About Your Credit Report Score
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Ah, the credit report score. You've heard about it and read about it. YOu know that it has something to do with credit and what you've done with it. But what, exactly, is it?
The credit report score is a number between 300 and 850 that is used to reflect what kind of borrower and payer of obligations you are. It is called a FICO score. But, really, since FICO doesn't really tell us much, it is much more descriptive to call it a credit score.
850 is the best credit score you can get on a report. There are very few people who have an 850. Most lenders, however, agree that a 625 is pretty decent. You start running into trouble when you dip below that score.
How is the Credit Report Score Figured?
With math. Really interesting math. But really all you need to know about how the score is figured from your credit report is what you can do to keep it at a decent level.
The score is derived from a combination of factors. Your debt-to-income ratio matters. This is how many obligations you have as compared to how much money you have coming in. Sometimes your rent payment can be a factor, as this is a regular obligation that is paid. Also considered is whether or not you pay on time, and the full amount required. Late payments lower your credit score, and someone looking at your credit report will not fail to notice this. Bankruptcy and skipped payments, like an unpaid energy bill also appears on the credit report and affects your score.
Why Should I Care Whether My Credit Report Score is Good?
Simply because it can affect whether or not you get further loans. While there are ways to get nearly anything with bad credit (TVs, furniture, even cars), one thing that is very difficult to get a loan for when your credit score is low is a home loan. If you want to own a home, you better care whether or not you have a good credit score.
Additionally, your interest rate on loans you do obtain is determined by the score that appears as a result of your credit report. Even if you do get a loan, you may be paying so much in interest charges that it is hardly worth it. The lower your credit score, the higher your interest rate.
Ways to Improve Your Credit Report Score
Keeping your credit good, and even improving your score, is relatively easy with some financial planning and a little discipline. If you carefully manage your money and decide what you need and what you can do without, you can live within your means and avoid taking on so much debt that you get in over your head.
As long as you make your payments on time, you should be in good shape. Paying bills in a timely manner is essential to maintaining a good credit score. Keep your credit card balances low. By paying more than the minimum each month, or paying them off, you show that you are capable of using debt wisely.
Your credit report score is a very important part of your finances. Make sure you take good care of it.
Posted by jonathan on February 03, 2005 at 07:11 PM