Many of us frequently hear that we need to maintain a good credit score. Your credit score determines whether you will get a mortgage, a personal loan or you will most likely be denied.
Besides, a credit score is the main factor while deciding the interest rate. Sounds extremely important. Yet, not many have a clear understanding of what a credit score is and how it affects banking deals.
What is a Credit Store
A credit score is basically a three-digit number. It is calculated based on a mathematical algorithm. Credit scores do not include information on race, gender, ethnic origin or religion. First of all, it is necessary to clarify that the purpose to calculate a credit score is for a lender to be ensured that the requested loan given to you is repayable and you may manage taking a new borrowing.
If your credit score is high, you are at a low risk, you may pay the money back quite comfortably. If your credit score is low, you are at a risk zone. In this scenario, even if you receive a loan, interest rates offered to you may be considerably high.
An extensive data from a few sources is included in the estimation of a credit score. You are to fill in a credit application, besides a lender reviews past credit history and all the previous accounts on you. Still, you should always keep in mind that the calculation is not universal and no lender gives the same evaluation to this or that criterion.
How is it calculated?
There is a huge variety of models for calculating a credit score, but the most widely used one is FICO, which is regarded to be the “king” in the field. According to their official website “about 90% of US financial establishments use FICO scoring system”. FICO scores range from 250 to 900. Currently a consumer obtains two separate FICO scores for the two major bureaus: Equifax and TransUnion. Besides, FICO suggests five main elements with its weights. These five components presented below constitute about two third of your FICO score.
According to the federal law any individual has a right to annually obtain his/her credit report from any credit reporting agency.
How To Keep a Good Credit Score
Hereby we are presenting some tips, which will help you to maintain a good credit score. Make sure you:
- do your best not to be late from any of your loan payments;
- avoid opening too many credits at the same time (this may mean that you are facing some financial difficulties);
- restrict yourself to taking a credit only when it proves to be financially reasonable;
- close unused credit accounts;
- and last but not least, review your credit report on a regular basis in order to make sure it is up to date and accurately reflects your financial situation.
Regardless the fact that you deal with banks and they do protect and secure your information, always do your best to protect your identity. If you notice any suspicious records in your credit report, or any accounts that you doubt opening, immediately contact the lender to report about the issue.