Wednesday, January 30, 2013

What You Need to Know NOW About the New Credit Score Rating Rules

Take Charge of Your Credit, Know Your Score!

This may be the most important article you read about your credit score rating. These scores dictate much about whether we receive a mortgage, personal loan, credit card, even insurance. Credit experts calculate the score of the average American to be around 660, while the magic number for loan qualification is about 660. That being said, it is estimated that 40% of Americans have a score lower than the 660 needed to qualify for credit at reasonable rates. Employers and landlords also factor your credit score into their decisions to hire you or rent to you. With so much riding on your credit history, it is important you understand recent legislation that affects your access to your credit score rating.

You Have a Right to a Free Credit Score Rating

Federal regulation has decreed that consumers who are subject to higher interest rates due to their credit history, or who are denied credit on an application are entitled to see their credit score rating for free. This applies only to consumers who have been denied credit, but they are the ones who need it the most. It affords them an opportunity to turn their financial lives around by accessing their score and determining where they need to make changes. The average consumer can get a free report from each of the reporting agencies (Equifax, Experian and Trans Union), but only once a year.

Understanding How Creditors Use Your Credit Score Rating

Believe it or not, the credit score rating standard for receiving credit rises during times of recession. Before a financial crunch the average number to qualify for a loan might be 620. That could increase easily by 100 points once a recession is declared. This happened with the recent financial crisis, though there is evidence that creditors are once again lowering the scores, albeit slightly, for qualification. Accessing your credit score is important if you intend to apply for a loan. If you are able to access your credit score rating, you’ll have an idea of whether you qualify for a loan or not. If you are below the level required, you can take steps to increase your score. This will save you from applying blindly and being denied, which will adversely affect your credit score rating.

Different Models are Used for Computing a Credit Score Rating

The recent federal regulations also revealed that there are more than a dozen, if not dozens, of methods used to compute a credit score rating. It was believed that the FICO (Fair Isaac Corporation) method was the standard; it has been revealed that every lender has their particular model. Besides the FICO score there is the Vantage Score, as well as specific types of models that are used to calculate credit score ratings for specific types of loan. There are even models specific to individual banks. Don’t be too obsessed with your three-digit credit score rating. Rather look to improve your total credit health by taking a holistic approach; considering your total debt, number of accounts, and how often you use or apply for credit.

Ethel Wilson is a financial and credit specialist with 12 years experience in the banking, credit scores, and financial industry.  She has advised countless clients on how to improve their credit score rating.  She now shares the best of her credit score rating information as a contributor and editor of

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