Learn Where Your Credit Score Comes From

Information such as what type of debt you have, how much debt you have, and how regularly you pay your bills is all information that is used to calculate your credit score. Your age, sex, and income do not count towards this score. The actual formula used by credit bureaus to calculate credit scores is a well-kept secret, but it is known that recent account activity, debts, age of credit accounts, unpaid accounts, and types of credit are among the things that count the most in tabulating credit scores from a credit report.

In general, your credit score is a number that lets lenders know how much of a credit risk you are. That number is usually between 300 and 850 and is an indication to lenders of how well you are paying your debts. In general, the higher your credit score, the better credit risk you make and the more likely you are to be given favorable terms on loans and credit cards. Scores below the low 600′s will make it difficult to get good terms, while scores of 720 and above will generally give you the lowest interest rates possible. Your credit score gives lenders a quick snapshot of how you are doing financially; however, they are interpreted differently by various lenders.

Some lenders will look at your entire credit report, while others will accept or reject your loan application based solely on your credit score. Your credit score is based on your credit report, which contains a history of your past debts and payments. Credit bureaus use computers and mathematical calculations to arrive at a credit score from the information contained in your credit report. Each credit bureau uses different methods to do this (which is why you will have different scores with different companies), but most credit bureaus use the FICO system, which is an acronym for the Fair Isaac Corporation.

FICO is by far the most used software in the financial industry. In fact, credit scores are sometimes called FICO scores or FICO ratings. The math used by the software is based on statistics and comparative mathematics. This is an important and simple concept that can help you understand how to boost your credit score. What this means is that your credit score is calculated based on the same principles as your insurance premiums. Your insurance company likely asks you questions about your health and lifestyle choices because this information can tell it how much of a risk you are, and how likely you are to make large claims later on.

Similarly, credit bureaus and lenders often look at general patterns. For example, since people with many large debts tend not to have great rates of repayment, their credit score tends to be low. Understanding this can help you in two ways:

1) Your credit score is not necesarily a personal reflection of how "good" or "bad" you are with money. Rather, it is a reflection of how well lenders and companies think you will repay your bills based on information gathered from studying other people.

2) If you want to improve your credit score, you need to demonstrate an ability to consistently pay your bills. You do not have to work hard to reinvent yourself financially, and you do not have to start making more money. You just need to be reliable in making your payments.

Credit reports are put together by credit bureaus, which gather information from client companies such as credit card companies and utility companies. Once a file is started in your name (i.e. once you open a bank account or have bills to pay), then information about you is recorded on this record. If you are late paying a bill, the clients notify the credit bureau of this. Any unpaid bills, overdue bills, or other financial problems count as "dings" on your credit report and affect your score.

Information such as what type of debt you have, how much debt you have, and how regularly you pay your bills is all information that is used to calculate your credit score. Your age, sex, and income do not count towards this score. The actual formula used by credit bureaus to calculate credit scores is a well-kept secret, but it is known that recent account activity, debts, age of credit accounts, unpaid accounts, and types of credit are among the things that count the most in tabulating credit scores from a credit report.

As you work at improving your credit score, you may need to contact the three major credit bureaus (only contact them if you are located in the U.S.A.). If you find an error on your credit report, these are the companies you must contact in order to correct the problem. You can easily contact these organizations by mail, telephone, or through the Internet:

Equifax Credit Information Services, Inc P.O. Box 740241 Atlanta, GA 30374 1-888-766-0008 equifax.com

Trans Union LLC Consumer Disclosure Centre P.O. Box 1000 Chester, PA 19022 1-800-888-4213 transunion.com

Experian National Consumer Assistance Center PO Box 2002 Allen, TX 75013 1-888-397-3742 experian.com

It is our recommendation that you obtain your credit score as soon as possible in order to accurately know where you stand financially. It is ideal to get a credit score that lists all three scores from each of the major bureaus. Two companies that provide excellent credit reports with information from all three major bureaus are myFICO.com CreditReport.com.

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