MONEY WORLD LENDER LINKS Financial Terminology

Understanding the Fico scoring system is the key for every consumer. The Fico scoring system has about as many faults in it as a kitchen sieve. Credit wise we have all come to be identified with a fico score-particularly if we are purchasing or refinancing real estate. Many retailers still rely upon a single credit bureau report depending upon which bureau they use. Regardless of the bureau report the fico scoring system will probably have some effect upon the purchase you make.

The fico scoring system has become a permanent fixture in the mortgage business. Somehow the fico score thing seemed to just slip into the mortgage lending business several years ago and has now become a requirement. Then to give the top contending credit bureaus all a piece of the action three of the top contenders came into play. Equifax, Experian and Transunion credit bureaus became the main players. Soon after, using this trio became known as a “tri-merge” report. The tri-merge report would give the borrower a fico score from each one of these three bureaus. The middle score then would become the norm and that would be referred to as the midrange score. Frankly I have never seen all three scores the same in a trimerge credit report. That within itself suggests a fallacy in the system. It suggests sort of a minor game of Russian roulette with our consumer credit report.

SCORING STRATEGY AND THE FALLACY

There are some glaring reasons why scores will be different with the three different credit bureaus reporting. All three credit bureaus may not have all the same credit accounts you have open or closed in their data bank and as a result you are going to get a different score for that reason alone. The second reason is while there may be a similar guideline for scoring with five different areas for scoring that guideline may not be hard and fast and one bureau may give more or less weight to one area than is given by the other bureaus. A third reason is that income, net worth or cash liquidity is not a considered factor in the scoring strategy. Imagine that! You could have $25,000 per month in income but if the other factors appeared to be over weighted you could get shot down with a low fico score. As an example lets say that you show a million dollars in credit accounts that includes several credit card balances. Since 30% of the scoring goes to total debt that could lower your score even though you could actually afford to have ten million in debt because you have a net worth of twenty million and a monthly income of $25,000. Ad to that the fact that you do a lot of credit business because you are self employed there are an abundance of credit inquiries in your credit report there is another 10% of the scoring going to an over abundance of credit inquiries.

BE CAREFUL OF CREDIT REPAIR ARTISTS

Beware of the "Credit Repair Artists” that promise the financial moon for an up front fee. Almost always you are headed for shark-infested waters. Not all so-called credit repair people that have a shingle hanging out are properly regulated by legal statute and many have even less self-discipline in personal and moral ethics. Since the financial field is one of confidentiality you frequently will not be able to get references of previous services rendered. You do in fact have several rights you can exercise with the credit bureaus yourself. You can contest anything in your credit file and in fact you may compel the bureau to put your own 100-word or less statement in your file about any account you contest and have that statement issued with each credit file inquiry. Some of the credit bureaus even have a fico analysis program for a minimum charge that will often help.

FICO SCORING STRATEGY

Certainly the first order of the day is to find out what your fico score is. Generally you can obtain a free credit report although there is a difference in a consumer report and a mortgage report and sometime scoring will be different. Fico scores range from 350 to 850, high and above score is 720, low and below is 620. If you are 620 and below the fico scoring system could cost you thousands of dollars in excessive interest rates when you buy or refinance a home. In order to raise your fico score you must first know exactly how your credit accounts are scored in the system. Basically the strategy scores like this; (1) Timely account payments 35% (2) Total debt 30% (3) Length of credit history 15% (4) Frequent credit requests 10% and

(5) Variety of credit types 10%. For instance you could shop for an automobile and each dealer will ask for your name, address and social security number and bang you have another credit inquiry. I have seen credit reports with over 100 inquiries and the consumer had no idea how many of those inquiries got into their report.