What Is A Credit Report Score?
If you are applying for a loan, credit card or mortgage, you might hear the term credit report score come up from time to time. While most people are aware of their credit report, they usually don’t see any numbers on it to determine what their score is.
A credit score is a number that has been calculated by any of the big credit bureaus that is used to make a decision for approving or rejecting you for a loan, mortgage or credit card. Besides the large credit bureaus, a credit score can be in-house, meaning a specific bank may look over your financial history and come up with their score using their own formulas. While many different scores can occur, the most popular credit scores are those that originate from the credit bureaus.
The Importance of a High Credit Score
Usually the better or higher your score, generally the less risk you are to a business and the more likely you will be approved for a loan, credit card or other product. Besides general approval, a person with a high credit score will usually be offered the most attractive rates. A person with a poor credit score are deemed more risky to lenders and these lenders will usually offer the individual with a poor credit score sub prime rates, meaning higher interest rates.
If you want to be approved for a mortgage or loan at the most attractive rates, it pays to have a good or high credit score. You can usually achieve a high credit score by ranking high in the following three factors:
Pay Your Debts Off in a Timely Manner
It is important to make sure that you are always paying bills on time. Do not be late with your payments and do not default on any of your loans. If you have built up a long history of paying your bills on time and in full, generally your credit will be good.
The Amount of Debt that You Currently Owe
You might be able to pay your debts on time and in full, however if you have a lot of debt compared to your income (debt to income ratio), banks and other lending institutions will look at you as a high risk. Generally speaking, you shouldn’t have more debt than 30% of your income.
The Amount of Loans or Credit Cards that You Request
While applying for a loan or a credit card is inevitable, if banks see that you are applying each week for a new credit card, you might be looked upon as a high risk.
How to Obtain Your Credit Score
It is actually very easy to obtain your credit score, however it does require you to pay a small fee. You usually can contact any of the big three credit bureaus to obtain your credit card. Please note that since each credit reporting agency uses a different formula, your credit score might vary.
