Requests for information contained in your credit file run the gamut, from routine account maintenance to inquiries that can crush your score. Credit reporting agencies mix the good, the bad and the confusing into a report summarizing your financial history. In turn, credit scoring services uses this data to calculate risk -- this is called your credit rating. By learning how agencies rank inquiries and what to avoid, consumers can peek under the hood of the process and tune-up their credit score.
Soft Inquiries
It takes a bit of vigilance to sort out inquiries. According to a 2004 survey, one in four consumers have inaccuracies on their credit reports. The type of credit check requested by utility companies, prospective employers or a landlord leave a record without affecting your score, and fall off in about a year. These "soft" inquiries provide an excellent resource to cull information about companies poking in your file. Download a free copy of your report at the Annual Credit Report website (see "Resources").
Hard Inquiries
That dinging sound is a credit reporting agency filing an electronic demerit. When you apply for a car loan, student loan, credit card, a mortgage or signature line of credit, these "hard" inquiries can chip your score down one to five points for each hit. They live on your credit file for two years, available as public information to every potential creditor pulling your file. Lenders penalize wobbly credit with higher interest rates. Use a copy of your current credit report and dispute inaccuracies online at the TransUnion, Experian and Equifax websites.
Rate-Shopping
FICO's scoring model allows consumers to shop for rates without multiple inquiries impacting their credit score. It bundles all rate-shopping activity that falls within a 14-day window. The inquiries generated from this activity count as a single credit check. You can search for a mortgage, student loan or auto loan without fear of marring your credit score for 30 days. There is also a scoring model with a shopping period of 45 days. The lender decides which scoring model it prefers.
Scoring: FICO
The average FICO score is 692, according to Experian's Score Index. The Fair Issac score rates the risk of lending money. According to FICO statistics, consumers that tallied six or more inquiries posed the greatest risk of bankruptcy. The FICO formula looks at the number of inquiries filed in the past year. Multiple applications for credit increase your risk profile, but these inquiries tell only part of the story. Your FICO score assesses 35 percent for repayment history and 30 percent for how much you owe on the total amount of credit available.
The VantageScore
Where FICO scores range between 300 and 850, VantageScore rankings run 501 to 990. The company assigns a letter grade, A to F, like a school report card. Created by the three credit reporting agencies in 2006, VantageScore reviews a consumer's profile over two-year period to obtain a score. Take their credit score quiz and see how you stack up (see "Resources").
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