What is a credit score ? A credit score is a number that lenders use to help them predict how a loan will be repaid. Credit scores are also called risk scores because they help lenders predict the risk of making a loan. Credit scores range from 365 to 840, with the higher scores being more favorable.
How to Determine if You Have a Good Credit Score
Whenever you think of and finance or borrowing you need to present all your till date financial details. These details are analyzed to determine whether you have a standing in the market and are worth even giving a finance. They check you for value; that is if you are granted a loan what are the chances that you will repay the loan The analysts prepare a report and judges you buy this report and your credit scores mainly. This term is crucial when you of credit, credit repair or sources, this term is checked and analyzed for making a summary for your financial stability. Here is some factors to help you understand what a good credit score is.
Factor will help you know how your total score is made up:
– Payment history determines the 35% of your total score. Regular payment of bills,including minor ones like parking fines, library fines, etc. all this has to be cleared and paid on time.
– The next 30% of this score depends on your debt. Whatever you owe and how much is available balance in comparison to your loan was taken, etc.
– The next 15% is based on you account history, how many accounts you have had and how many are active, your transactions in this account, etc. Have few accounts that have been active since long, to get a better score
– Next 10 % depends upon your recently opened accounts, your current interaction with the lenders, etc. If you have been looking around for finance and seeking help from many lenders, it will hamper your score.
– Last 10% depends on the type of your borrowings. If you have mortgage loans, then it shows that you can repay a fixed amount every month. But if you have something like a credit card, it means that there is no fixed surety of payment. This gain hampers the score.
Understand these factors so that you can maintain a good credit score and also understand your credit repair methods. This will help you have a good score always and never face any difficulty in getting credit.
How To Get A Better Credit Score
It’s important to understand how exactly your credit score is calculated to get a better one.
Available Credit To Debt
This is where all the debt you have is going to be looked at. It will include any: credit cards, car loans, student loans, personal loans.It also is going to look at your available credit; this is money that you have available to borrow but is not using. For example, available money to spend on your credit card would be available credit.
This factor weighs roughly 30% in your total score calculation. To improve this, you should strive to show more available credit. Many individuals have large sums of debt, and this won’t be looked at quite as much of your available credit. By showing the money that you have available to borrow, you are showing that you are in a secure financial position. If not, your credit cards would all be maxed out.
This is the most important factor in your FICO rating and is roughly 40% of your overall score. This is where all the negative items on your credit report are counted and all the positive items. It is important to build positive marks if you’re working to fix your credit score however if you continue to have negative items it will be very difficult to obtain a good score.
The negative items are what is damaging your score and must be removed. You can remove these by filing a dispute with the credit bureaus; you may also be able to settle with a debt collector and in exchange have them stop reporting the item to the bureaus.
This is the number of times your credit gets checked. If you have an exorbitant number of credit inquiries, then it is going to appear that you’re trying to finance a lot of purchases. Try to limit the frequency in which your credit gets checked; the bureaus do realize that it will sometimes be checked just in the course of everyday life. This is going to be roughly 10% of your FICO score.
Length Of Accounts
This is going to examine how long you’ve been using credit and how old each account is. It also is about 10% of your score, and you should try to keep long open good relationships with your lenders.
Types Of Accounts
The idea behind this is the more diverse accounts you have or different accounts, the better risk for a lender you will be. This is only 10% of years overall score, and we wouldn’t suggest you to worry much about improving this area.
Instead, focus your efforts on your payment history and available credit to debt ratio. These two pieces of information are almost 70% of your entire score, and if you can show responsibility in these areas, then you’re almost guaranteed a good credit score.
You don’t just have to live with bad credit; your federal government has to give you the right to remove negative marks from your credit report. Removing bad credit items from your history has been shown to be the most efficient method of getting better credit.
The Benefits of a Good Credit Score
Lower Interest Rates
When you first provide your information for your credit card application, your respective bank will offer you an interest rate that is based on previous credit scores. Interest rates are one of the factors that influence your monthly repayments, and a bad credit score can result in hefty rates which contribute to an even larger monthly repayment. However, a good credit score can encourage your bank to offer you lower interest rates on your monthly repayments. Not only will this eliminate the added pressure of an extra fee, but it will also assist you in ensuring the timely repayment of any debt.
Higher Chance of Loan Approval
There comes a time when everyone aspires to own their home, send their children to university or pay for a once-in-a-lifetime holiday. Few people can afford to turn these dreams into reality without financial assistance. However, for the rest of us, with the help of a personal or home loan, these goals and aspirations are quite plausible. A good credit score will yield a higher chance of loan approval while a negative score leads the bank to believe that you’re not reliable. Keep your future in mind and opt to pay off your credit card debt.
Approval on Higher Credit Limits
Did you know that your borrowing capacity is based on your income as well as on your ability to repay the debt that is owed to your financial service provider? If you can repay your credit card debt promptly, it is possible that your bank will increase your credit limit. It is important to treat this increase as an appointed fund for emergencies or ‘rainy days’. Otherwise, you might just get yourself into a trap and erase your existing credit score.