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Credit Score

Most of us know what a free credit report is, but what is a credit score and how does it affect your life? Well, a credit score is the number that potential lenders use to calculate your credit worthiness. It is a statistically based numerical result which can be used to determine the likelihood of bankruptcy or the borrower’s ability to pay off his loan successfully.

How it works is that information from your credit report is entered into a special computer which is then automatically assigns negative and positive points to the information therein. For examples, regular, on time, monthly payments are positive, while maximum credit card charges are negative.

Once all these points have been assigned, the computer adds them up to give you a credit score. Credit scores are generally very reliable so lending institutions use them in order to determine a persons credit worthiness. The final decision, however, is up to the lender.

FICO is the most commonly used scoring system. Initially, people were banned from ever seeing their FICO scores. They were also not allowed to know how that score was obtained. But times have changed and you are now able to find out your score by going to see your loan officer or going on to the internet.

Once you have determined what your credit score is and how you got that score, you can set about striving to improve it. When doing so, however, you need to keep in mind that it will take some time for good actions to show on your record since the system is based on your general behavior with regards to using credit over a period of time. At the very least, you should be willing to wait a year before seeing any real improvements.

Take definite and firm actions to increase your credit score – such as closing unnecessary accounts or paying off your credit cards. And while you are not expected to be debt free, you will need to make sure that the debt you have incurred stays at a reasonable level.

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