How often have you heard the term “credit score”? Perhaps— many a times. Yes, you know that it will be one of the key factors considered by lenders when you are looking for loans of any kind—be it cars, mortgage, home improvement or anything. However, are you exactly aware of the regulations behind them? Are you sure that you are not confused about any of the aspects of credit ratings? If no, then read on, to know further.
Provided below is a lowdown of a few nuances of the all-important credit scores—something aimed at helping you with better understanding of your credit or FICO scores.
These scale of the credit scores
The scores generally vary from 300 to 850. It can well be understood that 300 is a very bad and 850 is a very good score. A sufficiently good score for securing an auto loan is around 720. However in order to qualify for a mortgage, you should better 760. You do have the right to know, why a certain lender has rejected your loan application. Similarly you might also ask him why you have been offered lesser than the best rate. They should be totally transparent about the range of scores they have considered (many of the lenders use VantageScore that has a range of 501 – 990).
The Three Bureaus
The three credit bureaus only generate the credit reports. They do not judge your scores and give directions to the lenders whether or not to accept your loan application. They are simply in charge of laying down the history (how well or poorly have you been able to manage your finances like loan repayment or credit card bills etc). Equifax, Experian and TransUnion are the three major credit bureaus. It’s the companies such as VantageScores and FICO who mark you, thereby indicating lenders whether at all it is risky to deal with you or not.
Free Credit Watch
One of the biggest myths attached to credit scores is that you can find out about your scores for free from some websites. You can secure a rough estimate of your scores from these free sites (these scores include those marked by FICO and VantageScore as well as the PLUS scores by Experian) but only when you are willing to subscribe free (on a trial basis) to a credit monitoring service. And, the catch is—if you don’t unsubscribe within a period of 7 days or so, the site might charge you a certain amount of money.
The Credit Card Age
As against popular belief, your credit rating does not “age”, once you close an account. For instance if you close an account in a particular bank, the credit card of that bank will “be a year older” next year. John Ulzheimer, a noted credit expert says: “Not only does it still count in your score, but it continues to age.” (Sources: money.usnews.com)
The closed account stays in your credit report for only a good 10 years. However, if your scores are negative, they will be deleted after 7 years– since, negative rating can only be reported in the history for seven years.