Credit Score


Here is how it breaks down.  If a person never intends to borrow money then tracking and managing a credit score is not important.  On the other hand, if a person intends to borrow money, at some point in time, then managing the credit score can be very cost effective.

NEWS FLASH: The better the credit score, the lower the interest rates that can be obtained when borrowing money.  

Here is how it works: when a lender loans money to a borrower, the lender is taking a risk that the money will not be paid back and the lender will take a loss.  If a lender thinks there is a better chance that the money will not be repaid, then the lender will request a higher interest rate to cover the risk of losing the money.  A lender will offer a lower interest rate if the risk of losing the money drops.  The Credit Score is the indicator of the possible risk that lender accepts.  A Credit Score can be anywhere from 375 to 900. Because the credit score is made up of a number components, the lowest score can't drop below 375 and, even when perfectly managed, the score can't rise above 900.  The worst part is that there are three different sources for the credit score:

      -        Equifax (800-685-1111:

      -        Experian (888-397-3742:

      -        Transunion (800-888-4213:

Each credit score company gathers it's own records and performs a calculation of the credit score using a formula unique to each company.  While the formulas are generally the same, the results can be different because each company may have slightly different records that are used in the calculation.

Federal law permits each person to get a copy of their credit report (which is different from the credit score) each year from one of the three companies.  The smartest option is to get a report from one company each year and check it for accuracy and that way, at the end of three years, all three reports can be checked and corrected.  The credit report is a detailed listing of all of the credit financial transactions over the last seven years.  The detailed listing of transactions is the basis for calculating the Credit Score.

When reviewing the credit report, look for accounts or activity that you don't recognize.  Are there any store accounts or charge accounts that you didn't open yourself.  These types of accounts could be the sign of identity theft.  When credit companies collect information, it is possible that mistakes are made. Look for accounts that have problems with the final balance or the pattern of the payments made.  It is possible that the information is wrong or you could have made a mistake.  Either way, working with a bank will often help to get the negative item eliminated.  If the mistake was made by the credit agency, then they will remove the item once they have confirmed that it was not based on the proper information.  Lastly, look for old and unused accounts.   Go ahead and close the accounts that will probably never be used again, other accounts should be used occasionally.

Each person has the option of checking and correcting mistakes in the credit report.  At the same time, if a specific transaction appears to be negative, then the person has the option of working with the financial company to adjust the transaction.  Assume that managing your credit score can result in savings and these savings come in various forms.  First, it may make the difference between getting a great job or any old job.  It is common, in today's market, for businesses to run a credit check on a potential employee.  You are asking why would anyone want a credit check on a new employee.  The answer is simple, a higher credit score implies, IMPLIES, that the potential employee is more careful with finances which is expected to impact the attitude towards the company expenses.

Next, a credit score is used by lenders, and has been used for years.  All lenders know that the lower the credit score, then the higher the risk that the loan will not be repaid timely.  Every time that anyone requests a copy of your credit report, this informaiton is also kept because it implies that you are considering getting more credit.  The amount of credit will impact your credit score and how that credit is used will impact that credit score.