Credit Scores
A credit score, also called a FICO score, is a numerical grade given to each consumer . Your grade or score is an analysis of your
credit risk based on your credit history. Credit scores range from 300 to 900, and those with scores in the range of 640 to 700 are
considered excellent credit risks. Those with FICO scores below 500 are considered to have the highest risk of defaulting on a
loan and therefore most lenders won’t even consider them. Consumers with higher credit scores receive the best rates and
terms on credit and loans.
credit risk based on your credit history. Credit scores range from 300 to 900, and those with scores in the range of 640 to 700 are
considered excellent credit risks. Those with FICO scores below 500 are considered to have the highest risk of defaulting on a
loan and therefore most lenders won’t even consider them. Consumers with higher credit scores receive the best rates and
terms on credit and loans.
How are Credit Scores Determined
Years ago your credit score was a big secret, known only to a select few such as your mortgage and credit card companies. In 2000, Fair, Isaac Co., the major supplier of credit scoring software, announced they would begin sharing credit scores, also known as FICO scores, with consumers.
What is a credit score? A credit score is a tool used by credit grantors to determine your ability to repay your debts. The information in your credit report is compared and evaluated against tens of millions of other consumer credit reports which gives you a credit score or number ranging from 350 (highest credit risk) up to 800 (lowest credit risk). A higher score means you are less likely to make late payments or default on the credit extended to you. Your credit score will change as the information in your credit report changes over time.
Following is a short overview of the five major categories of credit information that are used in determining your credit score and guidelines for scoring higher.
What is a credit score? A credit score is a tool used by credit grantors to determine your ability to repay your debts. The information in your credit report is compared and evaluated against tens of millions of other consumer credit reports which gives you a credit score or number ranging from 350 (highest credit risk) up to 800 (lowest credit risk). A higher score means you are less likely to make late payments or default on the credit extended to you. Your credit score will change as the information in your credit report changes over time.
Following is a short overview of the five major categories of credit information that are used in determining your credit score and guidelines for scoring higher.
PAYMENT HISTORY (35 percent)
Paying your current bills on time is the single most important factor in obtaining a high credit score. This category includes credit cards like Visa and MasterCard, retail accounts, installment loans such as those for a car or education, loans from finance companies, and home mortgages. Also included in this category are matters of public record such as bankruptcies , liens, wage garnishments, and collection accounts. The key to a higher score: Pay your bills on time!
HOW MUCH DEBT YOU CARRY (30 percent)
This category considers the amount of debt you owe on your various credit accounts. If you’ve “maxed out” your available credit, this could indicate that you are over extended financially and won’t be able to make your payments on time or repay your debts completely. This category also examines how many of your accounts carry balances and how much money you’ve already repaid. Closing
accounts with a zero balance does not generally improve your score in this area. The key to a higher score: Keep your credit card balances low.
accounts with a zero balance does not generally improve your score in this area. The key to a higher score: Keep your credit card balances low.
LENGTH OF ESTABLISHED CREDIT (15 percent)
The longer you’ve had credit accounts the higher you will score in this area. The age of your oldest account and the average age of all your accounts are used in determining your score. Old accounts that have gone unused are also considered. The key to a higher score: Establish good credit and keep accounts active.
APPLICATIONS FOR NEW CREDIT (10 percent)
Opening multiple credit accounts within a short period of time represents a greater risk of becoming over extended. Each time you apply for credit an inquiry is made into your credit history and these inquiries show up in your credit report. A high number of credit inquiries will lower your score.
Some inquiries are not considered in your score. These include: requests by you for your credit report, inquiries from companies for pre-approved offers or companies that already do business with you, along with inquiries from potential employers. Some requests for credit are treated as a single inquiry especially when you are shopping for the best loan rate. The key to a higher score: Only apply for and open new credit accounts when you need them.
Some inquiries are not considered in your score. These include: requests by you for your credit report, inquiries from companies for pre-approved offers or companies that already do business with you, along with inquiries from potential employers. Some requests for credit are treated as a single inquiry especially when you are shopping for the best loan rate. The key to a higher score: Only apply for and open new credit accounts when you need them.
YOUR CREDIT MIX (10 percent)
This category examines the types of credit accounts you have and how many of each. Can a person have too many accounts? Yes and no. It really depends on whether you have an established credit history or no credit history at all. The key to a higher credit score: Open credit accounts only if you intend to use them.
Don’t despair if you have a low score or are just beginning to establish credit. Your credit score will change for better or worse depending on how well you understand and use these five keys to your advantage in planning your financial future.
Don’t despair if you have a low score or are just beginning to establish credit. Your credit score will change for better or worse depending on how well you understand and use these five keys to your advantage in planning your financial future.
Getting something on credit is something that has become a necessity for many people nowadays. After all, it isn’t everybody who can buy a house or a car outright for its cash price! To be able to purchase such high-ticket items, a person would usually apply for a loan. And people who are planning to apply for loans should always remember that having high credit scores would be in their best interest.
And it’s not only lenders who consider credit scores an important part of a consumers financial health. Insurance companies, utilities, and landlords also look at a persons' credit score to determine the rate they will charge for services they provide. Even employers sometimes consider a potential employees' personal credit information among the criteria they use in their worker selection process. Obviously then, making sure that one has a high credit score would facilitate his or her efforts to get additional credit, a roof over the head, or a job.
A persons credit score can range from between 300 and 900. A score that is above 680 would usually enable a person to get loans, such as mortgage financing, at no trouble at all and at low interest rates. A score from 621 to 679 is still generally okay, but you would probably have to pay higher interest rates. If your score is under 600, chances are creditors will not approve of the loan for which you are applying.
