What Is A Credit Score?
You might have heard of a credit score, but you're probably not clear on how your credit score is calculated and how exactly it can affect your life.
Your credit score is sum calculated using a complex mathematical formula that uses information from your credit report. The sum is an indication of how likely you are to repay your monthly credit card balance and loans. It is a pivotal factor in the decision a lender or credit card company makes when you apply for a loan or credit card.
The credit score has been in use by credit card issuers and lenders for many years - it is a tried and tested formula. There are various things that the lenders use to build up a picture of you and your ability to pay back what you owe. Some of the factors used are as follows:
- Your total outstanding balance to various lenders.
- Available credit currently.
- Past bill payment reliability.
- Credit history.
- Previous credit scores.
These factors and various others are all calculated together to give the final sum - your credit score. It may seem to be entirely insignificant to you, but your credit score is critical to your future. It will be used when you apply for credit cards, apply for car loans and even your home mortgage. You should really be aware of just how important this little sum is for your life as this is basically an indicator of your overall financial status.
If you have a good credit score you will find that applying for credit cards, loans and mortgages will be much more smooth and trouble-free. A low credit score will directly impact your ability to get a credit card and loans - many find that with a lower credit score you are eligible only for credit cards and loans with APRs above the average.
If you do have a poor credit score there are some ways to help, such as consolidating credit card debt or applying for a secured credit card. By reading this article you have just taken the first step to building your credit score. With a solid budget, personal financial discipline and a clear target you will boost your credit score.
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