et Your Credit Score To Soar In The Twinkling of An Eye.Written by Omar M. Omar
Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you'd be a good risk for credit cards and auto loans. More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans. Here's how credit scoring works in helping decide who gets credit -- and why. What is credit scoring? Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, number and type of accounts you have, late payments, collection actions, outstanding debt, and age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make payments when due. Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact three major credit reporting agencies: ·Equifax: (800) 685-1111 ·Experian (formerly TRW): (888) EXPERIAN (397-3742) ·Trans Union: (800) 916-8800 These agencies may charge you up to $9.00 for your credit report. Why is credit scoring used? Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals. How is a credit scoring model developed? To develop a model, a creditor selects a random sample of its customers, or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company. Under Equal Credit Opportunity Act, a credit scoring system may not use certain characteristics like -- race, sex, marital status, national origin, or religion -- as factors. However, creditors are allowed to use age in properly designed scoring systems. But any scoring system that includes age must give equal treatment to elderly applicants. What can I do to improve my score? Credit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by model. Only creditor can explain what might improve your score under particular model used to evaluate your credit application. Nevertheless, scoring models generally evaluate following types of information in your credit report: ·Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report. ·What is your outstanding debt? Many scoring models evaluate amount of debt you have compared to your credit limits. If amount you owe is close to your credit limit, that is likely to have a negative effect on your score. ·How long is your credit history? Generally, models consider length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances. ·Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
| | Don't Let an Illness or Unemployment Cost You Your HomeWritten by David Miles
As a nation of homeowners, we are particularly vulnerable to effects that accident, sickness, or unemployment could have on our ability to meet our monthly mortgage repayments. In view of this, it is quite alarming to note that of 11 million mortgage borrowers in UK, only 20% currently have any form of independent insurance to protect their mortgage repayments in event of accident, sickness, or unemployment. A large number of borrowers wrongly assume that State Benefit will protect their mortgage repayments if they are off work sick or lose their jobs. But in actual fact, only 30% of people who put in a claim for State Benefit in respect of their mortgage repayments receive any help. This is because: - If you took out your mortgage on or after 1 October 1995 you will not receive any State Benefit for first nine months of sickness or unemployment. - If you took out your mortgage before 1 October 1995 you will not receive any State benefit for first two months. After that, you will, subject to eligibility, receive 50% of full entitlement for next four months. - If you and/or your partner have more than £8,000 in savings, you will not receive any State benefit. Restrictions also apply if you have more than £3,000 in savings. - If your partner works for more than 16 hours a week, you will not be entitled to State Benefit. Even for those who are entitled to State Benefit, this assistance only applies to interest element of your mortgage repayments. Any capital repayments or any premiums for associated life cover/savings vehicles are not covered.
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