Credit Scores Free

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.

An Average Credit Score It Is Important When Borrowing

The average credit score is the rating that the 3 major credit bureaus assign to your credit report. It is based on your borrowing and repayment habits and depends on how much money you owe and how many times you have applied for credit. If you have a low credit score, there are ways of improving it. In general, an average credit score tells creditors that you are a good risk for them to lend you money.

Computing a credit score is a scientific process that Experian, Trans Union and Equifax use and each one has its own unique system. The credit score range is between 375 and 900, with around the 600 mark being the average credit score. In order to find out what your credit score is, you need to request a free copy of your credit report. This will give you an idea of what creditors see when they do a credit check on you.

If you find that your average credit score is below 500, then you are in the lower part of the credit score range. It also means that you have to take steps toward improving credit scores. For example, if you plan to look for a loan for a new car within the next year, you should start now by making a diligent effort to pay all your bills on time. If you apply for a loan, even if you are accepted based on your earnings, every person that asks for your credit score shows up on your credit report. This deters some creditors because they think you are a compulsive borrower.

The higher your credit score, the better chance you have of being granted credit. This is why you should always know what your credit report says about you and what your average credit score is. The credit score range you fall in not only determines whether or not you get a loan, bit it also determines the interest rate you have to pay. When you understand what creditors are looking for, you can work towards improving credit scores. When your average credit score is good, you will save money in the interest rates charged on the loan.

An average credit score is fine, although you can always do better.