Loading ...FREE CREDIT TIPS
Free Tips on How To Raise Your Credit Score
Tip #1: Understand where credit scores come from
If you are thing about trying to improve your credit score, then what you really need to do is to make sure that you understand what your credit score is and how it works. Without knowing this information, you will not be able to effectively improve your credit scores because you won’t be able to understand how the things you do in daily life actually affect your score.
If you do not understand how your credit score works, you will also be at the mercy of other company’s that you try to do business with or earn some type of credit. Then you will be subjected to their terms and their price, which leads to indefinite higher rates and prices then you know you really should have to be paying.
In general, your credit score is a number that lets lenders, banks and other institutions that involve credit to know how much of a credit risk you really are at that moment in time. The credit score is a number, usually between 300 and 850, that lets these agencies know how well you are paying off your debts and how much of a credit risk you are.
Now the higher your credit score, the better credit risk grade you make and the more likely you will be given credit you want, even at great rates. Scores in the low 600s and below will all to often give you trouble in finding credit, while scores of 720 and above will generally give you the best interest rates out there. However, credit scores are a lot like GPAs or SAT scores from High Schools and Colleges, while they give others a quick snapshot of how you are doing, they are interpreted by people in different ways. Some lenders put more emphasis on credit scores than others.
Now, some of these agencies will work with you if you have credit scores in the 600s, while others offer their best rates only to those people with very high scores. Some agencies will look at your entire credit report while others will accept or reject your loan application based solely on your credit score. It all depends on their prices, products they are selling and the agencies guidelines at that moment that their reps have to follow.
The credit score is based on your credit report, which contains a history of your past debts and repayments. Credit bureaus use computers and mathematical calculations to derive a credit score from the information contained in your credit report.
Each credit bureau uses different methods to do this, which is why you will have different scores with different companies, but most credit bureaus use the FICO system. FICO is an acronym for the credit score calculating software offered by Fair Isaac Corporation Company. This is by far the most used software since the Fair Isaac Corporation developed the credit score model used by many people in the financial industry and is still considered one of the leaders in the field.
In fact, credit scores are more often called FICO scores or FICO ratings, although it is important to understand that your score may be tabulated using different software.
Another thing you might want to understand about the software and mathematics that goes into your credit score is that the math used by the software is based on research and comparative mathematics. This is an important and simple concept that can help you understand how to boost your credit score. In simple terms, what this means is that your credit score is in a way calculated on the same principles as your insurance premiums.
Your insurance company likely asks you questions about your health, your lifestyle choices (eg: such as whether you are a smoker) because these bits of information can tell the insurance company how much of a risk you are and how likely you are to make large claims later on. This is widely and solely based on research and data that is compiled by these sources.
Studies have shown, for example, that smokers tend to be more prone to serious illnesses and so require more medical attention. If you are a smoker, you may face higher insurance premiums because of this.
Similarly, credit bureaus and these agencies often look at these types of general patterns. Since people with too many debts tend not to have great rates of repayment, your credit score may suffer if you have too many debts. Let me give you some examples that can help you understand this in a couple other ways.
Understanding this can help you in two ways:
1) It will let you see that your credit score is not a personal reflection of how “good” or “bad” you are with money. Rather, it is a reflection of how well lenders and companies think you will repay your bills, based on information gathered from studying other people.
2) It will let you see that if you want to improve your credit score, you need to work on becoming the sort of debtor that studies have shown tends to repay their bills. You do not have to work hard to reinvent yourself financially and you do not have to start making much more money. You just need to be a reliable to the lenders and other companies giving you this credit.. This realization alone should help make credit repair far less stressful for you and your family today.
Credit reports are put together by credit bureaus, which use information from client companies. It works like this, credit bureaus have clients, such as credit card companies and utility companies and many others, who all provide them with information for them to gather, compile and then score.
Once a file is begun on you, then the information about you is then stored on the record. If you are late paying a bill, the clients call the credit bureaus and report this. Any unpaid bills, overdue bills or other problems with credit count as “dings” on your credit report and affect your score and in some cases dramatically.
Information such as what type of debt you have, how much debt you have, how regularly you pay your bills on time, and your credit accounts are all information that is used to calculate your credit score.
Your age, sex, and income do not count towards your credit score. The actual formula used by credit bureaus to calculate credit scores is a well-kept secret, but it is known that recent account activity, debts, length of credit, unpaid accounts, and types of credit are among the things that count the most in tabulating credit scores from a credit report.
Recent Comments