Understanding Your Credit Score

When you apply for credit one of the first things almost all credit officers do is check your credit score. Although not all of those officers explained to us what a credit score is, we are all rated according to it and the offers we receive were all dependent on that score. This is why understanding your credit score is of utmost importance, and for future reference at least basic knowledge should be acquired. In the following paragraphs we will tackle understanding your credit score, realizing what your credit score means and analyzing what you can do to improve it.

Credit score is actually computed as an average of several elements from your credit report. This report is typically broken into five different sections and each of these sheets will represent a piece of the final score. Each category of credit report information occupies a certain percentage in the final score. To begin with, it is essential to say that the highest percentage is taken by the category made up of credit and payment history. An issuer will look at all types of payments: credit card payments, retail accounts, installment loans and so on. He or she will particularly look at the number of delayed or not paid payments, time passed since the last skipped payment, number of problematic accounts as compared to accounts in good standing.

The next thing taken into account when computing the score is the total amount owed. These amounts are looked at in their absolute value and also in proportion to the credit limit. The number of accounts with balances is also relevant. The third thing issuers analyze is credit history, or how much credit you've had and for how long. Understanding your credit score is essential to you and you need to know that the length of all credit lines and their activity will be monitored and will matter significantly in the final credit score. Also, remember that all scores take into consideration recent credit activity. This category includes number of credit inquiries, new opened accounts, their amount, the time since they were opened and of course reestablishment of credit history if there were any issues in the past. Last, even if many people do not regard it as important the type-element is also significant - that means that the type of credit line you have (credit card, installment, mortgage) also plays a role (about 10% of the final score) in computing your credit score. You also need to understand that your credit financial report is the basis of computing your score. Each of the above mentioned elements is specific to every one of us, and as such if for some people amount owed is the major factor for others credit history is essential, therefore it is impossible to give exact percentages as to how much an element weighs in the final credit score.

Understanding your credit score, none the less, is not the only important aspect, managing it is also important. You will be able to improve your credit score if you follow a few simple tips. First of all, try to pay all the bills in time. This is more important than any of the other factors. If it's not possible to pay on time you can usually get away with paying the bill within a 30 day window of the due date. If you miss this date it is almost certain to end up on your credit report. Keep balances low on your credit cards and other revolving credit and try to pay off debt. Also avoid moving credit from one credit card to another. The low intro rates many companies offer for balance transfers can be very helpful, but it takes a toll on your credit score. It is also recommended that if you plan for applying for important credit soon, avoid opening too many other new accounts. When in doubt, hire a financial consultant. Most people may see this as an expensive luxury that they can't afford, but in reality financial consultant prices are fairly reasonable. Even a single visit can help you drastically improve your credit score, and if that results in a lower interest rate on a large loan it will more than pay for itself. A consultant will also be able to explain the credit score better.

All in all, what you need to know is that credit score influences depends on your credit report and it directly influences your credit payments and amounts. The higher the score the lower the interest rate and the payment will be. Taking into account the importance of this indicator, understanding your credit score will automatically mean you have more chances to improve and make it higher and therefore benefit from better loans.

This article has been provided courtesy of Creditor Web. Creditor Web offers great credit card articles available for reprint and other tools to help you search and compare credit card offers.

More Resources

Unable to open RSS Feed $XMLfilename with error HTTP ERROR: 404, exiting

More Credit Information:

Related Articles

Building Good Business Credit After Bad Credit
Can you establish good business credit if you have bad personal credit? The answer is yes..
Get Your Credit Score To Soar In The Twinkling of An Eye
Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you'd be a good risk for credit cards and auto loans. More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans.
How Do I Establish A Good Line of Credit?
A line of credit, roughly defined, is the amount of credit that can be given to a borrower from a lender. Usually a contract or note of promissory is exchanged between the two parties, in which both parties agree to the line of credit amount, as well as the annual interest due to the lender at the end of the term.
Credit Repair Companies and Credit Counseling
Let's be crystal clear, right up front. Paying someone to "fix" your credit is a waste of your time and money, since the negative issues that are temporarily removed from your file will only reappear again in a couple of months.
Finance - Money, Money
Finance is a big word for some of us. It's a little scary.
Credit Scoring: What You Dont Know Can Hurt You
You've probably heard the term credit scoring. You may have some idea that your credit score can have an effect on your life.
Credit Card Security Advice
Which of the following is the biggest threat to your credit card security?a) Shopping online with a credit cardb) Shopping in a real store with your credit cardc) Ordering something over the phone with your credit cardThe answer may surprise you. It's b - shopping in a real store with a credit card.
Why Consumers Need a Nationwide Credit Freeze NOW
What do a shoe retailer, an online discount broker, and a popular clothing retailer all have in common? All three - DSW Shoe Warehouse, Ameritrade, and Polo Ralph Lauren - sustained breaches to their customers' accounts. Unfortunately, these three are not alone when it comes to security breaches.
Credit Card Benefits and Drawbacks
Credit cards have both benefits and drawbacks. It is wise to consider both before applying for a credit card.
Five Reasons to Repair Your Credit Score - You Can Do It Yourself
There are multiple reasons that tell us why we should have a 700+ Credit Score, but these five facts will definitely give you the big picture and hopefully will drive you to want to fix your credit score starting today.Fact #1: Did you know that consumers with Credit Scores of 700+ are likely to get interest rates up to four points lower than those with scores under 640.
Free Credit Reports Now Available From the FTC
The Federal Trade Commission (FTC) has set up a new website (www.AnnualCreditReport.
Credit Repair, How To
Credit repair, is in a word, vital to reestablishing your credit. Unless you plan to never use your credit again, then you have to find a way to fix it.
Minimum Credit Card Payments to Rise
For years, major credit card companies have allowed cardholders to make minimum payments of 2% of the outstanding balances on their credit cards. Having customers pay the minimum doesn't reduce the balance by very much, but when the 18-30% interest rates that many credit cards charge is applied, the result is a profitable ones for the banks that issue credit cards.
0% Credit Cards
These days, credit cards in the UK are competing with each other on two very attractive offers with a headline rate of 0%. These 0% credit cards will be either balance transfers; introductory purchases offers or a combination of the two.
Learning the Disturbing Facts about Credit Card Debt
When I received my first credit card in the mail at age 18 I was ecstatic, I said to myself, wow now I'm getting somewhere in life. This credit card company thinks I'm worthy of 500 dollars in credit.
ChexSystems: Alternative Options for People Whove Been Checking Accounts
Individual banks elect to become members of ChexSystems, and to use their services.Those individual banks are the ones who decides what is sufficient cause to close your account and report you to ChexSystems.
Credit Report And Correction Techniques
The three major credit bureaus, Experian, Equifax and Trans Union are similar and feature a "Credit Score", which is created from credit report data submitted to them about you. Their report includes where you live, your bill-paying habits, and bankruptcy and arrest information.
Free Credit Reports - How to Maintain Your Credit Profile
Maintaining your Credit ProfileEvery consumer should be maintaining their credit profiles to ensure the highest scores possible. To do so, you must first order your credit reports from the three major credit bureaus: Equifax, Trans Union, and Experian.
Credit Score - for Scoring the Right Loan
Somebody once said, "There is always a way of knowing your limitations and going beyond it." It is fundamentally true with respect of credit score.
What is a Credit Report?
Ever wondered what is a credit report? If you've ever applied for a credit card, a personal loan, or insurance, there's a file about you. This file is known as your credit report.