If you could imagine a single thing in your life that affects the way you live in these United States and the quality of life here, I might say it would be a the content of your character and what can be found in a permanent record called your credit reports.
Good credit, bad credit, credit is like a fingerprint of your past, current and future purchasing power. Credit is king in a consumer society like America.
While there are all sorts of credit data collection groups and corporations, all compiling and selling credit information about you, something called the Fair Isaac Corporation (FICO) credit scores dominate the industry, according to the National Credit Reporting Association. The FICO established the first credit scores in the 1950s and these set the standards for most credit scoring models in use today.
All thorough credit scores contain information about the consumer’s payment history, amount of credit available, credit in use, type of credit lines available and active attempts by creditors to collect past due bills.
These scores hold sway over just about every transaction a consumer makes. “Credit score use has progressed over recent years to the point where scores are now used as one of the most influential factors in the approval and pricing of a loan,” the Credit Reporting Association wrote in a prepared statement delivered at hearings before the Federal Trade Commission. “…The lending community now defer to the credit score as an impartial indicator of whether to approve or deny a loan and what terms the consumer is offered without concern for equal lending claims,” the report said. “Further, credit scores in the upper range (700 plus) can change the degree of scrutiny other documents in the fire receive, and the underwriting guidelines used for the loan,”
In recent years, these scores have become the bedrock of American commerce,” the association said. Credit scores were the key to opening a new era in all segments of consumer lending and crucial to the introduction of an automatic underwriting system. “Cell phone applications, credit card approval, personal loans of all times and mortgage lending all now heavily rely upon automatic underwriting systems in their daily operations,” the report said.
One thing that is essential to shoppers looking for mortgages is knowing your credit score. There are five parts to most credit score reports. There are many companies touting offers to provide consumers with free credit scores. The vast majority of these are offering estimates and use this offer as an opportunity to market credit-related products. A thorough credit report contains:
* Your payment history. This is usually about 35 percent of a FICO score. Have you paid your credit accounts on time? Late payments, bankruptcies and other negative items will hurt your credit score.
* How much you owe. FICO looks at the amounts owed in all of your accounts, the number of accounts with balances, and how much of your available credit are you using. The more you owe when balanced against available credit, will lower your score.
* Length of credit history. A longer credit history will increase your score.
* New credit. If you have recently applied for or opened new credit accounts, your credit score will weigh this factor against the rest of your credit history
* Other factors include having a mix of types of credit on your report like credit cards, installment loans like mortgages, car loans and personal lines of credit. This variety with longer credit history is a good thing and will increase your score slightly.