What is A Credit Score?
What is a credit score and why does it matter? – Credit Report.com
A credit score is a number that represents your calculated measure of credit risk. These credit scores are the result of a complex mathematical formula that takes into account numerous factors in your credit history. Put simply, your credit report is scored against millions of other people's reports, generating consumer credit scores. Your score is very important because it can determine your financial future. More specifically, your credit rating can affect whether or not you can obtain
- A mortgage
- A car loan
- A credit card
- A school loan
A lender may also use your score to calculate the rate you get for a loan; the lower the scores, the higher the interest rate you'll be charged. So over time, maintaining good scores can save you lots of money. Lenders look at your report as a prediction of how likely you are to make your payments and make them on time.
In addition, potential employers may do a credit check for employment to determine whether you're financially responsible. And landlords often do a check for renters.
Factors affecting credit scores
- Your bill paying: whether you pay your bills on time, have ever been contacted by a collection agency, or whether or not you've declared bankruptcy.
- The amount of money you owe: the more money you owe, the lower your score.
- The length of your credit history: the longer you've been establishing credit, the higher your scores will be.
- The combination of your credit: the richer your variety of credit, meaning the more ways you spread out your credit (through cards, mortgages, car loans, etc.), the higher your scores become.
These scores have done a lot for borrowers. Lenders used to come up with their own criteria for calculating interest rates - now borrowers with good credit (and therefore, good scores) get rewarded for financial responsibility with lower interest rates.
Credit Score Ranges
Most scores range from 300 to 900, with the majority of people in the 600 to 800 range. To get the most favorable interest rates, you'll need a score of 720 or higher. In terms of interest rates, on average, a person with a credit score of 520 will get interest rates on loans that are three to four percentage points higher than rates given to a person with a score of 720.
Factors that can damage your credit report include late payments, an absence of credit references, and unfavorable credit card use.
The first step to improving your score is finding out what it is. Then you can take the necessary steps toward a better score.
For more information on how to check your credit report, or how to instantly get your 3 in 1 report, FREE credit scores, and identity theft insurance, go to www.CreditReport.com now!