How Your Credit Score Is Calculated – Know Some Essential Tips

Have you ever asked yourself where does my credit score come from? or how is my credit score calculated? If so, then you have come to the right place. You will learn both what a credit score is, and how you can improve yours.

The best credit repair companies will convert the procedure into an easy one for the calculation of debt ratio. The calculation of the correct ratio is possible with the correct tools to have desired results. There is an improvisation in the credit score for the individuals. You need to get complete information to have desired results.

What Is A Credit Score?

Before you can begin repairing your own credit score, you need to know what a credit score is, and how it is created. In general, your credit score is a number that tells lenders how much of a credit risk you are. That number is usually between 300 and 850 and is an indication to lenders of how accountable you are at paying your debts. The higher your credit score, the lower your credit risk in the eyes of lenders, and the more likely you are to receive low interest rates on loans and credit cards. Credit scores below the low 600′s will make it difficult to get good terms, while scores of 720 and above will generally give you the lowest interest rates possible. Your credit score gives potential lenders a quick and easy measurement of how you are doing financially. With that said, your credit score may be interpreted differently depending on the lender.

Know that your credit score is a measure of confidence that the credit bureaus and creditors have in you to pay-off your debts and bills. In order to improve your credit score, you need to consistently pay your bills on time. Many people think that they either need to spend significant time and energy, or make more money to repair their credit score. This is not true, you just need to be reliable in paying your creditors. If there is no way for you to make your payments, you may want to consider filing for bankruptcy and maintaining a less expensive lifestyle.

While the type of debt you have (ex. car loan vs. credit card debt), and the regularity at which you pay your bills counts towards your credit score, your age, sex, and income do not. Recent account activity, debts owed, age of credit accounts, unpaid accounts, and types of credit count the most in the credit bureaus calculations of your credit score.

Credit Score Vs. Credit Report

Credit reports are created by credit bureaus who gather information from their clients, such as credit card companies and utility companies. For example, if you are late in paying your electric bill the utility company will inform the credit bureaus of this. Any unpaid or overdue bills will count as a ding on your credit report and will lower your credit score.

Some lenders will examine your entire credit report, while others will simply accept or reject your loan application based solely on your credit score. It is important to know that your credit score number comes from your credit report. Your credit report gives a much more accurate picture of your overall financial situation as it contains a comprehensive history of your past debts and payments. Based on the information in your credit report, credit bureaus use a complex mathematical algorithm to arrive at a number known as your credit score. Each of the three major credit bureaus have a different formula. This means that Equifax, Transunion, and Experian will all give you a slightly different score. With that said, most credit bureaus use the FICO score calculation.

FICO Score

Credit scores are sometimes called FICO scores or FICO ratings. The calculations are based on statistics and comparative mathematics. This means that you are judged according to the patterns of those who have a similar financial history to you. For example, the credit bureaus see those who have a history of unpaid bills as being likely to continue this pattern, and will subsequently assign a low credit score. By paying your debts and bills on time you will lower your perceived risk, and your credit score will rise.

The Three Major Credit Bureaus

If you live in the U.S.A. you should get your credit report from each of the major credit bureaus, Equifax, Trans Union & Experian. Examine your report closely and look for anything which looks suspicious, including errors. If your credit report contains errors, write a letter to the credit bureau and ask them to remove it. You can easily contact these organizations by mail, telephone, or