Credit Overview

Your Credit Score - How to improve your credit score and avoid simple mistakes than lower it.

Sometimes people develop unfavorable credit ratings because they do not even know what goes into this powerful number. Here we will explain what a credit score is, why it is so important, and how to help your score improve.

Exactly what is your credit score?

It is a tangible indicator that lenders use to determine the amount of risk they take in financing an individual. A higher score shows to them that you are more likely to pay your debts on time.

Credit Information

Overview
Frequently Asked Questions
Detailed Information
The 4 Cs of Credit
ABC's of Credit Scoring

How is your score calculated?

You may have already heard of a Fair Isaac & Co. (FICO) score. This is the middle credit rating given to you by the three credit bureaus, Experian, Equifax, and Transunion. Each bureau has a slightly different way of calculating and analyzing their risk in investing in you, so the scores may differ substantially.

Fundamentally, each of the three bureaus considers the six Cs when it comes to determining your score. These are character, capacity, capital, contributions, collateral, and competition. Basically, when a lender loans money on credit, they want to rest assured that they can recover their initial investment and make a profit. Therefore, these guidelines help the bureaus recommend the individuals that present the lowest risks to the lending companies. JP Morgan, a successful businessman, once said, “I will do business with anyone as long as he/she is honest!”

What factors influence your score?

Each credit score is determined by many different factors. Although some are weighted heavier than others, they are all important to consider. In order of their weight, these factors are:

Payment history. How timely are your payments? If they are late, how late are they? Have you ever been turned over to collections? How recent were your late payments?
Current debt. How much do you currently owe? What types of debts do you have? How much of your total credit line is owed? What were the original loan amounts?
Credit history. How long have your accounts been open? Your score will increase the longer your accounts are open.
New credit applications and accounts. How many new applications for credit have you made? How many recent inquiries by possible lenders have been made? How many new accounts do you have?
Overall big picture. This factor goes back to the old adage, “Don’t put all your eggs in one basket.” The more spread out your inquiries and debts are over a variety of categories (i.e., mortgage loans, credit cards, auto loans, etc.), the higher your score will be.

How can you know what your credit score is?

There are various ways to check your credit score; however, you must assure that the method used returns a merged credit report. That is, each of the three credit bureaus must be included in the overall FICO score to get an accurate report. The score from one bureau can differ as much as 70 points from the score of another bureau. Also, inquiries to your credit score can lower your score anywhere between one and ten points.

How can you improve your score?

There are many things you can do to improve your credit score. A few things are as follows:

Eliminate debt on credit lines such as credit cards
Educate yourself about the principles of credit
Eliminate unnecessary consumer debt items such as large TV’s, boats, etc.

At the bottom of every financing decision is the credit score. The more you learn about your credit score and how the scoring process works, the better you will be able to manage your finances in order to maintain a high score, therefore improving your ability to receive loans and other credit lines.