Credit Scoring
Credit scoring is a system that creditors use to help figure out whether or not to give you credit. Creditors take information about you and your credit experiences, such as your history of paying bills, the number and type of accounts you, outstanding debt, late payments, etc. They put this information into a statistical program and then a credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. Your credit score is the total number of points you receive and is supposed to determine how likely you are to repay a loan on time. To get copies of your report, you should contact one of the three major credit reporting agencies: Equifax—(800) 685-1111, Experian (TRW)—(888) 397-3742, or Trans Union—(800) 916-8800. You should get copies of your report to make sure that there are no inaccuracies on it.
Credit scoring is used because it tends to treat all credit applicants fairly because it is based on real data and statistics. The Equal Credit Opportunity Act states that a credit scoring system cannot use certain characteristics such as race, sex, marital status, as factors, but creditors can use age as long as they give equal treatment to elderly applicants.
Typically, credit scoring models vary among creditors and for different types of credit. However, no matter what model they use, there are a few issues that will be addressed in a credit report: Have you paid your bills on time? What is your outstanding debt? How long is your credit history? Have you applied for new credit recently? How many and what types of credit accounts do you have?
In order to improve your credit score, make sure to pay your bills on time, pay down outstanding balances, and not take on new debt. It’s a slow process, but if you stick with it, you can significantly improve your credit score.
What Happens If You Are Denied Credit or You Do Not Get the Terms You Want?
The Equal Credit Opportunity Act requires the creditor to give you notice about the specific reasons why your application was rejected and if you ask within 60 days, you also have the right to learn why. A creditor has to give you a specific reason not just something vague because vague reasons are illegal.
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