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Category: Credit Scoring

The Cities with the Best and Worst Credit Scores – Or Not

Few things entertain me more than press releases from data cartels.

This past September, Experian released its third annual State of Credit report (eye roll), the cover of which boldly lists the top 10 cities with the highest and lowest credit scores. Then a few days ago, not to be outdone, Trans Union released a separate report which claimed to reveal the U.S. Metro Areas with the highest and lowest credit scores.

The problem is that the two lists don’t match, even though both claim to be based on Vantage Scores (the credit score jointly developed by Experian and Trans Union to fight the draconian dominance of another data cartel—the FICO score).

My favorite discrepancy, for pure irony if nothing else, is how the two reports present Las Vegas. The Experian report glorifies Las Vegas for being the “most improved” city with an average Vantage score of 714, while the Trans Union report frowns on the Las Vegas-Paradise metro area for having an average Vantage score of only 650, the sixth-lowest average in the whole country.

I guess the Trans Union statisticians don’t follow the Experian statisticians on Twitter. Or maybe the issue is the tiny footnote in the Experian report explaining that (despite having access to tens of millions of credit files) its data are based on a measly sample size of “less than 1000.”

Getting a mortgage in 2012 is tougher than ever

Real Estate analytics firm Ellie Mae recently released its November 2012 Origination Insight Report, which provided data the confirms that qualifying for a mortgage is tougher than ever.

Here are some highlights:

  • The average FICO Score for approved loans of any type was 748
  • The average FICO Score for conventional-type approved loans was a lofty 763
  • The average FICO Score for FHA approved loans was 701

But here’s the real kicker:

  • The average FICO score for DENIED conventional loan applicants was 730!

Short Sale or Foreclosure – Which is better for your credit score?

This one is easy. From a credit scoring perspective, there is NO DIFFERENCE between a short sale and a foreclosure.  The FICO scoring algorithm views and scores both of these negative events exactly the same way.

FICO has publically confirmed this for consumers here and for lenders here.

5 Common Myths About Personal Credit

Credit scores—what do they mean anyway? Everyone knows that a higher credit score is desirable, It makes buying a car, purchasing a home or qualifying for a credit card much easier. Other than understanding that higher is better, what do you really know about credit scores? Unfortunately, there is a lot of misinformation out there. Learn more about these top five credit score myths, and find out the truth behind the number.

Myth #1: If you’ve paid off a debt, close the line of credit.

It may seem like this would be the best way to raise your credit score—pay off that pesky debt and get the credit off your record. However, there is a major flaw. The credit monitoring companies see closing an account as a red flag. In most cases, closing that account will make your credit score go down, not up. If you pay off a card, make an effort not to spend on the card, and in fact cut it up or put it in your safe deposit box, but don’t simply cancel the account.

Myth #2: Your employment impacts your credit standing.

While having a proven source of income can help you qualify for a loan, your employment history has absolutely no bearing on your credit score. If you are unemployed, self-employed or on disability but take pains to keep your credit in shape, you’ll find it’s no more difficult to obtain a high credit rating than someone who works a traditional 9-to-5 job.

Myth #3: Financing a home, car or other large purchase will make your score go down.

This is also false. Your score won’t go down just from a large purchase. In fact, these types of debts are often a good thing for your credit score. The type of debt you have impacts your score as much as the amount of debt. The fact that you qualified for this type of account shows that you are more creditworthy.

Myth #4: The older you are, the higher your score.

While having accounts open and in good standing for a long time will make your score go up, your actual age has no impact. An older person who has a spotty credit record is likely going to have a lower credit score than a young person who has been meticulous about paying bills on time and maintaining a good credit ratio.

Myth #5: Checking my score will lower my score.

There are two different types of credit inquiries on your record, and they impact the score in different ways. A soft check is what happens when you check your score, or when a company looks into your record to see if they want to extend a pre-approved offer your way. A hard check is when you actually apply for credit. Only these hard checks negatively impact your credit score. It is actually vital that you check your credit score regularly, to make certain you do not become the victim of an identity theft or error on your report.

Debunking these credit score myths is the first step in helping you understand your number. A lower-than-average credit score is certainly not something you want, but it is something you can repair. Patience and an effort towards repaying your debts will go a long way towards helping you get the score you need to obtain that home loan or low interest rate that you need.

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