What is Credit Score?

A Credit Score is a three digit number generated on the basis of your credit report. This number is generally used by creditors to assess your potentiality as a borrower. FICO score, which was developed by Fair and Isaac Company, is a type of Credit Score. In other words, it is number that represents your financial history and builds your credit rating.

What are the factors that make up your credit scores?

• Payment history: Your payment history makes up 35% of your credit score. So make your payments on time to get high credit scores.
• Loan amount owed: The loan amount you owe to your creditors make up 30% of your credit score. Clear your debt as soon as possible because the more you owe the less your credit score becomes.
• Your credit history: The duration of your credit history makes up 15 % of your credit score. It is important to maintain a good credit history. Keep a check on the length of your credit accounts.
• New lines of credit: Your new lines of credit make up 10% of your credit score. You should keep a track of the number of credit accounts that you have opened and the also the new credit requests.
• Types of credit used: The last 10% of your credit score is dependent on the types of credit you have used like credit cards, installments, loans, mortgage etc.

What is considered a good Credit Score?

Credit scores are derived through a standard mathematical algorithm given by Fair and Isaac Company. Generally the credit score number ranges from 300 to 800. According to Fair Isaac, a score of 720 on the scale of 850 is said to be a good credit score. Here is an overview of credit scoring break down

• 780 and above- If your credit score is within this range then, it is said to be excellent credit score and lenders will have no issues in giving you credit.
• 740 to 780 – If your scores fall within this category, it is a very good credit score. You can get loans with these scores easily.
• 690 to 740- This is just a good credit score. It is better if your scores are close to 740.
• 620 to 690 – These scores fall under the fair category.
• Below 620- This has been categorized as a poor credit score.

Why is it important to have good Credit Scores?

It is important to have a good Credit Scores because it is the first thing that the lenders look for, in your credit report. It is not only important when you apply for loans but also in future, when you bargain for better rate of interest from lenders or take up a new job. Some employers ask for your credit reports before employing so check your financial stability.

How to maintain a good Credit Score?

To maintain a good credit score one needs to do the following

• Pay the bills on time.
• Avoid bankruptcy.
• Check for the errors on your credit report and request the credit bureaus to rectify them as soon as possible.
• Negotiate with your creditors to reduce the rate of interest and lower the monthly payments.
• Get a secured credit card and pay the credit card bills before due date.
• Build good credit history.
• Avoid applying for too many lines of credit.

Credit Report and Credit Score is a truthful record of your financial behavior, connecting loans, credit cards and your bill paying record. It is a pretty good idea to get your free credit report on a daily basis to make sure that it is correct.

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