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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.
©Copyright 2005 by Retro Marketing.
About the Author:
Charles Essmeier is the owner of Retro Marketing, a firm devoted to
informational Websites, including http://www.End-Your-Debt.com, a site devoted
to debt consolidation and credit counseling, and http://www.homeequityhelp.net,
a site devoted to information regarding home equity lending.
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