By: Gerri Detweiler
If it seems like everyone’s talking about credit scores these days, it’s probably not your imagination. Consumers appear to be getting smarter about credit scores. At least that’s what the results of a survey of 1000 consumers by the Consumer Federation of America (CFA) and VantageScore Solutions show. Compared to a year ago, a larger percentage of consumers correctly answered a variety of questions about credit scores. But there were a few key concepts that tripped up many respondents.
Most of those surveyed did well on the basics. They knew that:
- Mortgage lenders and credit card issuers use credit scores (94 percent and 90 percent correct respectively). And many other service providers also use these scores — landlords, home insurers, and cell phone companies (73 percent, 71 percent, and 66 percent correct respectively).
- The three main credit bureaus — Experian, Equifax, and TransUnion — collect the information on which credit scores are frequently based (75 percent correct) and that it is very important for consumers to review their credit reports with those agencies to learn if they are accurate. (82 percent correct).
- Consumers have more than one generic credit score (78 percent).
- The following types of information influence scores: missed payments, personal bankruptcy, and high credit card balances (94 percent, 90 percent, and 89 percent correct respectively). And that making all loan payments on time, keeping credit card balances under 25 percent of credit limits, and not opening several credit card accounts at the same time help raise a low score or maintain a high one (97 percent, 85 percent, and 83 percent correct respectively).
So What’s The Problem?
CFA’s Executive Director Stephen Brobeck said he has “have never seen such improvement from one year to the next,” in the organization’s consumer knowledge surveys. But there was still some basic information about credit scores that many didn’t understand. In particular, consumers didn’t seem to grasp how expensive poor credit scores can be. For example, fewer than one in three were aware that, on a $20,000, 60-month auto loan, a borrower with a low credit score is likely to pay at least $5,000 more than a borrower with a high credit score.
While credit scores don’t take factors like age, marital status or race into account, just over half thought a person’s age (56 percent) and marital status (54 percent) are factors used to calculate credit scores, and 21 percent incorrectly believe that ethnic origin is a factor.
Consumers are also confused about how inquiries affect credit scores. Just 9 percent correctly knew that “multiple inquiries during a 1-2 week window” will not lower scores. In reality, when it comes to FICO scores, recent inquiries within a short period of time for mortgage, auto or student loans don’t affect scores, and going back in time, multiple inquiries for the same type of loan in those categories are treated as a single inquiry. The exact time period varies, depending on which scoring model is used. Similarly, multiple inquiries within a 1-2 week window won’t lower VantageScore scores.
The Smartest Consumers Know Their Scores
Checking one’s credit scores apparently does help cut through the confusion; those who had seen their scores recently were more likely to correctly answer the survey questions. But fewer than half of those surveyed (42 percent) had received at least one of their credit scores during the past year. Of those who did see their scores, the top sources were a website (49 percent) and a mortgage lender (45 percent).
The number of consumers in the top credit score range has reached its highest level since fall 2008, a report by FICO Labs shows, which could indicate more Americans are working to better their personal finances, including improving their credit reports. (If you want to know more about how a credit score works, check out: What’s a Credit Score?)
More than 18 percent of consumers now have FICO scores between 800 and 850—the first time the ratio of consumers has grown to this figure since October 2008, FICO Labs reports.
However, the number of consumers with scores between 700 and 799 hasn’t improved in the same manner. The report states 15.5 percent of U.S. residents have scores in this range, which is the lowest the figure has been since FICO Labs began recording the statistic in 2005.
Additionally, the report found that nearly one-third of the country’s consumers have FICO scores between 550 and 699—the most amount of people with a score in this range since 2006.
According to FICO, this data likely denotes there are still a considerable amount of Americans in poor or average financial standing.
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Despite many Americans in evident need of a credit tune-up, Rachel Bell of FICO Labs stated the report indicates a considerable change in consumers’ attitudes toward their personal finances.
“Many consumers have moved into the top tier of the FICO Score range by redoubling their efforts to maintain an excellent credit profile,” said Bell. “Other people have fallen into lower tiers, most likely due to the financial stress that many households have been feeling. Despite this shift, we continue to observe more than half of FICO Scores in the U.S. are between 700 – 850, which means Americans have managed their credit well despite the economic downturn.”
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One facet of the report that stands out, according to Bell, is the percentage of consumers with FICO scores in the 300-549 range—nearly 15 percent. This is the lowest the figure has been since 2006. The reason for the reduced figure, Bell notes, is due to many lenders writing off a substantial amount of bad debt.
“Some consumers who had multiple bad debts and delinquencies a few years ago are now able to move on, and their credit scores are starting to move into the 550-699 range,” Bell added.
by: Michael Creditfirm.
Many Americans are still grinding through life with Bad Credit. In fact, over 110 million Americans (50% of the population with credit files) have had their credit file negatively affected by the recent economic crisis according to Business Wire. So how do you know which Credit Repair company to choose when looking for help in improving your credit report?
Going through life living with bad credit, many Americans struggle repaying high interest loans and making minimum monthly payments on their credit cards, barely covering their interest charges which can be as high as 29.99%. Paying more money to rent then they would to own because they don’t qualify for a mortgage based on their credit history.
Good credit can save you thousands of dollars by allowing you to qualify for low interest rate mortgages, auto loans, credit cards, and more. Unfortunately, most people choose to live with bad credit rather than be proactive and make a change to improve their credit.
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CreditFirm.net will never ask you to pay for any credit repair services which we have yet to complete. This is why we offer a FREE Credit Consultation with a qualified credit consultant who will:
Help you obtain your FREE credit report and go over it
- Explain what is inside your credit report. (both positive and negative)
Explain what a credit score is and how it is calculated
- Explaining the different types of credit scores and the metrics used in calculating them.
Create a Custom Action Plan
- A guide for you to follow which will outline the necessary steps in order to improve your credit score.
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One service level
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We want you to be confident in your credit repair decision and let our results speak for themselves. This is why our clients enroll in our credit repair service for distinctive monthly servicing periods and pay only for the credit repair services which have already been performed and delivered.
by: Michael Creditfirm.
A credit score is a number which is based on a statistical analysis of a person’s credit file, to represent the creditworthiness of that person. A credit score is primarily based on credit report information typically sourced from the credit bureaus. A credit score is primarily based on credit report information, typically from one of the three major credit bureaus: Experian, TransUnion, and Equifax.
Different Types of Credit Scores
*FICO Fair Isaac Co.
*FICO has more than one formula for determining a credit score.
*The 3 most common FICO Algorithms are:
- FairIsaac 2.0 (used by Experian)
- Beacon 5.0 (used by Equifax)
- FICO RiskScoreClassic 04 (used by TransUnion).
Don’t let the different credit scores confuse you, they all follow the same basic algorithm in determining your creditworthiness.
By improving the factors which are used to calculate the credit score, Credit Firm helps increase your credit score.
Why do you need a good credit score
Lenders, such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt.
Lenders use credit scores to determine who qualifies for a loan, at what interest rate, and what credit limits.
Credit scoring is not limited to banks. Other organizations, such as mobile phone companies, insurance companies, landlords, and government departments employ the same techniques.
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