Credit 101

There are no if an or buts about it, unless you have endless amounts of cash you must use and depend on credit in some way form or fashion. At some point in time if you are going to live a normal life you will be in the credit cycle. My simple version of the credit cycle is as follows, once you get a job , open a bank account or even just fill out an application to get credit the credit bureaus go to work gathering this information and compiling it into what is commonly called a credit profile.Your credit profile is then evaluated into a numerical credit score.Creditors/Lenders gain access to your credit profile and credit score from the credit bureaus to determine whether or not you are worth giving credit to. Creditors or lenders that you come in contact with or gain credit from report your credit history back to the credit bureaus to be added to your credit profile. This cycle continues on and on with your score adjusting as need with the new information that is added to your credit profile.    Credit buearus or credit reporting agencies are the gate keepers when it comes to your credit profile and credit score.Their are many credit reporting agencies but the most important ones, also known as the three major buearus: Equifax, Experian, and Transunion.Your BEACON®, FICO® or EMPIRICA® score is based solely on information in your credit file maintained by the credit reporting agencies. Other scores may be based on a combination of credit information and other information that you supply on your credit application.    All three credit report bureaus may report information on your personal credit and issue a credit score no matter where you live, but each zip code has one credit reporting agency which is the "preferred" credit report bureau for that area. If you are thinking of purchasing an online copy of your credit report from only one credit reporting agency, then choose the credit reporting bureau "preferred" in your city or town. Remember to check if your state mandates free credit reports. You may also be entitled to a free credit report if you have been denied credit within the last 30 days.Click here to see your preffered bureau and if your area mandates a free credit report.	Credit bureaus aka credit reporting agencies are companies that gather information from various sources and provide consumer credit information on individual consumers for a variety of uses.   Credit Profile is a compilation of your personal information (such as Name, age, social security number, employment info and last known address etc.usually gather from applications you fill out), credit history and public records( such as judgements and liens).   Credit score  is a numerical summary of your credit profile usually ranging between 350-850.   Credit History  is the activity in your profile that tracks your borrowing and repayment habits.
There are five main catergories of information in your credit report that is evalueated in your Fico, Beacon or Empirica score . The five categories are, in order of importance: Payment history — what is your track record? 35 % of the score Risk predictors here look at: ·   Severity – how bad are the delinquencies? ·   Recency – how recent are they? ·   Frequency – how many times did it occur?
Amounts owed — how much is too much? 30% of the score       Risk predictors here look at: ·   Large outstanding balances ·   The ratio of balances to credit limits Length of credit history — how established is yours? 15% of the score       Risk predictors here look at: ·   Age of the trade lines - (the age of the oldest account, the average age of accounts, or both). Length of credit history — how established is yours? 15% of the score       Risk predictors here look at: ·   Age of the trade lines - (the age of the oldest account, the average age of accounts, or both).
New credit — are you taking on more debt? 10% of the score Risk predictors here look at: ·   Number of inquiries and new account openings  Types of credit in use — is it a healthy mix? 10% of the score       Risk predictors here look at: ·   Number of trade lines reported for each type: bankcards, retail, department store cards, installment loans, etc. Types of credit in use — is it a healthy mix? 10% of the score       Risk predictors here look at: ·   Number of trade lines reported for each type: bankcards, retail, department store cards, installment loans, etc.
Credit score Ranges Equifax                   Beacon         300-850   Experian                 FICO             340-820   Trans Union                 Empirica       150-934
What is a good score?   Scores under 500 Bad score.
Scores 500-600 Poor score.  This usually is from slow pays on loans, charge offs, student loans and medical bills.  You will most likely be charged the highest interest rate allowed by law in your state, or turned down completely.  You'll be considered "special finance.
Scores 600-650  Fair score. You will be able to obtain credit more easily than the weak credit category.
Scores 650-700  Good score.  As long as your debt to income ratio is low you will be approved, but will likely pay a higher interest rate on your loan.
Scores 700+ Great score. You are considered a "prime borrower" and will have no problem getting a great interest rate on your home loan, car loan, or credit card.

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