Thursday, April 27, 2006

The History of the FICO Score, by Robert Paisola

The History of the FICO Score, by Robert Paisola

In 1956, math whizzes Bill Fair and Earl Isaac left the Stanford Institute to consult with the computer services industry. After creating a billing system for Hilton Hotels, Fair Isaac and Company created a credit evaluation method for a southern lender accused of racial bias. As credit cards emerged, Fair Isaac created a way for card issuers to quickly screen masses of candidates. Banks started using the company's scores, referred as FICO scored, to evaluate their own loans.

In 1995 the nations two biggest purchasers of home mortgages, Fannie Mae and Freddie Mac, announced that they wanted their loans to include a credit score. Fair Isaac designed a credit scoring system for all three bureaus to use and soon after, all loan processing agencies joined in and hence, the FICO score. FICO scores are what the majority of mortgage lenders use to evaluate applicants creditworthiness. The scores are based on complex statistical methods that analyze credit information on nearly every adult in the United States.

In barely 3 years, credit scoring has swept the loan business. Credit scores have existed for 40 years, but were applied to home loans only recently. If you've received a pre-approved credit card application in the mail, it was based on your credit score. High score, high credit line and low rate. Likewise, if a car finance dealership says that would be happy to process a loan on a car, but.... That is credit scoring at work again, except they will need a higher down payment or you need to pay a higher rate. Low credit score, higher down payment, higher rate.

Your ability to get a loan depends on your score. The people affected most are lower income borrowers. Most lenders get reports and scores from the 3 credit reporting bureaus, Experian, Equifax and Trans Union. That is because the credit bureaus rely on creditors to report borrowers' histories, and creditors don't always report to all three bureaus. Hence, the scores can differ. Most lenders will access all three scores and then average them. These numbers, based on past behavior, really predict a persons future likelihood to repay a loan. Studies have shown that regardless of race or income, borrowers with low scores defaulted much more often than people with higher scores.

Your credit report is a list of accounts that banks, merchants, government agencies and courts report that you are responsible for either solely or jointly. Each will show the accounts age, credit limit, current balance, high balance and payment history. All of this information is used in the credit scoring calculation. A credit score, based on the report information, is likened to a camera snapshot that captures your creditworthiness at the moment the score is calculated, so you can see how important it is to make sure that the information is correct and up-to date.

We all have a credit report and whether it is good or bad is something that you need to start thinking about. If you have ever financed a car, or had a loan of any sort, even a credit card you have a credit report. And if you have ever paid bills for anything like a cell phone or for electricity then you have a credit report. It is important that you have a good credit report for several different reasons. First of all if you have plans to buy a house someday or a new car then you are going to need good credit to be approved for financing. Most people do plan to purchase a home someday and you cannot do that unless you have good credit. Your credit rating will even affect the interest rates that you will be able to get your loans at. The lower your interest rate the more money that you will save.

I am sure that you have heard or read the offers that promise you that they will erase all of your bad credit history quickly and efficiently but these promises are false. No one can get rid of your bad credit history but you. Time is the only thing that will heal these types of wounds and anyone that promises you otherwise is lying to you.

A good tool for you to refer to when you are trying to rebuild your credit is the book written by the Federal Trade Commission (FTC). This book will teach you the following: your rights under the Fair Credit Reporting Act and your rights under the Fair and Accurate Credit Transactions Act. It will also teach you how to legally improve your credit, knowing how to do this the right way is important, this book will also teach you about identity theft and how it can affect your life and most importantly it will teach you how to deal with your debt once and for all.

The Fair Credit and Reporting Act is dedicated to making sure that your records are keep accurate, private and safe. It is the FTC that enforces the rules and laws as they pertain to the credit reporting companies. You have many rights that you probably do not have any idea what these rights are. One of your most important rights is the right to see your credit report. You have the right to a free copy once a year but you will have to request it, it will not be automatically sent to you. When you get your report you will also get a list of the companies and people who have also requested a copy of the report.

Most people wonder what exactly is on their credit report. Your credit report contains your name and address, birth date and Social Security Number as well as your employment history and your spouse's name. You will also find your home ownership, income, and previous address information. Some of these things may only be given to those who specifically ask for this information.

Your credit report will also have exact record of all your past history as far as the amount of credit that has been extended to you as well as how you dealt with this credit. If you have not paid your debts off according to schedule then this will be noted on the report. Every company, person or business that has ever requested a copy of your credit report over the last year, regardless of their purposes will be noted on your report as well. And if you have ever been the subject of a foreclosure or you have filed for bankruptcy or even if you have tax liens this information will be on this credit report.

You are permitted to receive one copy from each of the credit reporting agencies at no charge each and every year. It is a good idea to get your report from each company because they may have different information on them. All you have to do is ask for a copy and they will send it to you right away. In order to get your free credit report all you need to do is visit and there you will be directed to the different credit reporting companies. The information that you will want to have ready to provide is your name, address, Social Security number, and date of birth. Keep in mind that is the only place that is authorized online to provide you with your credit report. By getting your report from this site you know that you are not taking part in a scam that will end up costing you money in the long run. There is only one other time that you are eligible to receive a free credit report and that is when a company takes action against you. If some company denies you credit you have a right to see your credit report in order to figure out what the problem was and fix it.

