In the most basic explanation, a credit score all the information summarized from your credit reports. The scores can range from 850 to 300. The higher the credit score, the better for you and your financial decisions. Many lenders will use the credit score to predict the amount of loan you qualify for and if you will make the payments on time. They use it to determine if you qualify for a credit card or a loan and what interest rates you qualify for.
What is the origin of credit scores?
The credit score is created from all the information gathered from your credit report by credit scoring models. The information resides with three major bureaus. The information on the credit reports include all the loans and credit cards you had since you opened your first credit account. You will also find public records on your account, credit card payments and any loans you have cleared or on your way to clear on your credit account.
The credit scores have been created to make it easier for you, the banker and lenders to go through your credit history. If the scores were not present, reading through the history would take a lot of time which delays any major financial decisions by you and the lender. The lender may also miss some important details while looking through the entire credit history. They make the process of evaluation your creditworthiness easy and fast. A computer process analyzes the information on your credit and gives you a general score.
As you make payments on your bills and loans, your credit score continue to increase. Your scores, therefore, change on the daily depending on how you manage your finances and proprieties.
There are several different types of credit scores and you can have them simultaneously. Most lender use the same scoring model when it comes to adding up the credit history. Because the credit scoring changes over time, you will come across different score types over time.
What are the main keys to building a good credit?
When you manage your finances properly, you expect to have an exceptional credit score. This is why you should always check on your credit reports to endure there are minimal errors. If you are recovering from a poor credit score, it helps you keep tab of your history and prevent your scores from getting any lower. Fixing the errors from your past will help you get better credit scores.
Making all your loan and bill payments on time is great for your credit history. Making late payments will weigh down your progress which leads to lower credit points. Remember to always set yourself up for success. You can do this by creating a budget, understanding your expenses in relation to your income, opening a savings and checking account and borrowing money in moderation.
Without a credit history, no one will know if you actually repaid your loans in the past. You can use your score to get your loans and mortgages approved, get a good deal on a vehicle, get a good rental, apply for a great job and get insurance scores among other benefits.