Credit Scores Free

Credit Scores: What’s It About and What Makes a Good Credit Score?

Imagine yourself applying for a car loan, you have the money and you have the right job to pay the loan back before the due date. However, even if you have the right job and the money for it, you still haven’t been approved for the loan. This will make you wonder why.

In the United States, having money and having a high salary isn’t everything. You have to consider one important thing that will have significant impact in your daily life. This important thing is used by creditors, such as banks and credit card companies to determine if you will likely pay back what you borrowed from them. This important thing is called the credit score or your credit rating.

If you were delinquent in paying your bills or loans in the past, you should expect to have a low credit score. Everything about your credit history will determine if you will get a high credit score or not. This is why it is important for you to settle those bills or loans on time in order to avoid getting a negative credit report from the creditors you borrowed money from.

For example, if it took you a long time to pay for your credit card bills, the credit card company will issue a report to credit reporting agencies that will state that you haven’t been paying your bills on time, or you still have a debt to pay to their company. This will result in lowering your credit score.

You have to realize the fact that credit scores are very important in today’s society. Even phone companies are now taking a look of their future subscriber’s credit score to determine if they will likely pay the monthly phone bills or not. With a bad credit score, just simply getting a phone line hooked up in your house can be a difficult thing to do.

Lenders, such as banks and credit card companies also takes a look at your credit score to determine if you will be approved for the loan or the credit card or not. Having a high credit score will open a lot of credit opportunities for you. People with high credit score have a much easier time when applying for a low interest credit card and also for a low interest loans. This is because creditors are sure that they will likely pay their debts on time.

FICO or Fair Isaac Corporation is the widely used company in terms of calculating your credit score. The FICO score ranges from 300 to 850. The higher your score is, the easier you can have access to low interest loans and credit cards. In the United States, a FICO score of 725.660 is considered as a break point for credit worthiness. Having this number on your credit score is just the starting number on your way to become a credit worthy person.

In order to get higher numbers, you should pay all your debts in time. What this means is that whatever loans or bills you have lying around in your home, you have to pay it in order to gain points in your credit score. If you dont, then your credit score will continue to decline and will also leave you in a far greater amount of debt.

Always remember that having a good credit score is a must. If you have a 725 credit score, you are well on your way to become a credit worthy person. Increase your score and gain access to the best loan and credit card deals possible.

Whether you are applying for a credit card, a car loan, or a mortgage, one of the first things that lenders will look into is your credit score.

What is a credit score?

This is a whole bunch of numbers arrived at by calculating such factors as:

* Payment history
* Amounts owed
* Length of credit history
* New credit
* Types of credit used

Credit scores are released by the three credit bureaus Experian, Equifax, and Trans Union each of which provide different scores, based on different factors and credit rating systems. As such, each person actually has more than one credit score.

How important is your credit score?

When lenders let you borrow money, this actually translates to an investment on their part. They collect from the interest as well as the principal. However, like all investments, lending money involves certain kinds of risk. For instance, a borrower may miss out on his monthly obligations, or he may file for bankruptcy. If either of this happens, the lender will have lost in his investment.

So to minimize the risk of loss, lenders want to know as early as possible whether you are a good investment or not that is, whether you are a good borrower who pays his monthly obligations regularly. One way for a lender to determine the likelihood of a borrower to repay his obligation is to get a hold of his credit score.

The credit score released by any of the three credit bureaus reflects how good an investment you are. Each score is based on information that the credit bureaus keep on file about you. Based on such score, the lenders will be able to calculate how much and what loan terms (interest rates, down payments, etc.) they will offer you at any given time.

Thus, low credit scores generally mean higher interest rates and more stringent requirements for approval of your loan application. On the other hand, high credit scores generally mean lower interest rates and lower monthly repayments.

Is credit scoring really necessary?

There are many instances where the importance of credit scoring is stressed. For one, the availability of credit scores helps people get loans faster. Since scores can be delivered quickly, lenders can then approve loans faster.

Another advantage to having the credit scoring system is that decisions involving credits are fairer. Lenders can now base their decisions on facts, not on personal feelings or factors like gender, race, religion, nationality, and marital status, thus reducing discrimination in credit approval processes.

Since lenders can now approve loans faster, this translates to more credit available. The less time it takes them to mull through each loan application means more loans getting approved, since credit scores gives them more precise information on which to base their decisions.

Your credit score will tell lenders how likely you are going to pay your bills. As such, the credit score becomes their basis whether they should approve your credit application or not. That is why it is extremely important that you keep tabs of your credit score scales. The better your score, the higher chance you have of getting approved for a loan and the better interest rates the lender is willing to offer. Whereas, the lower your score, the more likely you wont get approved for a loan.

