Your credit score ratings are based on a borrower’s financial responsibility and your ability to make payments to various creditors on time. Your credit score is a reflection of your payment history and debt management skills and all lenders will use this information to determine whether they will extend their credit facilities to you or not.
Due to the fact that your credit score ratings will have an effect on things such as your mortgage rate and the amount of interest that you pay on things such as credit cards and store cards it is important to know what is credit score? Its significance and how to read it.
You will first need to get a copy of your credit report, there are three credit reporting agencies; Equifax, Experian and TransUnion. You can find out where your credit score range lies by getting a copy of this report, and you can do this online by signing up to one of these agencies who will provide you with an instant online report. Your credit score is also referred to as your FICO score which is an abbreviation of Fair Isaac Corporation score. You will be required to pay a small fee for this information.
It is advisable to get a copy of your credit report and carefully assess it for any inaccuracies or incorrect entries before you apply for any type of credit. An incorrect entry can lead to you being refused credit therefore you should save yourself the embarrassment by rectifying this information before hand.
The website bankrate.com documents a 2004 study that found that approximately 80 percent of all credit reports contain an error.
If there is anything on your credit file that you do not agree with you can contact the credit company that made the entry by sending them a letter asking them to provide evidence that you made a late payment. The law stipulates that they have a maximum of 30 days in which to respond, if they do not respond within that time frame they must immediately remove that entrance from your report. Once this information has been rectified the credit reference agency will send you a free copy of your report reflecting your new credit score.
The worst possible credit score is 300 and the highest possible credit score is 850. Multiple late payments and continuous defaults will result in a low credit score. The majority of the population have a credit score scale that is somewhere in the middle and that is between 650 and 750; credit score ratings such as these will entitle you to lower monthly payments and low interest rates. Individuals with the highest credit score of 760 or above are not seen as a risk and are entitled to maximum benefits on all credit facilities.
If you are not happy with your credit score and wish to improve it there are a multitude of things that you can do in order to get a high credit score.
The manager of analytics for the credit reference agency Experian states that your payment history is the most important element of the creation of a good credit score. Any type of late payment history on car, mortgage, loan, credit card or store cards will automatically bar you from having a high credit score.
To increase your credit score ratings be sure to make all bill payments on time, in fact it is advised that you should pay your bills as they come do not let them pile up and rush to pay them on the due date as that is how mistakes are made payments are forgotten and you run the risk of lowering your credit score. Online facilities make it much easier for you to make instant payments.
Even if you have made late payments in the past you can make up for this by catching up with the payments and then being consistent with your payments in future.
The amount of debt that you have is also an important aspect of your credit score. A good way of giving your credit score a boost is to ensure that the balances on your revolving credit such as your credit cards are kept low and that you pay the majority of your balance each month. If you can pay all of the balance then that is even better for your credit score. This will aid in you keeping your debt ratio low and will aid in the reduction of your interest payments towards your debt.
Another element that will affect your credit score is the amount of open accounts that you have. This is one issue that can have a positive and negative effect on whether or not you will be able to attain the highest credit score. For example your credit limit will be higher depending on the amount of accounts that you have open. If your credit limit is high your debt ratio will be low which has a positive effect on your score. On the other hand whenever you apply for any type of credit facility it is reflected on your credit report which can lower your score because lenders will think that you need credit and will be less inclined to give it to you. Each time you are rejected for a credit facility your credit score is brought down.
To help you to maintain a high credit score you should have two to three cards that you use on a regular basis, do not take up offers to open new store cards any time you buy something from a shop even if they are offering you large discounts.
Do not close credit card accounts that you no longer use because this can have a negative effect on your credit history, even more so if you have had the account for a long period of time. Instead what you should do is cut the cards up so that you do not use them and pay off any balance that you owe on the cards.
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