- How do credit scores work?
- How you can improve your credit score
How do credit scores work? Your credit score is a tool that lenders use in order to determine how likely it is that you will repay your loan. The credit score is calculated from a formula that is detertmined, more than any other factor, by how you pay your bills and loans back.
Generally the higher the score, the better your credit looks.
In the U.S. the FICO score is the predominant score used.. However, there are other scores in the UK such as the Experian National Credit Score, or the Callscore (a FICO score in the UK), or other-named scores that are calculated similarly. Basically the scores are used by lenders to determine the rates you pay for such things as mortgages, car loans, credit cards, or home or car insurance. Your score may also be “pulled” when you set up utilities, buy a cell phone service or rent an apartment.
High credit scores can save you lots of money!
How you can improve your credit score? Following are several steps you can take to improve your credit score. Please remember that your efforts will begin showing progress later rather than immediately. The best thing you can begin doing right now is to manage your credit responsibly. After six months, you should begin noticing how all your hard work is favorably affecting your credit.
- If you have no credit, consider getting a “secured” card at your bank. It looks like a credit card on your credit report, but acts more like a debit card as you maintain a balance of funds in your account.
- Keep fewer cards rather than more. While there is no ideal number, 2 to 5 credit cards may be better than too many.
- Manage credit cards responsibly. Pay them on time.
- If you have numerous cards, consider canceling ones you do not expect to use.
- If you have missed payments, get current and begin making payments on time.
- If you have collections on your report, pay them off. Note that those collections remain on your report, but at least they should show as paid, and the older they are, the less they will affect your score.
- If the amount of credit you have is overwhelming, contact your creditors directly to negotiate a smaller payment, or see an authorized credit counselor. Frank and open talks with creditors and/or counselors may help you manage your credit more effectively.
- Applying for credit can lower your credit score. Don’t open any new cards if you can help it. Only apply for credit when it is absolutely necessary.
An important point: Your score is never lowered when you order your own credit report on yourself. Consider ordering your own credit report every three-to-six months so you can monitor your progress.
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Questions?
Q: How do I determine my credit score?
A: Your credit score is based on numerous factors in your credit report, and use complicated formulas that compare your credit history and payment history to others. Eventually your credit score represents the probability that you will default on a credit obligation. As such your credit score is difficult to predict. However, you can generally predict you will have a good score if you have a credit history of no late payments, have low balances on your credit obligations, don’t have too many open lines of credit, and have used credit successfully over a period of time. Otherwise the best way to determine your score is to order one on this site with your credit report. |
