It will be of no use for you to try improving your credit score if you don't understand how it works, why is this score so important and most of all how is it financial tool affecting your everyday life calculated. There is of course another option than trying to understand it and improve it yourself; you can always ask a specialized agency but they'll do it on their terms and surely not for free.
As the names lets you understand, the credit score is a number indicating to the loan lenders how big a credit risk you are, that is how are or aren't you paying off your debts. This number usually takes values between 300 and 850. A high credit score, usually considered to be one over 700, gets you larger loans at low interest fees while a bad credit score, which is one of 600 or below, will give you trouble trying to get a loan.
From this perspective, you can say that the credit score looks a lot like GPA or SAT scores used in college. However, your credit score can be interpreted in different ways by lenders. Even if it offers an overall image of your evolution and behavior as a person using and repaying borrowed money and it is a fixed number at a given moment, it is up to them how to interpret it.
Thus, some of them, to spare them some trouble and to avoid getting things complicated when it comes to get their money back, prefer to grant loans only to those of you having a good credit score. Other lenders, on the other hand, will take a closer look at your credit score report and sometimes decide to grant you the loan even if you have a 600 score. Thus, you should know that your credit score relies on your credit report issued by a credit bureau.
This report is the detailed history of your debts and repayments. The credit score is calculated by these credit bureaus starting from your debt history and using computers and math calculations. The calculation methods used by these bureaus differ one from another and this is the reason you'll always have a different credit score depending the bureau is calculating it.
However, most of the credit bureaus use FICO (acronym for Fair Isaac Corporation, the company that developed it) as calculating system, this being the most used and one of the leaders among credit score calculating systems. This is why sometimes credit score is also referred to as FICO score or FICO rating. The mathematic calculations used by this software are mainly based on comparative mathematics and research, thus using the same principles as those generating the insurance premiums.
As the names lets you understand, the credit score is a number indicating to the loan lenders how big a credit risk you are, that is how are or aren't you paying off your debts. This number usually takes values between 300 and 850. A high credit score, usually considered to be one over 700, gets you larger loans at low interest fees while a bad credit score, which is one of 600 or below, will give you trouble trying to get a loan.
From this perspective, you can say that the credit score looks a lot like GPA or SAT scores used in college. However, your credit score can be interpreted in different ways by lenders. Even if it offers an overall image of your evolution and behavior as a person using and repaying borrowed money and it is a fixed number at a given moment, it is up to them how to interpret it.
Thus, some of them, to spare them some trouble and to avoid getting things complicated when it comes to get their money back, prefer to grant loans only to those of you having a good credit score. Other lenders, on the other hand, will take a closer look at your credit score report and sometimes decide to grant you the loan even if you have a 600 score. Thus, you should know that your credit score relies on your credit report issued by a credit bureau.
This report is the detailed history of your debts and repayments. The credit score is calculated by these credit bureaus starting from your debt history and using computers and math calculations. The calculation methods used by these bureaus differ one from another and this is the reason you'll always have a different credit score depending the bureau is calculating it.
However, most of the credit bureaus use FICO (acronym for Fair Isaac Corporation, the company that developed it) as calculating system, this being the most used and one of the leaders among credit score calculating systems. This is why sometimes credit score is also referred to as FICO score or FICO rating. The mathematic calculations used by this software are mainly based on comparative mathematics and research, thus using the same principles as those generating the insurance premiums.
No comments:
Post a Comment