Last Post On : July 28th, 2013 - Sunday
How To Improve Your Credit Score?

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What Are Credit Score Ratings, And How Are They Computed

Credit score ratings reflect your credit standing or financial status to financial companies and agencies. Each person has a credit score now. These scores are calculated by credit bureaus. They will collect all your financial information, and then place this in an algorithm to come out with a score for you. It is important to know here that credit score ratings can change over time. For instance, if you have missed a couple of payments, then you can definitely expect your rating to drop. On the other hand, if you remember to pay back the due on time each month for a few months, then you can expect an improvement in the rating given by these bureaus.

Creditors or lending companies will today always check these scores. They do this to find out whether it will make business sense to provide the cash advance or not. In other words, they just want to ensure that you have the financial capability to repay. If you have repaid your debts before, then it will show in your score, and thus, the lending company will have the confidence of approving your request. These companies will ask the bureaus for your records to ensure that you are creditworthy. The fact is that, your creditworthiness is directly related to your score, and whether you will get the money you need or not.

How are these ratings calculated?

There are actually several parameters based on which your rating will be calculated. Each of these parameters has different levels of importance or scales on the overall calculation. However, your payment history is probably the most important of all these. This factor alone will affect your score greatly. Some other important factors include the type of loan you took, the amount of loan that is outstanding at this time, and the credit interval.

There are some people who do not have any score at all. Yes, it is rare to find these people, but there are still a few nonetheless. This can happen when somebody has never taken a loan or does not use a credit card. It is good that these people are not burdened with debt. However on the other hand, they are likely to face a problem when they are in need of debt. For instance, how does the lending company gauge your creditworthiness if you do not have a credit score or rating?

This is why it is a good idea to take a loan once in a while. By doing this, you will be keeping a door open for the future when you might need a loan to buy a property, for your new automobile, or for the education of your child.

Credit score ratings are really very important. The lending companies will all be checking them. Your financial future and your ability to buy things may depend on this. And so, you cannot ignore them. It is important to know that sometimes the scores may be wrong for you due to a mistake by these bureaus. You should thus find out what your score is, and ask for corrections if there are any such mistakes. This will improve your credit score ratings.

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