What is a Credit Score?
The majority of people understand the basics, like how failing to make a payment will cause your score to go down, but there are a number of complexities that trip up the average consumer. If you pay your debts on time, don't carry too much debt on any one card, don't close older accounts unless absolutely necessary and only apply for new credit when you have to you will generally be in good shape. However, it is important to keep yourself informed so you can maintain credit score that accurately reflects your consumer status. Lenders use your credit in order to judge your reliability as a loan candidate. Your credit report indicates your ability to handle debt responsibility and will help banks decide if you are a desirable loan customer. A high credit score can help you lock in low APR rates or secure special deals on loans. A bad credit report may prevent you from securing loans and can damage your ability to buy a car, open a credit card or even rent a home. A history of inability to manage your credit successfully will make lenders uncomfortable about trusting you with additional funds in the future. You are entitled to a free copy of your credit report once a year, an offer you should take advantage of. When you do receive your credit report, check to ensure the figures are accurate and act quickly to correct any mistakes. This may include any clerical errors, identity theft issues or incorrect information. If your credit score is low, you should begin working on a financial rehabilitation plan, either on your own or with a certified debt counselor, to begin correcting your bad credit habits. What Makes UP a Credit Score? Your credit score is determined by an algorithm developed by the FAIR Issue Corporation (hence it's the other name of FICO score). Three corporations, called "credit bureaus", specialize in collecting and reporting on financial histories. Those three companies are Equifax, Experian and TransUnion. While, the exact formula used to calculate your credit score is a tightly guarded industry secret, these companies provide general guidelines about financial behavior that can affect your credit score. Payment History Thirty-five percent of your credit score is made up by your payment history. This includes late payments, collections, and even bankruptcies and tax liens. Each type of account will stay on your credit report a specified period of time. |