WHAT DOES MY CREDIT SCORE MEAN?
A Credit Report gives all of the details about your financial history, payment records, total debt and any bankruptcies. A credit score is basically a number typically between 300 to 900, with most people falling somewhere between 600 and 700, based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person, which is the likelihood that the person will pay his or her bills.
The higher your credit score, the more appealing you are to a lender, and the more likely they will offer you good rates and loan terms. Lenders such as banks and credit card companies, use credit scores to evaluate the potential risk posed by lending money to consumers and to mitigate losses due to bad debt. Lenders use credit scores to determine which person will qualify for the loan, at what interest rate and also to determine his credit limits. In The United States, FICO is the most widely used score, which is used in the mortgage industry. There are many other scores such as Next Gen, Vantage Score and the CE Score.
The Credit Scores are designed to measure the risk of default by taking into account various factors in a person's financial history. The exact formula for calculating credit scores is still a closely guarded secret, but it largely depends upon the factors such as punctuality of payment in the past, length of credit history, types of credit used (installment, revolving, consumer finance), recent search for credit and/or amount of credit obtained recently etc. These factors are provided by Fair Isaac Corporation.
Current income and employment history does not influence the FICO score, but they are weighed when applying for credit. For instance, an unemployed individual with no other source of income will not usually be approved for a home mortgage, regardless of his or her FICO score. If you know you will be applying for a mortgage in the near future, it is wise to request a copy of your own credit report in order to look at it before the lenders do. It is roughly estimated that 80% of the credit reports contain errors so you should always correct them before you apply for a loan, as well as take basic steps to improve your credit scores. It is advisable that you must always look for credit card/cards which you are not using anymore and close these accounts. Resolve any outstanding accounts, verify all listed account numbers to make sure they are yours, and check your loan balances and late payments. You may be required to explain these to lenders. To improve your credit score, pay all your bills on time and reduce your outstanding credit amount.
|
