How do you go about fixing bad credit scores? Just what is a credit score? Having bad credit does not make you a bad person no matter what insurance companies, employers and creditors would have you believe. Many people run into situations that create issues with paying bills and then results in bad credit. Each of the three national bureaus use there own formulas (called algorithms) to determine what the information reported under your name will combine to make your credit score. Combine these different formulas along with the fact neither that nor all accounts report to all three bureaus mean that there will be a different score from each bureau. Fair Isaac Corp came up with a way to combine the three and come up with a score that businesses could use to grant credit.
This is why most mortgage lenders will tell you that they will qualify you based on your middle or median credit score. They feel that is a better indicator of your ability to pay off your mortgage over time. Fixing bad credit is a key to getting better interest rates.
On each credit report you get there will be a listing of any account opened in your name – credit cards, auto loans, mortgages, revolving credit accounts at department stores, etc. Student loans will also appear. The actual credit grantor, your account number, when it was opened, your high balance, current balance, and payment history – current, closed, paid off, past due, etc. Other things that will show are ay recent credit inquiries – trying to open new accounts will be shown along with any public records like judgments, foreclosures, tax liens and bankruptcies. Also shown are any collections entered against you for unpaid accounts. Knowing how these affect your score is important.
While the federal government has passed legislation that allows you a single copy of your credit report from each of the credit bureaus each year they never offered a tutorial on understanding your credit report. Understanding your credit report is important so that you can determine if there are any mistakes, inaccuracies or outdated information on the report that can be removed or updated properly so that they will no longer affect your credit score. Experian no longer allows FICO to use their score for reporting purposes but you can get both the TransUnion and Equifax scores directly from myFICO.com.
MyFICO has a calculator on their site that shows you how your score can change by performing a particular action in regards to your credit. For example, you could take one of your credit card accounts and see how your score would be affected if you paid of the balance. It can also show you how opening a new account can negatively affect your score as well. Getting your scores from each reporting agency and then going to MyFICO to punch in the specifics from your report will help you in fixing bad credit. Fixing bad credit will not make you a better person but it will help you enjoy some of the better things in life.