Credit Scoring

Credit Scoring Facts

Credit scoring is nothing new, it's been used for 4 decades. It was designed to determine if you are creditworthy or not. It's the difference between getting the loan or being denied.

I am sure that you are aware of what your credit score is, but you are probably unaware of how it has been determined. It's a scary thing when you think about it, isn't it? It doesn't have to be.

Your credit score needs to be 620 or higher in order to get a good loan with a low interest rate. This is considered prime rate in the land of mortgages. With a score of 620 you qualify for many of the programs that have been designed. It's not that difficult to obtain this score once you understand how they scoring your credit, but if your score is low it will take time to increase it.

So let's get right down to learning how they determine your credit score.

We are all aware of the importance of paying your bills when they are do. But that is not the only aspect of how your score is determined.

Credit scoring is based on your all of your credit experiences. These experiences include your history of paying your bills on time, this is the one we all already know. But it doesn't stop there, it is also based on other factors such as, how long you have had credit opened, they generally want 10 years of a credit history. They also look at the types of accounts you have, if they are secured loans, unsecured loans, car loans and student loans.

When they evaluate these items they award you points for each factor. The number of points you receive will determine your credit score, and let the creditors determine how creditworthy you actually are. This score that the come up with will tell them if you are a good candidate to repay the loan that you are requesting.

If only it stopped there, but we aren't that lucky. There are many other aspects that will go into credit scoring, some of which you have probably never even thought of such as how many times have you have applied for credit, this will be an inquiry on your credit report. This will lower your score if there are too many on your report.

Credit scoring is also determined by the balances on your open accounts. If you have high balances on your accounts this will ultimately lower your score. You want your debt ratio to be 38% of your income. This will help to give you a better credit score. Basically if you make $3000 a month your debt can be no more than $1140 a month. This factor makes it pretty hard to have a good score.

The best thing you can do to maintain a good credit score is to pay your bills before the 30 days, keep your balances low and make sure that your debt ratio is below 38%.

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