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  3. [A]We apply for credit for many reasons—maybe it’s to buy a new car, house, comp

[A]We apply for credit for many reasons—maybe it’s to buy a new car, house, comp

游客2023-08-24  25
问题 [A]We apply for credit for many reasons—maybe it’s to buy a new car, house, computer, or get a student loan. However, that there is a special number that can determine whether you can do these things, or at least how much it will cost you. A credit score is a number that is calculated based on your credit history to give lenders a simpler " lend/don’t lend" answer for people who are applying for credit or loans. This number helps the lender identify the level of risk they may be taking if they lend to someone. The credit score is quicker and less subjective. It’s the credit score that makes it possible to get instant credit at places like electronics stores and department stores.
[B]Although there are several scoring methods, the method most commonly used by lenders is known as a FICO because of its origins with Fair Isaac Corporation. Fair Isaac is an independent company that came up with the scoring method and software used by banks and lenders, insurers and other businesses. Each of the three major credit bureaus(Experian, Equifax and TransUnion)worked with Fair Isaac in the early 1980’s to come up with the scoring method.
[C]The three national credit bureaus each have their own version of the FICO score with their own names. Equifax has the Beacon system, TransUnion has the Empirica system, and Experian has the Experian/Fair Isaac system. Each is based on the original Fair Isaac FICO scoring method and produces equivalent numerical results for any given credit report. Some lenders also have their own scoring methods. Other scoring methods may include information such as your income or how long you’ve been at the same job. [D]Think of your credit score, like your grade in school. A teacher calculates grades by taking scores from tests, homework, attendance and anything else they want to use, weighting each one according to importance in order to come up with a final single number(or letter)score. Your credit score is calculated in a very similar manner. Instead of using the scores from pop quizzes and reports you wrote, it uses the information in your credit report.
[E]35 percent of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if(and how timely)you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection, any bankruptcies, etc. When these things happened also comes into play. The more recent, the worse it will be for your overall score.
[F]30 percent of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25% or less of their limits.
[G]15 percent of the score is based on the length of time you’ve had credit. The longer you’ve had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.
[H]10 percent of the score is based on the number of inquiries on your report. If you’ve applied for a lot of credit cards or loans, you will have a lot of inquiries on your credit report. These are bad for your score because they indicate that you may be in some kind of financial trouble or may be taking on a lot of debt(even if you haven’t used the cards or gotten the loans). The more recent these inquiries are, the worse for your credit score. FICO scores only count inquiries from the past years.
[I]10 percent of the score is based on the types of credit you currently have. The number of loans and available credit from credit cards you have makes a difference. There is no magic number or combination of types of accounts that you shouldn’t have. These actually come more into play if there isn’t as much other information on your credit report on which to base the score. This information is compared to the credit performance of other consumers with similar histories and profiles.
[J]Your credit score doesn’t just affect whether or not you get a loan; it also affects how much that loan is going to cost you. As your credit score increases, your credit risk decreases. This means your interest rate decreases. There are other factors that influence the interest rate you get for a loan besides your credit score. Things like the type of property you are using the loan to buy, how much of your own money is going into it, the costs the lender has to make the loan, etc.
[K]In addition to banks and lenders, there are landlords, merchants, employers and insurance companies jumping on the credit score bandwagon(风靡的活动). Of all of these, the fact that insurance rates are being determined by credit scores is causing consumers the most alarm. To most, it seems that your credit history and your driving record have little in common. Insurers, on the other hand, have found that using credit scores to predict how likely someone is to pay premiums has helped them cut their losses. They don’t use the same score that banks and lenders use, however. They use a slightly different formula for their calculations and actually call it an "insurance score".
[L]Credit scores aren’t static numbers. Because they are calculated based on your current credit report, they change every time your credit report changes. While this change may be very slight, it can also be much more dramatic. Here are some things some financial advisers say to do to try to improve your score.
[M]Review your credit report and correct any errors you find. Getting rid of inaccurate information can sometimes improve your score dramatically.
[N]Advice used to be given to close old and unused credit card accounts in order to reduce your "potential" available credit, which could change your debt ratio after you’ve been approved for a loan. Now, however, the ratio of your debt to your credit limit is more critical, so closing old accounts only raises that ratio—which you don’t want to do. Some people have moved debt from several credit cards to one card and then closed the old accounts. Since creditors look at the debt-to-credit limit ratio, this can have a bad affect on your credit score because you have the same amount of debt but less available credit. So don’t close old credit card accounts just because you’re not using them.
[O]Creditors also now look at the average age of your accounts so, again, keep those old accounts. Reduce your balances on credit cards to 75% or less of your available credit(25% is preferable). Pay your bills on time.(This is probably the most important of all!)Don’t let anyone make an inquiry on your credit report unless you absolutely have to. The more inquiries, the lower your score. Don’t open new credit card accounts just to increase your available credit in the hopes of raising your score. Also, remember that some improvements—such as better efforts at making payments on time—may take time to impact your score. So, time is also a factor. [br] If you have more outstanding debt, you will get lower credit score.
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