Monday, March 16, 2009

What You Need to Know About Credit Scores Part 1

By Janene Mascarella

Nothing sends fear through the heart of a child more than report card day. Prepare yourself for a sense of déjà vu when applying for a loan ... many say the situation ignites that same blast-from-the past feeling as they await their financial fate. And what to do if, ultimately, that application is stamped "denied”? Figure that your credit score had a lot to do with it, and start making big changes.

Now is the time to get savvy about your finances and credit standing -- being clueless about any aspect of your credit health can really cost you.

Slam-Dunking Your Credit Smarts

Quite simply, your credit score summarizes your credit risk based on a snapshot of your credit standing at a particular point in time. It isn’t so much a grade, it’s more like a grade point average, explains Ken Clark, a debt/credit expert, certified financial planner, and author of 'The Complete Idiot's Guide to Getting Out of Debt.' Think of it as an overall assessment of your financial responsibility, one that influences the amount of credit available to you and the conditions you may have to agree to in order to get that credit.

One major misconception, Clark says, is that people often confuse credit report with credit score. “A credit report is an objective history of who you’ve been as a borrower -- it passes no judgment,” says Clark. “The credit score is a subjective evaluation of that history.” Whether it’s a credit card, car loan, or mortgage, lenders want to know your level of risk, and how likely it is they’ll get paid on time.



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