Credit Scores

Advertisements in today’s media tout the importance of knowing one’s credit score. This information is true but incomplete but incomplete. Many consumers wonder: What is a credit score number, who assigns these numbers, and what will raise or lower my score? All these are very important questions. A debt professional is best suited to answer all financial questions for individuals; however, this article attempts to give an extremely brief overview of the credit score process.

A credit score is a three digit number representing an objective figure of your past credit history. Banks, lending institutions, and other lending entities will use your scores to assess your creditworthiness. In turn, a lending entity will base their approval or denial of a loan heavily on your credit scores. For those approved for a loan or financing plan, the interest rates and down payment requirements depend greatly on the strength, or weakness, of your credit. Companies use this process to avoid making risky loans to individuals frequently incapable or unwilling of meeting their previous financial agreements.

Credit scores develop over the course of your financial lifetime. Usually mobile phone contracts or introductory credit cards begin your credit obligations. The Fair Isaac and Company developed a standard method for calculating this number. The three main credit-reporting agencies use this standard in reporting information to consumers and businesses. The three main credit-reporting companies are Equifax, Experian, and TransUnion. These three companies use data-mining techniques to create a comprehensive credit history report on individuals and businesses. These reports can then be requested by lending institutions and other businesses.

Though the exact formula for tabulating a credit score is highly complex, certain actions guarantee lowering your score. Actions such a delinquent bill paying, accounts in arrears, credit card debt, unpaid loan balances, and large credit spending in comparison to taxable income all will lower your score. Conversely, paying bills on time, making regular credit card balance deadlines, and adhering to all other financial obligations is key to retaining a high score. A higher score means more ease in obtaining loans for mortgages, car purchases, or possibly that vacation you have wanted to take. To make this possibility a reality, controlling your accumulation of debt and current spending habits are extremely important.

Knowing your credit score is essential for things like:

• Taking out loans and mortgages
• Considering debt consolidation
• Debt management
• Refinancing
• Bankruptcy