Credit Reports – Why Your Credit Score is Important
By Charles Essmeier |
If you have never heard of a FICO score before, you should become familiar with
the term. Named for the firm that invented it, Fair Isaac Corp., the FICO score
is the three-digit credit summary that, in essence, reduces your entire
financial life to a simple set of numerals.
The score represents a
distillation of information gleaned from the three main credit-reporting bureaus
– Equifax, Trans Union, and Experian, regarding your loan and payment history,
as well as any bankruptcy filings you may have made. Andy liens or payment
defaults will be incorporated into the score as well. The score, which can vary
from a low of 300 to a high of 850, represents an attempt to quantify a lifetime
of financial dealings into a single number. It has been quite successful. In
fact, most people would be surprised to see just how important that score has
become and how many businesses use it for reasons that aren’t entirely obvious.
Most people would assume, correctly, that lenders would check the score
of a potential borrower who was applying for a car loan or a home equity line of
credit. Many would be surprised, however, to see that the score is often
accessed by potential employers, landlords, or even insurance companies. While
some states have strictly forbidden the use of FICO scores as a guideline for
setting insurance prices, some insurance companies still access the scores in
order to assess risk for potential customers. Employers access the scores to see
if a possible employee might be a security or theft risk, and landlords may use
the score to determine whether or not a tenant should post a high security
deposit prior to moving into a rental property.
A substantial argument
can be made that there is no way to accurately reduce someone’s financial status
to a single three-digit number. That said, it is simply a whole lot easier for
most companies that need a financial “snapshot” of a customer to look over their
credit report, look at the score, and offer a “yes or no” response based on the
score alone. Fair or not, this is the way things work today, and it is probably
unreasonable to expect lenders, employers and landlords to start looking deeper
into their customers’ and employees’ finances.
The best solution for
anyone who is concerned about his or her credit score is to examine their own
credit report, which can be obtained for free at annualcreditreport.com. Report
any errors to the appropriate credit bureau, and try to check your report once
or twice a year. Fair or not, we are our credit score. Making sure that the
number is accurate is an important step towards a solid financial
future.
About the Author
©
Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro
Marketing, a firm devoted to informational Websites, including
End-Your-Debt.com, a site devoted to debt consolidation and credit counseling,
and www.HomeEquityHelp.com a site
devoted to information regarding home equity lending.
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