A credit score is something that will be a very important determining factor in many of your financial decisions. With a good credit scoreyou can be approved or disapproved for a loan, an insurance policy or even being approved for mortgage. It is a three digit number on your credit report and is used by lenders all over in order to predict whether or not you are a risky investment for lenders and other providers. There are several models of credit scoremethods but only one of them predominantly rules. The ruling system is the FICO score and it has been studied that almost 90% of the financial institutions present in the country use the FICO credit scorein order to make their financial decisions.
A FICO credit scorecould range from anything between 300 and 850. The higher your score the less risky you are but what you must understand here is what qualifies as a good credit score. There are three major credit bureaus – Equifax, Experian and TransUnion and any consumer is entitled to have one each from the three. However, Experian terminated its contract with FICO and hence consumers may have access to only credit scores from TransUnion and Equifax.
What determines credit score?
Your FICO credit scoremay be a combination of five major categories and here are what goes into making an appropriate credit score:
- Payment history: This includes your payment information, delinquencies (if any) as well as public records.
- Debts: The amount that you may owe on your accounts compared to the amount of credit that is available.
- Credit history: The length of your credit scorehistory and the time for which you have your accounts along with the time of account activity accounts for about 15% of the determining.
- Types of credit: This includes the different types of accounts that you have which accounts for about 10% of the factors.
- New line of credit: This makes for 10% of the determining factor and this involves your going after new credit that also involves credit inquiries in addition to the recently opened accounts.
What is a good credit score?
What a good credit scoreis depends on the kind of financial decision that you are going to make. Technically anything above 700 may be considered good and a credit scorebelow 700 but above 670 may again be considered decent. Lenders check borrowers’ score before they can determine how much interest they will be charging or for that matter if they will at all approve the borrowers for a loan. If you are looking forward to getting a good rate when you are looking for a mortgage loan you need to have good credit score and in case you do not have one then it may be your responsibility to improve it. With a credit scoreof 750 and up you could absolutely be confident of getting a great rate when you are out looking for credit.
How to raise your credit score
Raising your credit scoredefinitely needs time and some work and it totally depends on the type of financial situation you are in. You need to find out why your credit scoreis low and then work on it. Situations like bankruptcy, repossession or missed or late payments may take some time to rectify because these faults do not go away that easily from your credit reports. Again, there could be other things like an error on your credit report that brings down your credit score. This is why it is very important that you check your reports very carefully and find out if there have been any misrepresentations that need to be removed.
Author’s bio: Jonny is a financial writer who also keeps an interest in participating in financial forums. His articles have successfully helped a lot of individuals in dealing with finances just by reading the articles.