Credit Scoring

Credit scores are algorithms that evaluate your history of payment and your ability to pay debt obligations in a reliable way. The Fair and Accurate Credit Transactions Act (formed in 2003) defines a credit score as:“A numerical value or a categorization derived from a statistical tool or modeling system used by a person who makes or arranges a loan to predict the likelihood of certain credit behaviors, including default (and the numerical value or the categorization derived from such analysis may also be referred to as a ‘risk predictor’ or risk score)”.

How Credit Limit Affects Your Credit Score

The purpose of calculating credit scores is obviously to gauge the credibility of loan applicants based on their credit histories. A study of your credit history portrays the probability of you repaying any balance due on your accounts. A history of payment of bills, lines of credit from various creditors, the balance of debt on various accounts and the number and type of credit accounts that you have are some of the basic factors that determine your credit score – along with its variation and deviation from your available credit limit. In a nutshell, if you have large account balances and use most of your available credit, and you have a lot of accounts, your credit score will likely go down.The credit limit is the upper limit of money that you can obtain (you should not go anywhere near this amount to maintain a good credit score). This amount is supposed to be repaid to the creditor within a predetermined time frame, usually 30 days.

Like it or not, your credit limit also reflects your income, assets and debts.

The Equal Credit Opportunity Act (ECOP) restricts a creditor from generating biased credit scores based on the gender, racial identity, color of skin, status, place and region of origin and other such sociological factors of a consumer. If you are denied credit, the creditor has to state explicitly the grounds for the denial. If you feel that you have been denied credit on a basis other than your credit score, you can and should file a complaint with the Federal Trade Commission (FTC) and the Attorney General in your state.

Positive Credit Scores

It is important to note that credit scores also reflect positive consumer behaviors on the credit report. Timely payment of bills, maintaining a flawless credit record and staying well below your credit limits will ensure that you obtain and keep a good credit score. Generally, good credit scores are in the 640+ range, although this varies with different lenders.

Timely payment of bills does not imply using the maximum available credit balance every month and paying only the minimum amount due each month. Such practices can actually result in your credit score falling, as lenders feel that you may be using all of your available credit due to an unstable financial situation.

Credit monitoring is a relatively new service that allows you to get the same view of your credit scores that lenders and financial agencies get. It is a paid service that is activated on subscription and remains active as long as you pay the monthly fee. The credit monitoring service keeps you updated with any modifications that are made to your credit report, including any changes to your credit or personal information. The credit monitoring service sends an alert to your Internet-based account regularly along with an email in order to let you know about the specifics of each change.

Why You Should Use A Credit Monitoring Service

Credit report monitoring is an essential part of your personal identity security and fraud detection strategy. Though this service cannot stop identity theft, it can at least update you as to changes to your credit report, and as a result, could save you from suffering substantial monetary losses.

The basic need for a credit monitoring service is to protect your credit record, as a negative item could be placed on your credit report without you knowing, and thus negatively impact your credit score. What most consumers don’t know about identity or credit card fraud is that neither your social security number or any of your personal details are required in order to perpetrate such fraud; it generally depends on where and how your credit card information is being used. A credit reporting service can even inform you the exact moment when any negative entry is made on your credit report.

Signing up for a credit monitoring service is both convenient and essential, as you need to actively protect your identity and your credit information. It is especially important in this day and age, with incidences of identity theft and credit card fraud rising on a daily basis.

What Does A Credit Monitoring Service Track?

Credit monitoring services generally vary in levels of service, but most track the following:

• Queries To Your Credit File: It monitors people who are inquiring about your credit history and therefore detects any illegal activity that may be taking place regarding your credit.
• Fake Emergence Of New Accounts: The service monitors any new accounts that have been opened in your name and report it to you. If you have not opened the account, you can contact the merchant in question and let them know of the fraud.
• Change Of Address: Identity theft can take place when thieves change your address to theirs, using the name of the victim (you) while applying for new credit. If you really didn’t change your address, you would then be aware that someone else is trying to impersonate you.
• Collection Accounts: Many times, people find out about that their identity has been stolen only when they are turned down for credit. A credit monitoring service would let you know of any possible collection accounts, enabling you detect problems with your credit before you go to a lender.
• Change In Account Information: Credit monitoring services make you aware of any changes made to your credit accounts that might include a rising debt load or opening of new accounts.
• Increase In Credit Limit: More often than not, fraudsters raise the credit limit of your account – having a credit monitoring service lets you know about this the moment it happens.
• Change In Public Record: You will be promptly informed of any changes that are made to your public record such as judgments, bankruptcies and the like.
• Closing Of Accounts: You would be made aware of any recent closing of accounts.

Having a credit monitoring service enables you to protect your credit accounts and reports from being used illegally by someone else, possibly causing your financial life to be completely ruined. Because of the increase in the “creativity factor” related to identity theft (as new detection methods arise to prevent fraud, the criminals also invent new ways to outsmart the system), the benefits of having a credit monitoring service greatly outweighs the cost.