Improving Your Credit Score – Making Wise Use of Your Credit Score!
What is a credit score? How does it affect my borrowing power? Can I find out what my credit score? The answers to these questions are really quite simple. It all depends on how you use credit.
A credit score, in simple terms, is a numerical representation of an individual’s credit status, to reflect an individual’s creditworthiness. A credit score, more accurately expressed, is derived from a credit report, financial information usually sourced from three credit agencies. These agencies compile credit information and create reports for consumers. In essence, these agencies measure an individual’s credit history. When a consumer has numerous credit card accounts that are reported to the agencies, their credit score will be calculated as well.
Higher scores mean better borrowing power. Credit scores are not only for those looking to borrow money, but also for employers, landlords and potential employers. Having a higher credit score can also help you obtain lower interest rates on your loans. With lower interest rates available for those with better ratings, a credit score can be a real asset for many consumers.
Credit inquiries, or requests to lenders, play an important role in the calculation of credit scores. Every time you request a loan from a lender; the company will track your credit report. Lenders use this information to determine if you are worthy of credit or not. This, along with the information on your credit report provides the basis for lenders making inquires. They will track your credit reports and determine whether or not to make inquiries on your behalf.
Credit inquiries can range from a few hundred to thousands of dollars. The ranges are based on the lender’s ability to determine your risk. Those with higher scores generally consider applicants less likely to default. Lowering the number of inquiries generally improves the risk to lenders and decreases the overall cost of borrowing. Inquiries generally considered good, lower interest rate deals and late payments generally considered bad.
Another part of the credit score calculation is to determine if new credit history has been established or not. When you apply for a loan, lenders must know your credit score. Credit scoring models will consider the amount of new credit you have previously established as well as the length of your credit history. Lenders look to see if you have maintained steady payments, have avoided bankruptcy and have maintained steady employment in order to evaluate your financial risk. Establishing a new credit account or paying off old debts to increase your total amount available can have a positive effect on your overall credit score.