Your credit report has a credit score on it and this score is what will determine whether or not you get approved for a loan or more credit. This score is also what will determine what your interest rate will be when and if you do get approved for any kind of credit.
It is the responsibility by law of the credit reporting agency to correct and false or inaccurate information on your credit report. If you ever see anything that you are unsure about on your report be sure to report it immediately. You should first give your credit card company a telephone call and then follow up with a letter explaining the problem. If you have any documentation pertaining to your claim be sire to attach copies to send along as well. Never send the originals, those you need to hold on to. Ask the company to correct these errors as soon as possible. When they respond to you be sure to file these responses away someplace where you will be bale to find them again with ease if you need to. They should respond to your claim within 30 days of the receipt of the letter that you sent so mark down this day.

Once the error has been corrected you have the right to ask that your corrected credit report be sent to all those who have requested it in the last 6 months.

If you credit report is in terrible condition not because of any errors on your report but because of your unreliability with credit then you need to take some steps to deal with your credit. One of the easiest ways that you can take control of your credit trouble is by budgeting. You can plan your budget any way that you want although it is a good idea to not make your budget too strict right off the bat. This could lead to you abandoning it altogether. A good way to plan your budget is to first keep track of all your expenditures. Write everything down and then at the end of the month take stock. This list will give you a good idea of where you can cut down and what you can cut out.

If your biggest problem is coming up with enough money to pay your credit card bills then you should consider giving your creditors a call. It is far better to let them know about the problem than it is to simply not pay them at all. They may be willing to work out a better payment schedule for you. This might even keep them from raising your interest rate.

If you are past the point where your creditors want to deal with you and you have already been passed off to debt collectors you need to know your rights. Legally debt collectors cannot call you before 8 am or after 9 pm, nor can they call you at work unless you have previously given them permission. And if you feel you are being harassed by debt collectors all you have to do is send them a written request to stop contacting you and they must honor this request.

One of the options that you have is debt consolidation. Debt consolidation is a good option for those who are looking for lower monthly payments. This not too bad of an idea because at least this way you will be able to make your payments without further damaging your credit. The one thing to keep in mind is that when you consolidate your debt it will be taking you longer to pay them off. The longer it takes you to pay off the loan the more you will end up paying in interest. You can use lines of credit to consolidate your loan but if you do this you will most likely be asked to put up your home as collateral. If you default on these payments then you will lose your house.

One of the most important things for you to learn is that you are in a prime position to be taken advantage of. Millions of people just like you get fleeced each year by falling for scams that promise to fix your bad credit or erase it entirely. None of these promises are worth as much as the paper they are printed on because there is nothing that can be done to simply erase bad credit. All you can do is work to improve your credit and depending on how bad your credit is this could take some time. Make sure that you look into any company that you are considering working with. A good place to find information is your local better business bureau.

Many of the credit scams that are out there can actually land you in hot water with the law. Some of these companies will charge you money up front and then they will proceed to teach you how to erase your debt history. In fact you are not erasing anything, only creating a new credit identity, which is illegal and punishable by jail time.

Your credit report can be damaged by others besides you and knowing this and how to prevent it is important to your financial welfare. Identity theft is getting to be more anymore prevalent all of the time. It does not take much for someone to be able to steal your entire identity. All they need to do is get a hold of some of your personal information. Some of the most common ways that others steal your identity are by stealing information about you that they come across on the job or by talking someone else on the job to give them your information. This can happen by them paying off an employee or perhaps they already have a previous relationship with an employee that they can use to get such personal information. Hacking into computer records in order to steal personal information is also very common. In this day of computers and technology anyone can learn how to hack into just about any company or network.

Going through others trash is another one of the more common techniques that identity thieves use to gain access to your personal information. We are always getting offers in the mail, many of them pre approved and all it takes is for someone to get a hold of one of these little pieces of paper and they can take over your life. They can then go on to destroy your credit rating and history. You should always shred any and all of these offers that you receive in the mail to avoid identity theft.

Another way to avoid identity theft is for you to keep your credit cards in a separate place from your wallet. This way if a thieve steals you wallet all they are getting is your cash. While it is never fun to have your cash stole at least this will not destroy your entire life. Losing your credit cards to an identity thief can destroy your life. Your credit report is accessed by employers and even landlords these days and if your credit report is in really bad shape you could find yourself without a place to work or a place to live. This is why you should never write down your credit card numbers or your bank account numbers where someone could find them and why you should get a copy of your credit report each year.

If you think that your identity may have been stolen there are some things that you can do. Putting a fraud alert on your credit cards is a good idea and it can save your credit rating. All you have to do is call the credit reporting companies and let them know that you would like to get a fraud alert on your credit report. Getting copies of your credit report from all of the major credit reporting companies will help you to see if there has been any fraudulent activity. The next step is for you to contact your local police station. Let them know what has happened to you including all detail about how it could have happened. You will then want to contact the FTC and fill tem in on what has happened to you as well.

About the Author:

Robert Paisola is an international motivational speaker, trainer and author. He is an expert in the field of Personal Real Estate Investor Training. He is a professional speaker who has been featured on CNN, CNNFN, and the Wall Street Journal.

He can answer your questions on the "Basics of the Real Estate Investing Business" to detailed issues regarding your specific transactions. Life Experience Robert Paisola is a Professional International Seminar Speaker in the Areas of Real Estate Investing, Tax Lien Investing, Rental Property Management, Real Estate Coach and Mentor Training and Business Management. He has served companies throughout the world.

If you are interested in learning the business from someone like Rob email his office at or call our offices Nationwide toll Free 1-877-517-9555 or visit Source:

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