What is a credit score?

Credit score is a statistical method to assess the credit worthiness of a prospective borrower. Credit score has all the in depth information about your credit experiences. All information about bill paying history, the accounts you have, and the age of these accounts, late payments, outstanding debts.

A statistical method is used to compare credit profiles with borrowers with similar profile. Points are awarded for every factor that promises debt repayment. The total number of points tell how likely it is that you will pay the debt when the payments are due. These points are your credit score which is a three digit number.

Understanding a credit score leads you to the question of how do you get a credit score. Every time you have borrowed credit or used it, you get a score which exhibits how you have managed that credit in the past.

The lenders rely on a credit scoring system which gives grades. Grades A to D are provided to scores which range from 500 to 620 or above in figures. If your credit grading is either C or D or your credit score ranges from 500 to 535, you are heading in for bad credit loans.

If you have suffered from any previous delayed payments or charge offs – the chances are that your credit report would have its account well embedded in it. Many loan lending companies and banks are wary of people with bad credit score. However, more and more lenders are offering loans for bad credit score.

Don’t worry, if one day you find that your credit score is bad. Today one-third of the people applying for loans have some kind of credit imperfection in their credit report. You can get a blemished credit score for a reason like not having a permanent residence, unpaid parking ticket, an ignored traffic fine or even a forgotten library book. This definitely effects the credit reliability of an otherwise good borrower.

Your credit report is integral to score. Submit accurate information with your loan application. You can get copies of your credit score through any of the three major credit reporting agencies.

• Equifax

• Experian

• Trans union

Your credit report would have four sections:

• Identifying information

• Personal history

• Public records

• Inquiries

It will have general information like your current and previous addresses, your date of birth, telephone numbers, driver’s license numbers, your employer and your spouse’s name. Your history will have information about your personal accounts. The public records account is better off blank, for a public record implies you have had a problem. It records financial data like bankruptcy, county court judgments, charge offs, defaults. The last section called inquiries includes a list of everyone who has asked for your credit report.

Now, if you have a bad score there are ways to overcome this situation. First basic way to start is by paying your bills on time. You can ask your lender to move your payment date if you can’t pay on time. Closing accounts won’t help. However, closing unused accounts would be beneficial because they are seen by creditors as credit risks. Don’t stretch beyond your credit limit; rather try to keep the balance at 50% of the credit limit.

A good credit score requires continuous work. It is never too late to start improving your score. Having a good credit score strengthens your position and you can get far better rates and loan terms.

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