Credit score is a 3 digit number that indicates your ability to repay a loan. It is calculated statistically and is based on your credit history. It reflects your creditworthiness or your past and future ability to repay debts. When your credit score is calculated, your income, liabilities and expenses to repay the loan are taken into account.
Why is a credit score important to you?
Your credit score helps lenders to objectively measure your overall credit risk. Your credit score is specific and gives your creditors a fair knowledge of your credit situation. Scores can be viewed by your lenders easily and this allows your lenders to speed up the loan approvals. With your credit score, your lender can approve your loan much faster. Scoring enables the lender to take faster credit decisions.
Where can you find your credit score?
Credit scores appear in your credit report, which is a file that contains all your borrowing details. Your credit report is generated by a consumer reporting company. The 3 main credit reporting agencies (CRAs) in the US are Experian, Equifax and TransUnion who calculate your credit score. These companies use the Fair Isaac Corporation (FICO) accredited credit score model to rate your borrowing credibility. Although you would have one FICO score, there might be variations in the way a CRA calculates your score as opposed to another. This happens because not all of your creditors report to one CRA at a time.
5 Factors affecting your credit score
Your scores are calculated based on certain criteria given in your credit report. These include:
Types of the credit used: The kinds of loans you have taken and whether they are on various accounts like credit cards, installment loans, mortgage loans, etc.
Amounts owed: This includes the total amount you owe to your lenders on different accounts.
Payment History: This includes the past payments for all types of accounts like credit cards, retail accounts, etc. It also includes the time taken to pay your debts, the debts you have not been able to pay till date and the last record of any delinquency.
Length of credit history: This includes the time since a debt account was opened in your name and how long have you been paying off a certain debt.
New credit: This includes the number of new accounts you have opened and how often you apply for a new loan.
What is a good score?
If you have a credit score that is above 700, it is considered to be a good score. You have a higher chance of paying back your debt. When you have a good score, your lenders charge you a lower rate of interest.
In fact, a higher score always betters your chances of getting a new loan.
5 ways to improve your credit score
If you have a bad credit situation, you should improve your credit score. You need not worry too much. Just follow 5 easy steps and you can easily increase your credit score. These are:
1. Make timely payments on your outstanding debts.
2. Review your credit report from time to time and consult your CRA for necessary changes.
3. Do not open new credit card accounts if you want to go for big loans like mortgage.
4. Try to reduce your credit card balances to just 25% of your available credit amount.
5. Always aim at paying your debts on time. Timely pay is a small step that can boost your credit score any day.
Your credit score is important to you. It determines a number of important things in your life. Your score decides whether a creditor will give you a loan and how much a loan might cost you. Your score allows creditors to predict whether you will be able to pay your monthly payments on time. Always ensure that your credit score reflects the changes in your credit report. Try not to disclose your credit score to all collection agencies, unless it’s inevitable. You must always seek help if you have a trouble to pay off your debts. Consult a credit counselor and go for debt relief measures. This may not boost your score in the short run, but over a period of time the results will show.
Why is a credit score important to you?
Your credit score helps lenders to objectively measure your overall credit risk. Your credit score is specific and gives your creditors a fair knowledge of your credit situation. Scores can be viewed by your lenders easily and this allows your lenders to speed up the loan approvals. With your credit score, your lender can approve your loan much faster. Scoring enables the lender to take faster credit decisions.
Where can you find your credit score?
Credit scores appear in your credit report, which is a file that contains all your borrowing details. Your credit report is generated by a consumer reporting company. The 3 main credit reporting agencies (CRAs) in the US are Experian, Equifax and TransUnion who calculate your credit score. These companies use the Fair Isaac Corporation (FICO) accredited credit score model to rate your borrowing credibility. Although you would have one FICO score, there might be variations in the way a CRA calculates your score as opposed to another. This happens because not all of your creditors report to one CRA at a time.
5 Factors affecting your credit score
Your scores are calculated based on certain criteria given in your credit report. These include:
Types of the credit used: The kinds of loans you have taken and whether they are on various accounts like credit cards, installment loans, mortgage loans, etc.
Amounts owed: This includes the total amount you owe to your lenders on different accounts.
Payment History: This includes the past payments for all types of accounts like credit cards, retail accounts, etc. It also includes the time taken to pay your debts, the debts you have not been able to pay till date and the last record of any delinquency.
Length of credit history: This includes the time since a debt account was opened in your name and how long have you been paying off a certain debt.
New credit: This includes the number of new accounts you have opened and how often you apply for a new loan.
What is a good score?
If you have a credit score that is above 700, it is considered to be a good score. You have a higher chance of paying back your debt. When you have a good score, your lenders charge you a lower rate of interest.
In fact, a higher score always betters your chances of getting a new loan.
5 ways to improve your credit score
If you have a bad credit situation, you should improve your credit score. You need not worry too much. Just follow 5 easy steps and you can easily increase your credit score. These are:
1. Make timely payments on your outstanding debts.
2. Review your credit report from time to time and consult your CRA for necessary changes.
3. Do not open new credit card accounts if you want to go for big loans like mortgage.
4. Try to reduce your credit card balances to just 25% of your available credit amount.
5. Always aim at paying your debts on time. Timely pay is a small step that can boost your credit score any day.
Your credit score is important to you. It determines a number of important things in your life. Your score decides whether a creditor will give you a loan and how much a loan might cost you. Your score allows creditors to predict whether you will be able to pay your monthly payments on time. Always ensure that your credit score reflects the changes in your credit report. Try not to disclose your credit score to all collection agencies, unless it’s inevitable. You must always seek help if you have a trouble to pay off your debts. Consult a credit counselor and go for debt relief measures. This may not boost your score in the short run, but over a period of time the results will show.
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