A persons credit score is one of the most important numbers they will ever deal with. A credit score is used by many different companies to determine the credit worthiness of a person. Almost every business a person deals with from utility companies to banks are interested in their credit score.
The credit score is based upon the things reported in the credit report. The higher the score, the better. A higher score means lower interest rates and an easier time getting lines of credit. A credit score is made up of the following information:
- 35% is based upon the persons payment history. It will be affected by making payments or not making payments.
- 30% is based upon outstanding debt. This is any debt that is yet to be paid.
- 15% is based upon the length of time the person has had an established credit history.
- 10% is based upon the inquires made into the account. This is the credit checks, basically, made for this person.
- 10% is based upon the different types of credit the person has.
A credit score is very important to understand. This score holds a lot of importance and should be a main priority. Credit is everything these days and having a bad credit score can mean difficulties even getting the simplest thing done, like getting a telephone turned on in your name.
Low credit scores can be costly. A person with a low score often finds they are charged fees and high interest rates on everything. A higher score gives a person much more freedom and allows them to save their money to pay their debts.
If you have a low credit score then you need to work to build it up. You should not apply for credit, get new lines of credit, but instead pay off debts. Work to bring down your outstanding balances and pay off old accounts. It is also smart to keep older accounts and close out newer accounts.
Doing these things will help to bring your credit score up. If you are unable to figure out how to handle debt then you should use a financial expert to help you. They can make suggests and formulate a plan to help you fix your credit.
If your credit history does become very bad then your chances of obtaining credit will be slim. Lenders will see you as a very big lending risk and will either turn your down or make you pay very large interest rates. That said, more and more lenders are starting to relax their lending criteria in order to service the very sub prime market.
Credit scores can be confusing since the actual calculations are very tedious and almost never outright explained. All a person should be concerned with is keeping their credit reports in good shape. This in turn will ensure their credit score is good.
So you need to make sure that you keep up to date with your mortgage and secured loan payments, pay off your store and credit card bills on time, don't get into more debt than you can afford, do not make too many applications for credit and try not to let your bank accounts become overdrawn.