Lenders want to calculate the risk that they take when they lend you money. This is where credit score comes in. This score is calculated based on the history of your payments, the credit amount, the length of time of the credit history, new credit opened and the type of credit. The three major credit bureaus that review your credit reputation are Experian, TransUnion, and Equifax. You will be rated based on your performance in paying your debts.

Your rating changes from time to time as you improve your promptness in paying your financial obligations. The scores you get from these bureaus are often called FICO scores. To calculate your score, at least one credit account is updated in the past six months. The transactions that transpired within this range are considered to be the most recent activity of your account with which to base the review.

Importance

Your credit rating is a major deciding factor for lenders if you are worthy to be granted new credit. It determines how much you can loan, what the loan terms are, the interest rates, the period of time you will be paying the loan, etc. A good rating gives you a higher chance of approval with lenders. It can get you a higher loanable amount, better interest rates and a better chance at negotiating your loan terms.

Uses of the Credit Score

Basically, anything that involves money is likely going to make use of your credit rating. If you want to apply for a loan or a credit card, financial institutions will dig up your credit history and your credibility as a borrower is reflected in a score. A high mark indicates that you are a good payer. People with good scores get better deals than those with low scores. If you rent an apartment or get connected to a service, your score will play a major role in the success of your application. Even applying for a job that deals with money takes your credit rating into account. For existing credit card holders, the issuing bank looks into your score before they increase your credit line. Car dealers also consider your credit rating when you are buying a car or before they can allow you to have a car loan as an option for you.

How to improve

Improving your credit score entails a lot of commitment on your part. You need to be prompt with your payments. If you encounter problems that affect your ability to pay; if you lost your job, for example, call your bank or lender and try to negotiate more lenient terms until you find a job or a new source of income. Financial institutions are very much willing to help borrowers who are struggling to pay their debts. Inform them the current status of your finances so that they can advise you about any available options you can have. This shows that you are interested in paying out your debt and have no plans of running away from your obligations.

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Category: Finances
Keywords: credit score,credit rating,credit score basically