How are Credit Score Scales Calculated?

Credit score scales are calculated through a complex mathematical algorithm using factors generally involved in making credit decisions. These factors include payment history, credit history, credit available, existing or current debts, bankruptcies if any, among others.

Who Evaluates Your Credit?

The top three credit bureaus that report credit score scales to banks and other lending institutions are Experian, Equifax, and Trans Union. All three are private companies that assign value to your credit rating based on information found in your credit report. The factors used to calculate the scores are basically the same. However, since these companies use their own unique system of credit score scales, your credit scores and reports may vary from company to company.

Moreover, some lenders do not rely solely on the credit score scales released by these three credit bureaus. They may have their own system of analyzing future credit performance that affect how they are going to approve your credit application with them.

The First Credit Score Scale

Regardless, the most common credit score scale system used (and the first ever) by credit reporting agencies is the FICO score, developed by Fair Isaac Corp. The FICO score has a credit score scale of 300-850 with 720 and above considered as good scores meaning, credit worthy. However, this does not mean that those who are scoring below 720 have no chance of getting credit, since lenders may still approve credits even if the applicants have low credit scores.

Why Credit Score Scales are Important

Credit score scales make it easier for lenders to make fast decisions concerning loan approvals. Since the scores represent the most precise information they need, they can make accurate decisions based on these scores much faster.

Faster loan approval process benefits the consumer. Because lenders will spend less time mulling over one application, they can accept more applications for credits and approve more people. Of course, your chances of getting approved for a loan or a mortgage are dependent on whether you have a good credit score scale. Many lenders will charge higher interest rates if your credit score is lower than average.

Avoid Credit Repair How to Keep your Nose Clean (and your Credit History too!)

Being smack in the middle of an attempt to repair a credit report isnt really a fun place to be. Fixing past credit problems takes time and dedication, and in some cases a complete change in how money is handled. This whole headache can be avoided by simply not allowing credit to spiral out of control in the first place.

There are lots of things that can harm a credit score. One of the most common negative items on credit reports are late payments. A person can have a squeaky-clean credit report and then miss one payment, and suddenly that credit report isnt so squeaky clean anymore. Being thirty days late on a bill, no matter what the reason, will show up on a credit report and drop the credit score down a few points. The notation of the late payment, by the way, doesnt disappear when the account is brought to current status. The history of that one late payment will haunt the credit report for years to come.

If so much fuss is caused by a single late payment it is easy to guess what multiple late payments will do. With every instance of a late payment, the credit score falls lower and lower. When a creditor looks at a credit report they can usually get a good feel for the persons likelihood of staying current with payments. The creditor will probably brush off the instance above with the singular late payment if its the only instance in an otherwise perfect report. Many late payments, especially those occurring at different times, will send a red flag to the creditor that this particular consumer isnt a safe bet. If creditors dont see an applicant as a safe bet then the consumer will not be offered the best interest rates available.

It isnt difficult to keep a credit report clean if you understand what items are seen as derogatory. Late payments are notated in varying degrees, depending upon the lateness of the payment. When a creditor looks at a credit report they can see if a bill was thirty days late or rather ninety days lateand there is a big difference. A single delinquency of thirty days suggests that the consumer simply forgot to pay the bill that month, but a few ninety-day delinquencies suggest a problem paying bills consistently. What is the moral of this story? Pay your bills on time, every single month. With all the bill-paying software available nowadays there really is no reason to allow forgetfulness to ruin your credit rating.

More is not necessarily better when it comes to credit lines. It is good to have a couple of open and active credit accounts to show prompt payment, but if a consumer has multiple credit cards open this puts up a red flag. Even if the cards have zero balances, the fact that there is available credit tips off the creditors that even though no money is owed on these balances right now, that may well change next week or the week after, affecting the consumers ability to pay. If all the credit cards are maxed out it is equally detrimental, if not more so. From a credit standpoint, it is best to carry only a couple of cards and to pay the balance off every month. If paying off the balance isnt feasible, then prompt payments are a must.

One other item, which many consumers dont realize is affecting their credit rating, is the number of inquiries on the report. Inquiries are notations at the end of the report, which list the creditors who have, by the request of the consumer, taken a look at the credit report. Every single time a person requests a line of credit, an inquiry is noted on the credit report. This list tells creditors a lot about the future spending habits of a customer. If the inquiry list is full of recent department store inquiries, a creditor may see this as a warning sign that the consumer is getting ready to wrack up some major debt. So think twice before filling out an application for credit. Rest assured that almost every financial move you make is notated somewhere, and can come back to haunt you if not managed well.