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Have you ever wondered if you had "good credit" or "bad credit" and how creditors, such as banks, determine if you are creditworthy. If so, you are not alone. For decades the procedure most creditors have used to determine your creditworthiness or rating has been shrouded in secrecy. Fortunately, though, recent legislation in California has helped to shed some light on the credit scoring/rating process. The legislation has been viewed as a "major step forward" by consumer friendly organizations across the country. The following tips will hopefully help you to better understand the credit scoring process, and, thus, improve your credit score!
Perhaps the most notable outgrowth of the legislation was an announcement last month by Fair Isaac & Co. http://www.fairisaac.com, a company that develops credit scores that are used by 75% of the nation's mortgage lenders and many credit card issuers. The announcement disclosed the criteria that Fair Isaac uses in determining a consumer's credit score, which Fair Isaac refers to as a FICO score.
The most important factor of the FICO score is payment history. In fact, payment history accounts for 35% of one's weighted score (see pie chart here). If you have not consistently made your loan/credit card payments by the payment due dates, you can improve your score dramatically by becoming more conscientious. Moreover, late payments can result in stiff fees.
In addition to increasing your chance of obtaining credit, a favorable credit score will help you obtain favorable credit terms. Credit card issuers, for instance, often determine the interest rate and fees that they will charge an applicant based on his or her credit score.
This is an exciting time for consumers. American consumers today are better educated than they ever have been. The recent developments regarding credit scoring will continue this trend and help to further empower consumers. So, sit back and enjoy the ride!
Courtesy of www.CardRatings.org. CardRatings.org features an independent, free consumer credit card ratings report which compares credit card interest rates, fees, benefits, rewards, rebates, annual fees, etc! The report is compiled by the consumer credit organization Citizens for Fair Credit Card Terms (CFCCT). CFCCT is entirely devoted to credit card research.
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