come down to a lend or not lend decision for the lender.  If your score is high enough, it may be relatively easy to secure your credit. 

What makes up a credit score?

There are a number of methods employed by credit lenders to calculate the credit score of a client, the most common one being the FICO method.  This is used by banks, insurers, as well as the major credit rating providers.

Until just a few years ago, your credit score was not available to the public.  Only the lenders were allowed access to it.  It was felt that the consumer did not need it as it would only confuse him as to what his credit worthiness actually was.  In 2001, the Congress pressured the 3 credit providers to allow consumers fair access to their credit ratings.

How is it calculated?

 The range of the credit score is 300-900.  The approximate breakdown is as follows:

1. 10% is based on what kind of debt you pocess.  If you have more debt in credit cards than bank debt, your score goes down
2. 15% is based on how long your credit term is.  The longer you have credit, the better history you have, the better your credit score
3. 10% is how many inquiries there have been on your credit history.  The more inquiries, the more it appears others may be concerned about your bad debt, the lower the score
4. 30% is based on how much debt you have.  The more debt, the higher the score
5. 35% is based on how well you have been paying off your debt.  No late payments are soothing for a new lenders fears that you will pay back the debt on time. 

What is the difference between a Credit Score and a Credit Report?

	Credit Score	Credit Report
Length	3 digit number usually between 600 and 750	A compilation of personal information, credit history, inquiries, and public information on you that spans several pages
Recorded by	myFICO - made available to all lenders	Equifax, Experian, and TransUnion and made available to lenders
What it is	A standardized synoposis of your credit worthiness	Current and recent financial detail collected on you
Usefulness to you	Find out how lenders view your credit worthiness and what type of loans/credit you should expect	Find out what financial areas of your life you need to address to increase your credit score

The credit score is a measure of your credit worthiness...the lender bases his estimate of your credit loan default against the applied for loan.  He of course wants to mnimize his bad credit loans.  You, as the credit borrower, want to repair your credit report score.  The "report" is the detailed listing of your borrowing habits....as recorded by the 3 major credit reporting bureaus:  Equifax, Exerian, and Transunion.  The details of the report are not as important as the overall score. 

There are four main sections:

	Personal Information - home address, birthday, SSN, employment...etc
	Credit History - bad credit loans, installment credit arrangments, late payments
	Public Records - banruptices, foreclosures, seizures, court judgements
	Inquiries - list of all recent inquiries into your creidt debtstatus

To fix and repair your free crdeit report and score, you will need ALL THREE of the credit reports available to you.

Next ....Improving your Credit Score!!