While providing a loan to any customer, a variety of factors are taken into consideration by lenders. Some of these include the income of the applicant, employment history, fixed and liquid assets, and credit limits. Apart from these, another prominent factor that determines the decision of a lender is the credit score of an individual.
A credit score determines the repayment capacity and the credit history of the customer. Hence, it is very important to have good credit scores. However, there are certain myths that many people carry in their minds regarding credit scores.
Myth 1: Credit counseling hurts credit scores
As per the revised calculation of FICO scores, credit counseling does not have any relation to credit scores. This is because, not everyone having a credit counseling session defaults with their loan repayments. In fact, a credit counseling session is an effective debt management strategy. A credit counselor does have reasonable solutions to help bail you out if you face any financial problems. However, many lenders do not like the idea of financial counseling. They consider it to be equivalent to Chapter 13 bankruptcy. Hence, a good credit customer should always keep away from a credit counseling session so as to ensure a mortgage loan with better terms and conditions. Credit counseling can affect credit scores in an indirect way. If the credit counselor does not send the payments on time, then the loan is reported to have carried late payments, a factor that has a major influence on credit scores.
Myth 2: FICO score is not the only score to check
In the US, credit scores are actually reported by the three major credit bureaus that include Equifax, TransUnion and Experian. Each one of these has a different way of calculating the credit score of an individual. While Equifax presents a credit score in the form of FICO or Beacon credit score, TransUnion presents it in the form of Empirica. At Experian, the scores are calculated based on the "Experian /Fair, Isaac Risk Model". It is up to the jurisdiction of the lender to decide which credit bureau should be contacted for getting the credit scores of a customer. The credit data provided to one credit bureau is not shared with another. Hence, lenders opt for all the three credit reports and determine the credibility based on an average score. A smart customer is one who fixes errors and clears misunderstandings in all the three credit reports before shopping for a loan.
About Author: Pauline Go is an online leading expert in finance industry. She also offers top quality financial tips to investor like:
Refinance Car Loan People with Bad Credit, How To Calculate Credit Score, Methods Used To Establish Credit Limits
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