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Your Credit And What It Should Mean To You

Figuring out where you rate in terms of credit grade. For a car dealer, if you have two decent lines of credit, and you had a couple of payment problems over two years ago, but you have been clean since, even though your score is a 585, he's going to get you a loan.


To build you up, he tells you that you have "A" credit, so you are not paying as much attention to the financing being at 14.99% instead of the 8.99% that a real "A" borrower is getting. And not knowing any better, you go out the door thinking you are an "A" credit borrower.


Same thing with some of the consumer loan companies, or electronics stores, carpet stores, furniture stores and so forth that either carry their own financing, or have profit sharing arrangements with consumer finance companies.


It is worth keeping in mind that these types of companies can easily repossess the goods, or come after you in court, without a great deal of risk in terms of loss. It's a lot easier to get credit from those kinds of lenders.


Same things with credit card offers. But, these scores can make a big difference in the card offers you receive, what kind of credit limits they will ultimately give you, and what kind of interest rates they are going to charge - both introductory and long term.


If you have a 700 FICO score, everybody wants your business, and you are going to find your mailbox stuffed with credit card offers all the time. You are also going to see many 2.9% and 3.9% promotional rates for as long as 12-month periods, $10,000 to $25,000 credit lines, and long term fixed rates as low as 5.99%

If you are in the 660 to 699 range, you are mailbox is going to be stuffed too... and you will probably see a lot of six month 2.9% to 3.9% introductory offers as well. But you'll likely see most of your long-term rates hovering in the 12.99% to15.99% range.


Chances are, you will still see a lot of credit card offers in the 620 to 659 range, but you will be getting mostly generic standard high rate credit card offers.

Some will offer you 3.9% introductory rates, but most of them will be for about three months or so, and then the card rises up to 17.99% or higher, on a variable rate basis.


From 600 to 619, you will still get quite a few offers too, but not too many low introductory offers. You might even get one or two that might offer you up to a $5,000 credit limit, but most will be in the $1,000 to $3,000 range and you will be starting right out at the 17.99% and up variable rates.


With a 580 to 599 credit score, you will see a lot of offers too - but they will be for $500 to $1,000 credit lines, no introductory low rate offers, and most will be starting out in the 19.99% and up variable interest rate range.


Many of the offers will be for secured cards - in other words, to get the card, you have to post a savings account deposit with the card issuer, and you will only get a credit limit equal to your deposit. Most of these plans limit you to $500 until you show a 12-month rating on the account.

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What Really Makes Your Credit Score

For many people, it does not seem fair. Nevertheless, the truth is, with the advent of the scoring models, more people can borrow more money than ever before. Risk analysis has become more quantifiable, and lenders are more confident now with the predictability factors in their loan portfolio management.


Thus, they are comfortable offering more loan programs, and managing the risk by adjusting the interest rates and loan to value ratios according to credit score.


The models aren't perfect, and a lot of mistakes still occur. But there has been extensive research and verification on the reliability of the scoring models, by heavyweights such as FNMA and FHLMC.


The research holds up. If you are a 640 FICO, you are a greater risk than a 700 FICO individual is. You personally may never have a problem on a new loan, but of all the loans, that lender made to 640 FICO borrowers; he knows he is going to have a higher default rate that on the pool of loans he made to 700 FICO borrowers.

Payment/Credit History

The average consumer's oldest obligation is 14 years old, indicating that he or she has been managing credit for some time. In fact, we found that 1 out of 4 consumers had credit histories of 20 years or longer. Only 1 in 20 consumers had credit histories shorter than 2 years.

Utilization

About 40% of credit card holders carry a balance of less than $1,000. About 15% are far less conservative in their use of credit cards and have total card balances in excess of $10,000.

Balances/Performance

On average, today's consumers are paying their bills on time. Less than half of all consumers have ever been reported as 30 or more days late on a payment. Only 3 out of 10 have ever been 60 or more days overdue on any credit obligation.

Number of Credit Obligations

On average, today's consumer has a total of 13 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, or bank cards) and installment loans (auto loans, mortgage loans, student loans, etc.).

Inquiries/Recent Credit

When someone applies for a loan or a new credit card account - in short, any time one applies for credit and a lender requests a copy of the credit report - this request is noted as an “inquiry” in the applicant's credit file.

Available Credit

More than half of all people with credit cards are using less than 30% of their total credit card limit. Just over 1 in 7 are using 80% or more of their credit card limit.

Helpful links

www.ftc.gov/credit. You do not have to contact the three nationwide consumer-reporting companies individually. They provide free annual credit reports through www.annualcreditreport.com, 877-322-8228

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