Your credit score is calculated by Equifax, Experian, and TransUnion – the so-called “big three” credit bureaus. Contrary to popular opinion, these three agencies use the same formula to come up with a persons credit score; it’s just that they give these scores different names. Experian calls it the Experian/Fair Isaac Risk Model; Equifax calls it the Beacon score; TransUnion dubs it the Empirica score. Sometimes, even though these agencies basically use the same formula, a person might find that he or she gets differing scores from each. This is because the information the agencies use to calculate a persons credit score may vary; it may be because one agency has more updated information, or maybe a creditor shared your data with one agency and not the other. In any case, the scores given the agencies will usually not have large discrepancies. Potential creditors will normally take the middling score and base your creditworthiness on that.
Just what are the factors that could negatively impact your personal credit score? There are several, and most of them are easy to understand – even prevent. Your history of making debt payments is an obvious factor, so is the total amount of debt that you presently have. The length of your credit history also affects credit scores; the longer your (good) history, the better. The kind of credit you have and credit accounts that you have opened in your recent history are also pertinent. However, it is not true that factors like getting a credit application turned down, your race, age, sex, level of education, or marital status affects your personal credit standing.
So if you find that your credit score could use some improvement, what are the best ways to go about it? Naturally, paying off your outstanding debts would be a good place to start. But don’t make the mistake of closing an account whose balance you have finally paid off. A credit account that is in good standing would contribute to a higher credit score.
Also, be sure to make those credit card payments and other such payments on time. A delay of a day, a week, a month can have a snowball effect; a greater amount of minimum payments to make would only make it more difficult for you to come up with the money to pay. In addition, these late payments would only worsen the appearance of your credit report. Another thing that financial experts advice to help improve your credit score is to maintain a good mix of several types of credit. These can be revolving credit cards or installment loans. Having this mix demonstrates your ability to manage credit, which will be taken positively by creditors. Just make sure that you make the payments on time and to keep a healthy balance on these accounts.
Getting and maintaining excellent credit scores are not only important in today’s world; they have also become a necessity. It’s up to each individual, in cooperation with financial institutions and services, to take the necessary steps and precautions to make sure his or her personal credit score status is seen in a favorable light.
And it’s not only lenders who consider credit scores an important part of a consumers financial health. Insurance companies, utilities, and landlords also look at a persons' credit score to determine the rate they will charge for services they provide. Even employers sometimes consider a potential employees' personal credit information among the criteria they use in their worker selection process. Obviously then, making sure that one has a high credit score would facilitate his or her efforts to get additional credit, a roof over the head, or a job.
A persons credit score can range from between 300 and 900. A score that is above 680 would usually enable a person to get loans, such as mortgage financing, at no trouble at all and at low interest rates. A score from 621 to 679 is still generally okay, but you would probably have to pay higher interest rates. If your score is under 600, chances are creditors will not approve of the loan for which you are applying.
Your credit score is calculated by Equifax, Experian, and TransUnion – the so-called “big three” credit bureaus. Contrary to popular opinion, these three agencies use the same formula to come up with a persons credit score; it’s just that they give these scores different names. Experian calls it the Experian/Fair Isaac Risk Model; Equifax calls it the Beacon score; TransUnion dubs it the Empirica score. Sometimes, even though these agencies basically use the same formula, a person might find that he or she gets differing scores from each. This is because the information the agencies use to calculate a persons credit score may vary; it may be because one agency has more updated information, or maybe a creditor shared your data with one agency and not the other. In any case, the scores given the agencies will usually not have large discrepancies. Potential creditors will normally take the middling score and base your creditworthiness on that.
Just what are the factors that could negatively impact your personal credit score? There are several, and most of them are easy to understand – even prevent. Your history of making debt payments is an obvious factor, so is the total amount of debt that you presently have. The length of your credit history also affects credit scores; the longer your (good) history, the better. The kind of credit you have and credit accounts that you have opened in your recent history are also pertinent. However, it is not true that factors like getting a credit application turned down, your race, age, sex, level of education, or marital status affects your personal credit standing.
So if you find that your credit score could use some improvement, what are the best ways to go about it? Naturally, paying off your outstanding debts would be a good place to start. But don’t make the mistake of closing an account whose balance you have finally paid off. A credit account that is in good standing would contribute to a higher credit score.
Also, be sure to make those credit card payments and other such payments on time. A delay of a day, a week, a month can have a snowball effect; a greater amount of minimum payments to make would only make it more difficult for you to come up with the money to pay. In addition, these late payments would only worsen the appearance of your credit report. Another thing that financial experts advice to help improve your credit score is to maintain a good mix of several types of credit. These can be revolving credit cards or installment loans. Having this mix demonstrates your ability to manage credit, which will be taken positively by creditors. Just make sure that you make the payments on time and to keep a healthy balance on these accounts.
Getting and maintaining excellent credit scores are not only important in today’s world; they have also become a necessity. It’s up to each individual, in cooperation with financial institutions and services, to take the necessary steps and precautions to make sure his or her personal credit score status is seen in a favorable light.
Credit Scores are the Numbers that really Matter...
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Free Credit Reports
Getting free credit reports is a crucial step in protecting your credit, but getting the report is only half of your responsibility.
Getting free credit reports is a crucial step in protecting your credit, but getting the report is only half of your responsibility.
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http://www.debtconsolidationlive.co.uk/