Is my credit my friend? Do I invest in improvement? Why do I care? Part 1

I have met with many folks who for work have moved here from other Countries. They are shocked at how much credit Americans have and it got me thinking about the importance of good credit in our Country. Many other places in the world, in fact most, credibility, your performance keeping promises is critical in business and finance. In this Country we say what is your credit score?
Credit scores are a predicting tool created through the efforts of Fair Issacs in San Rafael California. They took 5000 loans and studied why people pay and why they don't. The things they learned included;
Clients with most who had leveraged or borrowed most of their available credit are a higher risk
Those applying for credit often are a higher risk
Those with late payments that are recent or consistent are a higher risk
Those who do not use their credit at all for 6-9 months can not be read or rated
Those who have consumer finance company lined of credit are a higher risk

There are more but after studying loans they determined the Fair Issac score or FICO. Each of the three credit bureaus have their own scoring model. The scoring model used for mortgage loans ranges from 350-850 and you will find some on sites that sell scores that go to 950 this is not what we use for mortgage lending.

Where scores fall short largely is due to inaccurate ratings by creditors and not being intuitive. Let me explain if I have a client who has too much credit and too many cards a good debt management tool is to close out accounts. That makes sense right? However since this client actually reduced their available credit by closing out accounts they reduce their scores. There are other examples which I will cover later but now let’s answer my questions

Credit scores determine eligibility of obtaining credit
They are used at times as a character indicator for employment
They are used to price loans- gone are the days of what are your rates? Now we must ask more questions because pricing is tiered based upon down payment, credit scores and debt to income ratios.

I will talk more later but TAKE YOUR CREDIT SERIOUSLY because it will cost you if you do not.