Buying a vehicle, financing a home, and getting the first credit card approved are all common events that happens all over the world today. Each person’s capability to buy these items can vary from one individual to another. There are a number of different things that determine what consumers can purchase and when. Getting the best deals is not only a matter of being able to shop around and negotiate the best terms for repayment. It also about the person’s creditworthiness. So, before the buyer makes a decision to make any purchase, it is important that they are familiar with their creditworthiness, specifically as it applies to their credit score. With that being said, here is some information that people need to know about their credit score.
What is a Credit Score?
The credit score is represented as a numerical value. It reflects an individual’s ability to pay off a loan that they borrow from a lender. It is calculated using a variety of factors. People may also refer to it as the FICO score (Fair Isaac Credit Organization). The Fair Credit Organization is responsible for a wide variety of different roles including calculating these scores.
-How is the Credit Score Calculated?
You may be surprised at what you don’t know about your credit score. In many cases, people may only learn about its real importance when they are trying to purchase their first vehicle. Or when they are applying for their first credit card. In fact, if a person has not been a good steward of their credit, they may learn a very valuable and difficult lesson. They find they have completely wrecked their score by not paying their bills on time, using too many credit cards or by simply not paying their bills at all. Either way, the consumer may not really learn how their score is calculated until they find out how it affects them personally. There are numerous factors that affect its calculation. Credit scores are reported by 3 major credit bureaus and the calculations and scales are significantly different.
-Credit Score Ranges:
TransRisk Score range: 100-900
Equifax Credit Score range: 280–850
Experian National Risk Model range: 360 to 840
How to Repair and Maintain a Good Credit Score:
A good credit score usually falls within the higher ranges. Meaning on a scale of 330 to 830 people should strive to keep their score as close to 830 as possible. This typically means a guaranteed approval and low interest rates by financial institutions all over the world. On the other hand, if the score falls closer to 330, the person can also expect to receive a lot of denials or high interest rates on their credit applications. So, it is important for consumers to make sure that they are keeping their credit histories clear of problems. For instance, if the person wants to repair and maintain their credit score, they should make sure that they are doing the following:
-Keeping a low Debt to Income Ratio:
The total amount of debt due compared to the amount of money you make after taxes and expenses. Live within your means as you grow.
-Pay bills on time:
If on the rare occasion that you are late, communicate with your account representative and request that they do not post or to remove the late payment to your credit report. They will often work with you to maintain a good relationship with their clients.
-Keep Down Credit Inquiries:
“Hard” credit checks, i.e. loan application, can count against your score. “Soft” credit checks, i.e. reporting bureaus, are non-invasive to your score. Hard checks recover relatively quickly, as long as they are not too frequent. Always check when you let someone run your credit score.
-Manage your Credit Cards:
Well maintained older accounts add a positive boost to your credit score. Try to keep your balance below 30% of your card’s credit limit. Negotiate for better interest rates. Avoid variable APRs.
-Check your Credit Score:
Once per year by law, each of the credit bureaus listed above must provide you with a comprehensive credit report. There are also numerous web based credit monitoring companies that will provide monthly reports of your credit scores for a fee. Many of which will provide your first 30 day free of charge.
Keeping a good credit score does not have to be difficult if the person is familiar with what a credit score is, how it is calculated and what they can do to repair it when experiencing problems. Therefore, it is important for each individual to learn as much as they can about the main credit bureaus and how it impacts their personal situations.
It is important for each individual to learn as much as they can about the main credit bureaus, credit score, and how it impacts their personal situations.