How is Your Credit Score Measured?

By Pat Johnson

While there is no guarantee that past performance is indicative of future behavior, this is the model lenders have employed with respect to credit worthiness. They use your credit score, which is a summary of your past loans, as a measure of how likely you are to repay your debts.

There are three main credit reporting agencies. They collect all of the details of your credit accounts and compile them for easy reference. The data includes payment history, balances, and number of accounts. Then lenders can access this information as part of their loan adjudication process.

You are entitled to a copy of your credit report once a year at no cost. This is not the same as obtaining your credit score, which the bureaus will charge you for. You can write to the reporting agencies to request your copy.

The Fair Isaac Corporation were among the first to launch a credit scoring system that they named FICO. This system is in use by many lenders today in their effort to ascertain borrower risk. They importance various institutions place on this measurement varies, but it is definitely considered to some degree by all.

As much as the credit bureaus endeavor to maintain impeccably accurate records, occasionally mistakes do happen. For this reason it is very important to check your credit report regularly. If you do discover any errors or omissions they are easier to fix the sooner they are identified.

There is no denying that a high credit score makes it easier to be approved for credit and obtain better interest rates. In this light it is crucial to protect your credit rating. Be certain to make your loan payments on time, because late payments are the fastest way to bring down your score.

After that too much outstanding credit will hurt your score as well. Do not over extend yourself with credit cards and do not bring the ones you do have to their limits. Frequent inquiries to your credit bureau can bring down your credit score so be careful not to unnecessarily apply for new loans or cards. Remember that it is much easier to lower your rating than it is to improve it so make your borrowing decisions wisely.

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