Credit Scoring

What Do The Numbers Mean?

Credit scores are a numerical representation that's obtained by using a formula to rate your credit report. Computer programs take your credit report, analyze certain factors, and then assign a number to you that's suppose to tell creditors of the likelihood that a you will repay a loan or credit card on time. The higher the score, the better risk you are believed to be. Your score changes any time information changes in your credit report and if you have a short or incomplete credit history, it may not be possible to calculate a credit score at all. Get a free credit check from a reputable company to find out what your score is.

Credit scores generally range from the 300s to the 800s. The following is a break down of what your score may mean but remember than these results are often interpreted differently by different lenders. 

What Impacts My Credit Score?

The system for calculating credit scores is not public knowledge however we do have some idea of what impacts the scores. There are five main areas that are likely figured into the credit scoring process - 

• Payments
  Late payments, delinquencies, bankruptcies - anything that indicates a past failure to pay on time will hurt your credit score. The more recent these problems occur, the more weighted they will be when figuring your credit score.

• Current Debt
  The more debt you have, the greater the chance is that you will not be able to keep up with more payments. This means that current debt is also rated heavily into your score.

• Credit Inquiries
  Frequent credit checks by companies often indicate that you may be in the process of increasing your debt. This does not include self-requested credit checks. Those cannot be held against you.

• Credit Lines Available
  The more credit line you have available to you the more lenders will think that you are a risk. This is because you can easily increase your outstanding debt - causing you not to be able to meet all of your payments. 

• Length of Credit History
  Creditors are not allowed to look at age when determining credit-worthiness, however if you credit history is too short - they won't be able to give you a good score as you don't have a track record for them to rate.

What Can I Do To Improve My Score?

Generally, you can improve your score by following the tips listed below:

1. Check that your credit report information is accurate.
2. Pay your bills on time.
3. Limit your credit card accounts to limits that you really need.
4. Cancel credit cards that you no longer use. Even zero balances can count against you.
5. Keep balances on credit cards low and pay them off as soon as you can.
6. Be careful when you apply for credit. The more your credit report is pulled by companies, the worse it looks for you.