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Your Credit Score: Make the Numbers Work For You By Larry Guidi

Your credit file is all about how you borrow money. Using a formula, credit agencies rate how well you pay back that money. Your credit score tells loan officers how you manage the credit offered to you. Your score tabulates:

* Your credit payment history: Did you make any late payments? How often? Were they made recently?

* How you manage your available credit lines. Have you "maxed-out" your credit cards?

* How many new requests for credit you have made recently.

* The types of credit you use. For example, do you access too many finance company accounts?

* The legal actions filed against you (Judgments, liens, bankruptcy, or foreclosure).

* The length of your credit history.

Credit agencies (Equifax, Experian, and TransUnion) apply a scoring formula to weight each credit event in your credit history. This all adds up to a final composite score.

According to Fair, Isaac & Co.(FICO), the two most heavily weighted factors are past payment history and credit use. Age, race, gender, religion, national origin, martial status, employment, income and where you live are not considered when determining your composite score. Fair, Isaac & Co. provides data supporting and explaining credit scoring. Because their models are proprietary, FICO does not provide every detail about how the formulas work.

Credit scoring has been applied to credit applications for about 40 years. Learn more about your FICO at MyFICO.com.

So how do you know if you have a credit-healthy score? Credit scores are broken down into three ranges:

* If you have a score of 680 and above, you may be considered a low-risk borrower

* If you have a score of 620 to 680, you may be considered a medium-risk borrower

* If you have a score below 620, you may be considered a high-risk borrower

Medium-risk borrowers (scores between 620 and 680) have other factors included for evaluation such as loan-to-value and debt ratios by mortgage underwriters. Mortgage underwriters will consider loan-to-value and debt ratios when evaluating medium-risk borrowers (scores between 620 and 680). So, if you have a 625 credit score with low loan-to-value and debt ratios, you may be considered a more favorable credit risk.

As you know, the company offering you a loan must determine their risk compared with your ability and commitment to repay the loan. If you are a high risk borrower, the loan will come with a higher rate of interest. If you are a low risk borrower (with a score 680 or above), you will get a lower rate of interest charged for the loan. This makes having a high credit score quite important to you. Almost every lender applies credit scoring when pricing loans.

You can do something about your credit score. Take action by requesting a copy of your credit file from the three major credit agencies. You can do this yourself by signing up at Annual Credit Report.com . Read your file closely making a red mark by every error. Credit agencies make mistakes; mistakes affect your credit score. Every error corrected may increase your score saving you money as a borrower.

You can work with credit agencies (Equifax, Experian, TransUnion) to dispute and correct the errors you find. In many cases your effort will pay-off. You might find it helpful to work with an expert as you do with your tax return. A professional credit restoration company knows how to work with the credit agencies. You will get the results you want faster and easier without all the personal frustration.

Your credit scores tell a story about you. Take time to resolve errors, always pay your bills on time, keep your credit card balances low, and apply for new credit infrequently. All of this makes you an excellent credit risk with a high credit score.

Larry Guidi is affiliated with Benchmark Literacy Group Credit Educational Services as an independent representative. He offers consumers a 12-month clean credit checkup through the three major credit bureaus: Experian, Equifax and, TransUnion. Larry is a well-known advocate of consumer reporting accuracy. You may call Larry Guidi (408)210-4035) and learn how he can help you to increase your credit score. Learn more about his services at Better Credit Guaranteed.com. Copyright 2005 Larry Guidi

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