Credit Scores

Credit scores are calculations that take into account your financial history and your current status in order to offer lenders and other financial institutions an overview of your financial health.

 

 

 

 

A good credit score can help you to obtain loans and other financial aid, while a poor credit score can have a terrible impact on your ability to get much-needed financial assistance. Lenders will review this score as a starting point to considering your risk factors as a borrower.

When talking about your credit history, financial institutions are reviewing your capacity and history of repaying debt. If you have borrowed money in the past. This borrower money would include anything from a home mortgage to using a credit card to buy new clothes to student loans and more. Understanding how your history can impact your future of lending is vital to getting out of debt or to trying to build good credit.

About the Credit Score

A credit score is a calculation made by taking into account all of your previous and current financial data. This data includes all of the bank accounts and credit cards you have not and have had in the past, plus any defaulted loans you have in your history. If you have had financial trouble in the past and have been unable to repay borrowed money, that problem does not suddenly go away. Unfortunately, issues like that can impact your future for years to come.

The credit score given to you will change regularly, based on current financial factors and any new information available. Due to that fact, you should always check your credit score again before applying for a new home, car or other loan needs.

You cannot have a credit score until you have a history of borrowing money, which is another way of saying accruing debt. If you have never had a credit card or loan, then you might struggle to get your first loan due to a lack of credit history. A blank credit history means that you will essentially have a nonexistent credit score, which makes it difficult for lenders to determine your risk factors.

Having debt can help your credit score, but you need to handle that debt appropriately. Opening credit cards just to build your credit history will not help your credit score. You need to properly use those cards and repay any borrowed money so you can prove to lenders that you are not a risky investment for them.

How is a credit score calculated?

A credit score is calculated according to many different factors, which are all primarily focused on your history of borrowing and repaying borrowed money. This includes making credit card payments on time every month. At the absolute minimum, you need to ensure you pay the minimum monthly payment on time for all credit cards you hold to avoid late fees and any negative impact on your credit score.

Your credit score is calculated according to your entire financial history, although more recent indications take precedence in determining your risk as a borrower. If you have ever declared bankruptcy in the past, that will negatively impact your credit score. Similarly, applying for many credit cards or loans and being repetitively denied will impact your score, showing you as a higher risk for new loans.

Checking Your Credit Score

You should regularly check your credit score for several reasons. Primarily, you need to monitor your score to ensure there is no incorrect information negatively impacting you. Your credit score is impacted by many factors, which can be challenging for you to constantly monitor. However, you should notice right away if there is an anomaly that might have been caused by identity theft, for example.

There are three main credit reporting agencies in the United States, so you can choose to check your score with any of the three as and when needed. The three are Experian, Equifax and TransUnion. According to federal government regulations, you are granted a free credit report from each of those agencies once within every 12-month span.

These credit reports will contain their own scoring system, which could differ from the official credit score you will have overall. Lenders and creditors review their own preferred credit scoring systems, but reviewing these three main agencies each year can ensure you have nothing terribly wrong with your report or overall score. Since you get one free report every 12 months from each agency, you should space them out to keep an eye on your credit reports throughout the year.

If you are applying for a loan or an important credit card, you should review your credit report carefully before submitting the application. The interest rates you will be offered, as well as the total loan amount you will be offered, will all be based on your credit report and score.

On the credit report, you should see your personal details, such as your Social Security Number (SSN) and your contact details, as well as your employment information. You will see your financial history showing credit cards and loans you have had, in addition to debts or any financial problems you have faced in the past.

Improving Your Credit Score

There are many ways to improve your credit score, so do not fret if yours is not great right now. Your credit score is constantly changing, so you have a chance to improve it every day as you conduct your financial transactions. Making responsible decisions based on your current income and your financial history will impact your score, so you can choose to have a positive impact accordingly.

Improving your credit score will not happen overnight, but you can definitely improve it over time by starting right now. If you have no credit history, you can start by applying for credit cards to begin that process. If you have a poor credit history, you should work toward reducing and eliminating your debt before you can properly move forward in establishing new, good credit. Seeking the assistance of a credit counselor could be a good idea at this stage, especially if you need to improve your credit score as quickly as possible in order to obtain a loan.