What is a credit score?
A credit score determines your credibility to take a loan. Generally, the lenders analyze your credit report and get your credit score. Then they decide upon giving a loan. Cases have shown that if you have a high score you get the loan easily than the person whose score is low. Therefore, it is very important to possess a good credit score in order to maintain a high credit report. The most popular software, which is used to calculate the credit reports, was created by Fair Isaac Corporation (FICO). Thus, Credit scores are sometimes called as FICO Scores.
How the score is generated?
First, your credit reports are being checked. Then all the important data are put into software. Now, that software analyses everything and generate a number. Various credit-reporting agencies use different software but FICO is mostly used among those.
What is considered as a good score?
FICO scores are based on five categories. According to importance they are,
- Payment History - 35%
- Length of History - 15%
- Amounts Owed - 30%
- New Credit - 10%
- Types of Credit - 10%.
Usually Credit scores range is from 340 to 820. In case of taking a loan, if you have a high score the proceedings becomes easier. The lender can depend upon you now. They get convinced that you are able to pay them back. As your Credit score increases your interest rate decreases.
How to improve your Credit scores?
We have already told you that your Credit scores depend upon five categories. Let us see how you can do better to increase your Credit score.
- Payment History: Always try to pay your bills in time. Late payment could drop you in great trouble. If unfortunately you are getting late, have a talk with your creditors to make things better.
- Length of history: Try not to open too many accounts in a short period.
- Amounts you owed: Analyze your debt-credit ratio and try to maintain a perfect balance. Sometimes a zero balance account also helps to have a good score.
- New Credit: If you had credit problems in past you can open a few new accounts now and use them wisely. Thus, your life becomes easier.
- Types of Credit: You should try to use your credit cards intelligently. Taking installment loans along with credit cards can raise your Credit score.
You might think of taking another loan to pay back your debts. However, that would not help you much in increasing your Credit score. Debt consolidation can be a good option to get rid of this confusion. An experienced counselor helps you to consolidate your loan and pay back soon. Enrolling in a Debt consolidation firm gives you easy ways to have a good Credit score.
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