Your credit score is a numerical indication of your credit worthiness. It is the primary factor that creditors and lenders use to decide whether or not they should extend credit to you. You may also hear the credit score called the FICO score. This name comes from the Fair Isaac Corporation, the company who is credited with developing the system that comes up with the credit score. If you have ever applied for a credit card, personal loan or insurance, there is a file on you and your credit history and financial history. This report contains very detailed information about you - where you live, where you have lived in the past, how you pay your bills, whether you've filed for bankruptcy, and whether you've been involved in a lawsuit or been arrested for any reason.
Having a good credit score is essential in getting credit and better credit terms. It will not only be easier for you to obtain credit, but you will be offered lower interest rates. Lower interest rates mean lower monthly payments and lower cost overall of the loan. Therefore, having a good credit score is desirable if you wish to finance a purchase of any kind.
To calculate your credit score, a formula is used. This formula takes into account all the information on your credit report then comes up with the numerical summary known as your credit score. The Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of the information in the files of the credit agencies. You have a right to know what information is contained in the report, but you have to request the information. Not all the information will be correct and it's your responsibility to correct any errors. You can obtain a free credit report every 12 months, but you must request it.
The credit scoring system was developed as a way for creditors to assess whether or not you are a good credit risk. It allows them to determine whether or not to lend you money, and under what terms. Your information is compared to other consumers with similar profiles to predict how credit-worthy you are; in other words, how likely you are to repay the loan according to the terms of the lender.
Credit scores can range anywhere from 300 to 850. Most people have a credit score falling between 600 and 800. Higher scores are deemed better by creditors and lenders.
There are five key factors about your credit history that make up your credit score. These factors include the way you pay your bills, the way you use your credit, the age of your credit history, the number of times you ask for credit, and the types of credit you have.
Different types of lenders and creditors look at your credit score differently to determine whether or not you are credit worthy. If you are applying for a credit card, the credit card company will pay closer attention to the part of your credit history that pertains to credit cards. An automobile lender will look at your total amount of debt versus the total amount of income you have as well as the amount of your down payment. Should you apply for a mortgage, your total credit score will be used to determine whether or not you qualify for the loan and the amount of your interest rate.
You can find out your credit score by contacting any of the three credit bureaus: Equifax, TransUnion, or Experian. The cost of the credit score will vary among the bureaus. If you plan to apply for a credit card or loan, it is useful to obtain your credit score from each of the credit bureaus so you are aware of your standing before making the application for credit. If there are errors on your report, you should take the time to resolve them. This may improve your credit score, making it easier to obtain credit and better terms for that credit.
Related Articles:
