Credit Scoring Facts: Everything You Need To Know About Your Credit Score

Whether you like it or not, a credit score is very influential on your life so it is very important to understand all the credit scoring facts you can. First off, a credit score is a number that summarizes the historical credit information on your credit report. The number represents your credit worthiness and the probability of whether you will become delinquent on a loan or a credit obligation in the future. Your credit score is the first thing lenders look at when considering whether oe not to extend credit.

A credit score will normally fall into a range of 350 to 850 with a higher score being better. Anything over 700 would generally be considered favorable however if a person has a score in the 600's a creditor would look at other factors to determine credit risk.

Credit scores use information from key areas of your credit report to determine that important 3 digit number. Information such as payments being paid on time, balances on accounts, amount of available credit and length of credit history are some of the things evaluated. Age, race, gender, where you live and marital status are not used in determining credit scores.

There are a number of factors that influence the number of your credit score.

• The total amount of money owed. The more you owe the lower your score will be.
• Are your bills paid on a timely basis. Paying your bills on time is the most influential of all factors on your credit score. Pay your bill on time and it will reflect a higher score.
• The number of credit inquiries on your account. If you have a lot of credit inquiries that were at your request, it will lower your score.
• How many accounts you have. The more accounts you have with high balances will give you a lower credit score. However if you have moderate balances that are always paid on time it will not hurt you.
• How close you are to your credit limits on accounts. If you are pressing the limits on your credit it will reflect negatively on your credit score.
• How long have you had credit established. If you have had a credit score established for a long time that will increase your score.
• Negative credit history such as liens, foreclosures or bankruptcies will negatively effect your credit score.
• If your accounts are secured or unsecured.

Your credit score effects a lot of things throughout life so it is in your best interest to maintain a high credit score. You might be young and think it does not matter but you will find that a credit score plays a very important role in your life plans. There are many decisions made that are based on your credit score. Some of the things that will be affected by your credit score.

• Borrowing money for homes, automobiles and other credit accounts are affected by your credit score.
• Interest rates on loans. Interest rates are adjustable. The higher your credit score the lower the interest rate.
• The amount of down payment required on a mortgage. A higher credit score does not require a large down payment.
• Insurance rates are determined by your credit score. Your rates will be high with a bad credit score.
• Utility bill accounts are affected by your credit score including whether you get one or not and if you need to have a security deposit. This includes cell phones.
• Employment opportunities are often affected by credit scores. Future employers want to make sure they are hiring the right people by doing background checks which include credit scores.
• Landlord approval is influenced by your credit score. They want to know they can count on getting their rent money on a timely basis.
• Security clearance will usually not be give to a person with too much debt. If you are trying for a government position, you can forget it with a bad credit score.

If you have bad credit you can turn it around. There are things you can do which will get you moving in the right direction and will snowball into a higher credit score. Here are some things to help you improve your credit score:

• Pay off your debt so it is reduced.
• Make payments in full and on time. Never miss being late. The longer you pay on time, the more it will improve your credit score.
• Reduce the credit limits on your cards and your accounts.
• Tear up credit cards but do not close the accounts. This will reduce the temptation to charge but you will still show creditors that you have established credit.
• Mix up the types of credit you have.
• Only open new credit accounts when absolutely necessary.
• Consolidate your accounts.
• Stay away from accounts such as payday loans or department store credit cards. These less desirable forms of credit negatively affect your credit score.
• Don't use your credit to any extent.
• Keep the balances on your cards to the level of about 30% of the total available.