All About Credit Scores

What is a Credit Score?

A credit score is a complex mathematical number generated that represents your estimated measure of credit risk. Typically the higher the score, the less risk the person asking for credit. Credit scores take into account numerous factors in your credit history and generated at the time a creditor requests your credit report. Your credit score is usually generated every time a credit report is ordered and is included with the credit report to be used by creditors. Your credit score is number that changes as the information in your credit report changes. Your credit score can change daily as payments update, a new account is added or if an account is paid off all these factors could cause your score to change. Your credit score is very important because it determines your financial future. A credit score is used by a creditor to help determine whether a person qualifies for a credit card or loan. More specifically, your credit rating can affect whether or not you can obtain new credit.

Why and how is credit scores used?

Most companies use your credit score to approve you and to calculate the rate they will offer to you for a credit card or loan. The higher your credit score, the lower the interest rate you will be probably charged. The lower your credit score, probably the higher the interest rate you will be charged. Important to remember a good credit score can save you a lot of money. Many creditors look at your credit score report as a measure of how likely you will make your payments on time. Credit scores help creditors assess risk because they are consistent and objective so all consumers within credit score ranges will get the same offer.

Before credit scores a creditor might have denied credit based on a subjective judgment by an underwriter it was not consistent because human judgment was prone to mistakes and could be bias. Lenders used underwriters to make a decision about an applicant that may have had little bearing or no bearing on the applicant's ability to repay debt. Now all consumers benefit from the credit score system. No matter who you are your credit score reflects your likelihood to repay debt responsibly based on your past credit history and current credit status.

Who uses credit scores and how are they used?

Most banks, credit card issuers, auto lenders and retail stores use credit scores to quickly summarize a consumer's credit to decide to issue credit or approve a loan. This system saves the need to manually underwrite or review an applicant's credit report to approve or deny the application. This also provides a faster and more predictable credit decision. There are many additional factors used in determining the issuance of credit. The creditors also take into consideration the applicant's income and ability to repay the credit card or loan they applied for before credit issued. But remember that a credit score is a very important indicator of the applicant's ability to repay and one's creditworthiness.

What impacts your credit score?

The following information is all factors that impacts a persons credit score and will vary depending on the information used to determine the credit score. But generally credit scores are affected by the followings elements in your credit report:

Credit Type, number of accounts and age of accounts Total amount of debt on your credit report Amount of Credit balances to credit limits issued Amount of credit accounts that are in good standing Number of late payments and severity of late payments Number of recent credit inquiries What is the credit score range? Credit scores range from the lowest credit score of 350 to the highest credit score of 850. The higher credit score number represents the consumer's ability to repay the credit issued.

How do credit scores affect consumers?

Credit scores are calculated from information in your credit file such as total debt, amount of debt to available credit, types of accounts, number of late payments, age of accounts, and number of inquiries. Credit scores give creditors a subjective rating of the consumer's ability and creditworthiness. The most important factor that creditors consider is your credit score and credit rating when deciding whether to issue and extend you credit. Important Credit Information!

It's important to know that your credit score may change weekly as your credit changes. You can get a different score from week to week because the information in your credit file is constantly changing. So it's very important to know that the credit score you have today may not be the same credit score next week. Your credit score may go up or down depending on your status.

Also the calculation and use of credit scores cannot use demographics to calculate your credit score. It is prohibited under the Equal Credit Opportunity Act, such as race, color, religion, national origin, gender, age, marital status, receipt of public assistance, or exercise of rights under the Consumer Credit Protection Act. Scores used by individual creditors may use other elements such as income, occupation or other factors in determining their own credit decisions.

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