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A Primer On Credit Scores

Lately, it seems like many websites are offering free credit scores. Some of those websites, like FreeScore.com, I have reviewed in this blog. But there are others. Consumers should know that there there are different brands of credit scores. Here is what you need to know about credit scores:

1) A credit score is a three-digit number banks and lenders use to decide whether or not to give you credit. Examples of credit are mortgages, bank loans, auto loans, and credit cards. A variety of companies use credit scores, including banks, credit card issuers, telephone companies (e.g., landline, cellular), landlords and utilities (e.g., gas, electric companies).

2) You should check your credit score before you apply for a loan. Why? It will give you a good idea of your chances of being approved for a loan or credit. According to About.com:

"People with credit scores lower than 620 find it harder to get applications approved and are left with higher interest rates."

3) Not all credit scores are the same. If your credit score is 802, that means one thing if the high end of that credit score brand is 850; and it can mean something different if the high end of that credit score brand is 990. Knowing both the brand and range the of credit score is important. You may encounter the term "FAKO score." That terms refers to any credit score that is not the myFICO brand credit score.

4) Several events will negatively affect your credit score. When credit score producers cacluate your credit score, they look at your credit history. Examples of events that will lower your credit score include: paying late, defaulting on a loan, high balances on your credit cards, and a personal bankruptcy. See this page at About.com for the list of 15 events that negatively affect credit scores.

5) You need to know which credit reports and credit score brand your bank or lender uses to evaluate your credit worthiness and risk. You don't want to buy a credit score brand you don't need. You don't want to buy credit score brand X while your bank or lender uses brand Y.

6) Some sources, like the credit reporting agencies, will sell to you both their credit score brand and other credit score brands. You may or may not find this helpful. Compare prices and see #5.

7) If you are a victim of identity fraud, then criminals have both stolen your identity information and obtained credit (e.g., loans, mortgages, services) fraudulently in your name. Obviously, the criminals don't plan to pay off the loans they have obtained in your name. When they fail to make payments, it will negatively affect your credit scores. Plus, the lenders will come to you looking for payments. So, it is important to protect your identity information, check your credit reports for fraudulent entries, and correct any fraudulent entries.

8) Your credit score isn't the only factor that matters. You still need to review your credit reports for accuracy. Fraudulent entries can lower your credit score. Your credit utilization ratio (the balance on your credit card as a percentage of the card limit) matters more to some lenders than your credit score. If you max out your credit card limits every month, that will reduce your credit score. Experts suggest you keep your credit utilization ratio below 50% -- ideally at 30%.

Since there are several credit score brands, to stay organized I compiled a list:

I am sure that there are more. What credit score brands have you used? Share your experiences below in the comments section. I've Been Mugged readers want to know.


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Judy Kingston-Smith

My debit card has been cloned twice already in one year.

I hardly ever use cahs anymore, but I make a point now not to buy with the card from small "shops on the corner" - with a card.

I use checkmyfile to keep tabs on my credit ratings...

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