Credit Scores, How They Are Calculated And How To Get Yours Higher

What is a credit score? Some people have heard of credit scores, but they don’t really know what they are or how they are calculated. Your credit score is a number that helps lenders and others predict how likely you are to make your credit payments on time. Each score is based on the information in your credit report. Your credit score is based on what banks, stores and utility companies and other creditors have told the credit rating companies about how well you do with paying back what you owe.

The system awards points based on information in the credit report, and the resulting score is compared to that of other consumers with similar profiles. Your score gives lenders a way to know if they should or shouldn’t lend money to you. The credit score helps lenders know what level of risk they might be taking if they lend to someone. If you credit score is low, don’t worry, there are ways to get yours higher.

Your credit sore is based on four main points:
Your payment history
The number of accounts paid as agreed
Negative public records or collections
Delinquent accounts such as:
total number of past due items
how long you’ve been past due
how long it’s been since you had a past due payment

How much you owe
How much you owe on accounts and the types of accounts with balances
How much of your revolving credit lines you’ve used. They are looking for indications if you are over-extended at all
Amounts you owe on installment loan accounts and the original balances. This is to make sure you are you paying them down consistently
Number of zero balance accounts

Length of your credit history
Total length of time tracked by your credit report
Length of time since accounts were opened
Time that’s passed since the last shown activity
The longer that your history is good, the better your scores are

New credit
Total number of accounts and types of accounts such as: installment, revolving, personal lines of credit, mortgage, etc.
A mixture of account types usually generates better scores than reports with only numerous revolving accounts like credit cards

Why do your credit scores matter?
Credit scores determine whether you can get credit from companies and what you pay for credit cards, auto loans, mortgages and other kinds of credit. It’s the credit score that also makes it possible to get instant credit at places like electronics stores and department stores. For most kinds of credit scores, higher scores mean you are more likely to be approved and pay a lower interest rate on new credit. Having good credit scores makes a lot easier and can save you money in lower interest rates.

Credit scores also effect if you can rent a place of your own and how much they will charge you. Without good scores, your apartment application may be turned down. Your scores also may determine how big a deposit you will have to pay for your telephone, electricity or gas service.

Here is how to get your credit score higher:
Pay your bills as soon as you get them
If you are looking for a company to lend to you then they will want to make sure that you pay
your bills on time. No lender wants to lend someone money who can’t ever seem to pay their bills, it poses too much of a risk. If your credit score is low and it shows you are consistently late with payments, companies are less likely going lend to you. The higher the risk you pose, the higher those interest payments are going to be. The quicker you pay your bills the higher your credit score will become.

Reduce your debt
By reducing your debt, lenders will see that you can afford another bill every month. If you have a lot of debt then they think that you will less likely be able to add on another expense. Reducing debt is a great way to raise your credit score. Also, if you are borrowing up to the full amount of your credit limits then that also hurts your credit. Reducing those balances will also help increase your credit score. Some people also think that continually switching their debt to 0% interest rated cards will help their credit, and in reality it hurts it. Continually switching to lower interest rated accounts and never paying off the debt just show that you cannot pay your debt off.

Don’t apply for new credit cards or accounts
Just applying for new credit cards and accounts can affect your credit score quite a bit. This will give something else for lenders to look at and checking your credit score repeatedly can easily lower it. Again, lenders will look at this and wonder if you are going to be able to pay all your bills on time. Just sticking with current credit cards and not applying and opening new ones will help increase your credit score over time.

Pay any new accounts responsibly
Make sure if you do need to open a new account to pay it of quickly and responsibly. The faster you can pay your account off, the quicker your credit score will raise. This shows that you are responsible and this will only help your business with other companies in the future. It’s also important to make sure you don’t open multiple accounts in a short amount of time. Doing this will hurt your credit score.

Your credit score is obviously affects your personal finances and is very important to keep control of. Making your credit score higher should be the main focus of your financial planning, and you should always try to keep on top of your debt. Keeping control of your credit score will make your life a lot happier and it will be a lot easier when it comes time to get a home, a job or even a credit card. Remember to always try to pay your bills on time and if you have a low credit score, then work to make it better. Now that you know how credit scores are calculated, be careful with yours and follow these tips on how to get your credit score higher.