BOOST YOUR CREDIT SCORE. CHANGE YOUR LIFE.

Credit Score Basics

Credit Score 101

What you don’t know about your credit score can hurt you

Your credit score, sometimes referred to as a FICO score, exists because of a company known as the Fair Isaac Corporation. The Fair Isaac Corporation developed a mathematical equation which takes all the information in your credit report and basically boils it down to a three digit number known as your credit score.

Lenders look at your credit report and your credit score to determine your risk of not repaying a loan or credit. Your credit score is used not only by lenders, but by utility companies, home insurers, landlord and employers to decide whether to sell you a service and at what price or to even offer you a job. Obviously, your credit score is a reflection of you to the outside world.

The Elusive Formula

So how is your credit score calculated? Believe it or not, the formula for your credit score is not disclosed to the consumer. Advocates for consumers argue that this fundamentally unfair since if consumers don’t know what factors are key in calculating one's credit score, how can we improve their credit scores. While the exact formula to calculate your credit score is not known to the public, here is some key facts that we do know about credit score calculations.

A credit score above the low 700's usually will qualify you for the best and lowest rates.

Credit Scores range from 300 to 850.

Only about 11% of the surveyed population has a credit score above 800;

29% of credit scores rank between 750 and 799.

There are more than 30 million people in the United States with credit problems severe enough to have a crdit score under 620, making obtaining loans and credit cards at reasonable interest rates difficult (subprime).

All three of the bureaus offer FICO credit scores using the formula developed by Fair, Isaac, but they each give the credit scores a different name. At Equifax the creditr score is known as the Beacon credit score. At Transunion, the credit score is called Empirica. At Experian, the credit score goes by the name of "Experian/Fair, Isaac Risk Model."

To take it a step further, you’ll probably have three different credit scores from the three different credit bureaus, largely because the credit bureaus don’t all share the same data. One credit bureau may list more accounts for you than another cedit bureau, for example, and the differences (in types of accounts, payment histories, credit limits and balances) will be reflected in the credit score that credit bureau computes for you.

Because of those differences, it makes sense to pull and examine your credit reports from all three credit bureaus before you apply for a big loan like a mortgage. Many mortgage lenders take the middle credit score from the three credit bureaus when making their decisions, so fixing errors in all three credit reports before you shop for a loan is smart.

To make things more complicated, the three big credit bureaus have come up with their own Vantage credit score in March 2006. Learn more about how this will affect your financial future...

Everywhere you turn, some company is making promises regarding credit repair that seem to good to be true. “Credit problems? No problem!”. “We can erase your bad credit — 100% guaranteed.” “Create a new credit identity — legally.” “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”
That’s because they typically are false promises. Credit Repair is a legal means of helping yourself get your financial life in control. Credit repair requires smart research and diligent time and effort to achieve the type of result that will make your credit score soar. Most all credit repair can be done on your own without paying repairs to companies that may be willing to take your money but do little to repair your credit. You have to be careful who you turn for credit repair advice. There are many scams on the internet that will tell you can obtain a new credit file and your credit repair problems are over. What they don’t tell you is you have created a whole new set of problems for yourself by submitting false information to obtain a new credit file. You may be breaking federal law that could subject you to criminal prosecution and fines.

You don’ have to break laws to repair your credit. At CreditEgghead.com, we help provide people just like you with free, smart, legal information that can help you repair your credit on your own.

Credit Repair and Credit Score Facts...

Most consumers do not understand the meaning of credit scores, credit reports, their importance, how to obtain credit reports and credit scores, and how to repair credit scores and and how to repair credit reports, according to the CFA/Providian survey.

Many consumers are unaware that their credit score and their credit report are two completely different animals. Your credit report is essentially your detailed report card on how you manage your debt, pay your bills and use your credit. The law allows consumers to obtain 3 copies of their credit reports annually, free of charge.

Your Credit Score is simply a three digit number, based upon the information in your credit report, that provides a final grade, if you will, of your credit report. At this time, the law does not allow consumers to get a free copy of their credit score. You must pay for your credit score if you want to know what it is.

(34%) correctly understand that credit scores indicate the risk of not repaying a loan, not factors like financial resources to pay back loans or knowledge of consumer credit. This low percentage appears to reflect the misconception that credit scores evaluate factors like income (65%), age (38%), and marital status (37%) rather than one's credit history. "Only the record of their past use of credit determines the credit scores of consumers," said CFA's Brobeck.

· More than one-half (52%) incorrectly believe that a married couple has a combined credit score. "You cannot boost your credit score by marrying someone with good credit," noted Providian's Elias. And, more than two-fifths (43%) incorrectly believe that individuals have only one credit score. In fact, each of the three major credit bureaus --

TransUnion, Experian, and Equifax -- computes separate credit scores that usually differ.

Top Tips for repairing your Credit Score

Keep the oldest account open on your credit report. This bears repeating: Do not remove or close the oldest account from your credit report. Your credit score could drop by as much as 18 points if you remove your oldest account The oldest account needs to remain on your credit report. The longer your credit history, the better your credit score. When repairing your credit, closing an old unused account decreases your available credit limits and shrinks the space between total credit card balances and total credit limit availability. This in turn lowers you credit score. Old accounts show an ability to manage credit for long periods of time. A good credit report always has a long history of credit attached to it.

Credit repair and the most recent account

Ask yourself, did you really need to get this credit card. Only get credit when you need it. Since you have it, make sure that you carry a balance of no more than 30% of the credit limit on this card (actually on any credit card you carry). Make sure you do not charge more than 30% of the credit limit. Do not be fooled by thinking it is ok to max out the credit card so long as you pay it off at the end of each month. Credit Bureaus typically only look at the fact that you are maxed out on a credit card. You don’t get any "points" just because you pay it off the balance at the end of the month.

Check to see if all your credit cards report the credit limits on your credit report. If they are not reporting them, ask the card company to report them. Threaten to close the card if they fail to report the credit limit of the card (unless its your oldest card!). It could make a huge difference in your FICO score.

Non-reporting of limits has a major negative impact on consumers credit reports because it effects a consumers "utilization ratio". The "utilization ratio" is the total amount of debt on credit cards and revolving accounts divided by the total amount of debt available on those accounts.This formula results in a fraction less than one. The lower the fraction the better your FICO score. A score of one would mean your outstanding debt equals your available credit and you've maxed out your cards which will kill your credit score.

Do the Math when repairing your credit

Lets look at an example. Let's say you've got $3,000 of debt and $9,000 in credit lines. By dividing 3,000 by 9,000 you get one-third. You're using one-third of the credit available to you.

Now let's say you cancel an unused credit card with a $3,000 limit. You've still got $3,000 of debt but only $6,000 in credit lines. By dividing 3,000 by 6,000 you get one-half. You're now using one-half of the credit available to you.

The closer to one this fraction gets, the more it hurts your credit score.