How Credit Scoring Works
by: Sameer S Panjwani
The all important credit score! It determines the amount
of loan you can get, it determines the interest rate at
which you are charged for a loan, etc. Your credit score
plays an important figure in your financial life. So what
goes into making that all important score of yours? How
does it increase, how does it decrease and what are the
factors that go into its calculation?
Your credit score is a number that reflects on the likelihood
at which you will pay back a loan. Scores range from 350
(high risk) to 950 (low risk). Credit scores do not take
into consideration your income, how much savings you have
or demographic factors such as gender, race or nationality.
Your credit score is affected by your current debt level,
your past delinquencies, your credit history and how many
times your credit report is pulled up by various agencies.
Your score considers both positive and negative information
in your credit report. For instance, recorded late payments
will lower your credit score while a good track record
of making payments on time will raise your credit score.
Timely payment of your bills is important to ensure you
maintain a good credit score. The amount of balance you
have left on your credit card, how many credit card accounts
you hold and your use of revolving credit also affect
your credit score to a great extent.
Your credit score and credit report is formed on the basis
of your credit history and you need to have at least one
account which has been open or updated in the past six
months to get a credit score. If you do not meet the minimum
criteria for getting a score, you may need to establish
a credit history prior to applying for a mortgage.
All in all, if you can pay for all your debts in a timely
and consistent manner and not take more debt than you
can handle, your credit score shouldnt be able to
trouble you in life. So take care and be wise with your
About The Author
Sameer S Panjwani is the CEO and Founder of ChoiceOfHomes.com
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