Monday, March 10, 2008
How Credit Scoring Works
The all important credit score! It determines the amount of loan you can get, it determines the interest rate at which you are charged for a loan, etc. Your credit score plays an important figure in your financial life. So what goes into making that all important score of yours? How does it increase, how does it decrease and what are the factors that go into its calculation?
Your credit score is a number that reflects on the likelihood at which you will pay back a loan. Scores range from 350 (high risk) to 950 (low risk). Credit scores do not take into consideration your income, how much savings you have or demographic factors such as gender, race or nationality. Your credit score is affected by your current debt level, your past delinquencies, your credit history and how many times your credit report is pulled up by various agencies. Your score considers both positive and negative information in your credit report. For instance, recorded late payments will lower your credit score while a good track record of making payments on time will raise your credit score. Timely payment of your bills is important to ensure you maintain a good credit score. The amount of balance you have left on your credit card, how many credit card accounts you hold and your use of revolving credit also affect your credit score to a great extent.
Your credit score and credit report is formed on the basis of your credit history and you need to have at least one account which has been open or updated in the past six months to get a credit score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.
All in all, if you can pay for all your debts in a timely and consistent manner and not take more debt than you can handle, your credit score shouldnt be able to trouble you in life. So take care and be wise with your finances.
Sameer S Panjwani is the CEO and Founder of ChoiceOfHomes.com - A Real Estate Portal for Home Buying, Selling and Renting. Website url: http://www.choiceofhomes.com
Simple Credit Techniques Help Raise Your FICO
We all want good credit. With good credit you get better interest rates, more opportunities, a better house, or car and so much more. But is it hard to get good credit? Not at all. It takes a bit of common sense and some discipline with your money and credit cards.
Before we get to talking about how to raise your credit score, lets talk about what a credit score exactly is, and it is used. Known in the industry as the Fico score, it is a scale used by lenders that determines the risk of a borrower defaulting on their financial obligation. That`s the good news, the definition is easy to find, the bad news, no one, except Fico, knows the algorithm used to determine your score. However, professionals have determined certain steps you should follow in order to get your score raised, and this has been determined from their years of experience. We will get to that in a moment.
One question you hear is, is credit a bad thing. Although when used wisely it is not, those who do not have the self discipline should limit themselves to one card with a small limit on it, and stay away from cards that offer no limit, but need to be paid in full each month. Jillian Mincer reported in the Wall Street Journal that, "there is an impact of the U.S. credit market crisis based on credit score." That is how important your credit score is.
So you run up a few cards, pay some of them late, your score tumbles, but what do you care, you already own a house or that car etc., so you could care less. Not so says Mincer, who says that your credit score can affect potential employment, insurance rates and more. Mincer claims, "A low credit score could cost additional finance charges and could prevent access to credit and insurance and even affect employment prospects." Apparently some companies frown on individuals who have bad credit, because they may have to work an additional job which in turn may lead to being tired more often, additional stress and so on.
Do not blink now, a report in the Wall Street Journal suggests that consumers need an even higher credit score than they did in the spring 2007 to get the best interest rates on loans. Banks and financial institutions are clamping down on who they lend their money to.
So what is the solution? It is a lot more simple than you think. Consumers can raise their credit scores by paying bills on time, not maxing out your credit card or cards in the case of some consumers and paying off debt in full.
You will want to talk to your tax advisor to see if consolidating is the way to go. One thing is for sure, if you do not have the self control of not spending, all experts agree, cut your cards up, limit yourself to one card for emergencies and cancel the others.
About the Author:
Michael C. Podlesny is the Managing Director of http://www.Indocquent.com . http://www.Indocquent.com is an online resource that allows lending and credit issuing financial institutions to post their products and services for sale in 20,000 cities throughout 200 countries around the world free of charge.
