Understanding Credit Report Scores

You probably already know that much of your financial life is influenced by your credit score. Banks, mortgage companies, credit card issuers and other lenders use your credit score as a very important criteria for deciding whether to make a loan, and at what interest rate.

This is why understanding credit report score is so important. Knowing what affects your credit score (and how to improve it) gives you an advantage when you need to borrow money.

The exact details of how credit scores are calculated are closely guarded trade secrets. But over the years we have been able to figure out a few things. Paying on time seems to be the most important factor. Any late payments will lower your score, and the more of them and the later they are, the more heavily the score is affected. The total amount of debt carried per month is another element. A less important factor is the number of credit cards and credit checks performed.

A score of 620 or lower is considered questionable. You may have trouble getting a loan with score that low. If your score is 750 above, you should easily qualify for the best interest rates available.

The range between 620 and 750 represents a kind of gray area, where items other than your credit score will play a more significant role in loan decisions. These factors include prevailing interest rates in general, the current demand for loans, and the overall health of the economy.

You should check your credit score at least once a year to make sure everything is in order. Mistakes do happen and an innocent typo by a creditor could send your credit score off a cliff. Check your credit report carefully and fix anything that is wrong or out of date.

And if your credit history is less than perfect, don’t fear. You can repair it with time. Focus on paying down your debt and paying every bill on time, even if you can only afford the minimum payment. With time, you’ll be in better control of your debt and your credit score will improve.

I hope this article has given you a little better understanding of credit report scores.

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