Credit Score is a 3-digit number that helps judge your creditworthiness; the higher the score, the better for you. It is usually used by lenders, credit card companies and finance companies, when you apply for a loan. Normally, credit score is represented in between 300 and 850. Your chance of getting better interest rates on your credit increases, if your credit score is above 700.
FICO: Well known credit score model
FICO (Fair Isaac Corporation) is a publicly traded corporation, which has created the best known credit score model, and it is widely used. Your credit score is calculated statistically on the basis of the information from your credit files.
There are primarily 3 credit reporting agencies in US, namely Experian, Equifax and TransUnion. Equifax and TransUnion calculate your credit score on the basis of FICO model and you can view your FICO score from them. Though Experian also uses FICO model to calculate your credit score, yet you will not be able to access it. Experian has stopped this service from February 2009. However, your lenders will be able to know about your FICO score from Experian.
You should value your credit score as it determines a number of important things in your life. The score decides how much a loan will cost you when you apply for a mortgage or other loans. The department and electronic stores will also offer credit based on your credit report. By the help of your credit score, the lenders try to assume how likely you will repay a loan amount. They also try to predict whether you will be able to make the monthly payments on time or not.
Factors affecting your credit score
Your credit score gets affected by a number of factors, which are discussed in the following lines.
- Your financial situation
• The history of your loan repayment
• Different types of your credit in use
• The amount of your outstanding debts
• Credit you have recently applied for
Raise your credit score
Don’t worry if you are not satisfied with your present credit score. You can improve it by following some measures, which are discussed below.
- Always keep the documents of all your closed credit accounts; you might need them in future.
2. Try to pay your bills always on time.
3. Always review your credit report and consult credit bureau for necessary corrections, if required.
4. It is preferable to reduce your credit card balances to 25% of your available credit amount.
5. Don’t open any new credit card account before applying for a big loan, like mortgage.
6. Stop anyone making an enquiry about your credit score, unless it is inevitable.
Your credit score is not fixed and it gets altered with the changes in your credit report. Therefore, you should check your credit score at regular intervals to know about it and to improve it if required.
You can take the help of credit monitoring services and credit reporting agencies to know about your score.