In the United States, a credit score is a three-digit number based on a person’s past credit files, and represents that person’s creditworthiness. The score is based primarily on credit information obtains from the three major credit bureaus, and the credit score determines the likelihood that a person will pay his or her bills on time. FICO is a credit score developed by Fair Isaac & Co., and it is used by many mortgage and lending companies to determine the possibility of a client defaulting on financial obligations to the lenders.
A credit score is determined by past credit history, and it must be built up from scratch. Many different factors determine what your credit score will be, including number of accounts or loans, amount of total loans and debt, and even the length that the various accounts have been open. Whether or not payments are made on time consistently will also determine a credit score, as well as any negative marks including bounced checks or going over an account balance on a credit card. Because a credit score is important for trying to get loans, avoiding negative activity is important to build up a good credit score.
A good credit score is necessary when wanting to buy a home or property that requires a mortgage company, since many companies won’t lend to those who are a high risk for not paying it back. A low credit score can also impact those renting a home, since landlords would rather rent to someone who has shown they can pay their rent on time. A poor credit score can cause you to be denied by several types of lending companies, because a low credit score means the applicant is a high risk for defaulting on loans and financial obligations.
Because not everyone in the world has a perfect credit score, there are many companies that will still lend money to those with poor credit scores. Although this may seem like a credit score doesn’t mean anything since almost anyone can get a loan, but it’s completely the opposite. Those with low credit scores will end up paying much more in the long run, since credit card and mortgage companies charge higher interest to those with lower credit scores. Having a good credit score can save you money by avoiding high interest charges, and can also give you the ability to apply for almost any loan or credit card that you wish.
Credit card companies that require their customers to have good credit scores usually offer great benefits, including balance transfer options and even rewards programs. Those with good credit are also typically approved for a higher loan, giving them the ability to buy whatever they may want or need before they have the money available.
Having a good credit score is a great way to save money and enjoy the ability to take out a loan, but it can be devastating for those with low credit who end up with outrageous interest charges. Having a low credit score isn’t the end of the world though; it can quickly be improved by keeping negative marks from your credit report. Make sure to make all of your monthly payments for loans and bills on time each month, and avoid taking out too many loans or credit cards. Try to lower your total debt each month rather than paying off a card and then charging it back up, since high amounts of debt can decrease your score.