Credit Guide

Many people are unaware of what a credit score actually means. In fact, a survey of 1,000 Americans taken in September 2004 demonstrated that only one third of people knew that a credit score was a measurement of how likely a person is to pay off a loan. Having a good credit score is necessary when it comes to applying for loans for cars, mortgages, and credit cards. Furthermore, having a bad credit score can lead to denial of basics such as a phone line in your home. Therefore, it is important for consumers to understand how a credit scores affects them and how it is determined in the first place.

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Calculating the Credit Score

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In essence, a credit score tracks how well a person incurs debt and how good that person is at paying the bills on time. Businesses, including lending institutions, look for a high score with potential customers because the higher a person's credit score, the more likely that person is to be responsible with finances and the more that person can be trusted to pay back debts.

Because each bureau can and does receive information from different banks and creditors, your credit score (also referred to as "FICO score") can differ from credit bureau to credit bureau. While credit scores themselves range from 350 to 850, a FICO score of 700 from Experian is generally considered the equivalent of a 700 FICO score from Equifax or TransUnion. Regardless of which bureau supplies your credit report rating, the higher your FICO score, the better your chances are of securing a loan, with a favorable interest rate and ultimately having a stronger more solid credit history.

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A credit score may vary from one credit-reporting agency to the next since they do not all necessarily receive the same information from businesses. Some businesses report to all three of the major reporting agencies, while others may only report to one or two. In addition, the statistical pool used by each agency may vary slightly, leading to a different credit score. All of the agencies, however, utilize the same software when it comes to determining credit scores. Fair Isaac and Company (FICO) develops this software and, therefore, the credit score is often referred to as the FICO score.

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Score Factors

How To Improve Your Credit Score If you apply for mortgage finance, you do not know if you will get approved for the loan and what the percentage rate will be. Both of these depend on your credit score. The better you credit score is, the higher your chances of an approval at a low rate. Credit scores are based on the information in an individual's credit report. Lenders use credit scores to evaluate the potential risk posed by lending money to consumers

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A person's credit score is not static. It changes all the time. Every time a bill is paid on time or late it is reflected on the credit score. In addition, each time a person takes out a new loan or applies for a new credit card, the credit score changes. This is because the credit score is based on the person's financial history and attempts to make a prediction at how responsible the person will be in the future.

Your credit profile is very important in determining whether or not an application for credit is accepted or declined. There are two methods below that can help you and our Guide (at the top of this page) provides a further insight into credit scoring. Understand your credit rating and help improve your ability to get credit with your Equifax Credit Rating.

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The final score is highly objective and based on statistical data. Points are gained based on specific factors such as late payments, payment history, outstanding debt, and the length of time an account has been open. All of this information is compared to the statistics of people with similar profiles to determine a final credit score.

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JP Burkhart recommends that you visit credit score rating scale for more information.

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