What is a Credit Score?

A credit score is a sum used by lenders as an indicator of how likely you are to repay your loans. Your credit score is generated by a mathematical formula utilizing the data from your TransUnion, Equifax or Experian credit reports. Lenders have been using credit scores as part of the lending decision for over 20 years.

What factors influence my credit score?

Various factors determine your credit score, including the following:

• Payment History
• Outstanding debt
• Length of credit history
• Severity and frequency of derogatory credit information such as bankruptcies, charge-offs, and collections
• The amount of credit used compared to the credit available

How does my credit score affect me?

Your credit score is an important indicator of your financial health. Lenders use your credit score to determine:

• Whether or not you are a good candidate for a loan
• What type of interest rate you will pay

While your credit score is a key determinant of your creditworthiness, lenders also examine the information on your credit report and your loan application. Regularly checking your credit report enables you to:

• Be informed of the most up-to-date information in your credit history.
• Correct any inaccuracies, to make sure that your credit data is a true depiction of your credit record and increasing your chances of receiving credit under the best possible terms

What is a "good" credit score?

There are several types of credit scores available. Typically, the higher the score, the better. Each lender decides what credit score range it considers to be a good credit risk or a poor credit risk. For this reason, the lender is the best source to explain what your credit score means in relation to the final credit decision. After all, they determine the criteria used to extend credit. The credit score is only one component of information evaluated by lenders.

What is credit scoring?

Credit scoring is a method used by lenders to help decide whether or not you are a good candidate for a loan. Lenders employ a credit scoring system to determine your credit score:

• Compares information in your credit report to the performance of consumers who have similar credit characteristics
• Examines many credit characteristics including your payment history, the number and kind of accounts you have, the number and frequency of late payments, and any collections or bankruptcies Generally speaking, positive credit characteristics make your score higher and help you to qualify for better loans. Negative characteristics make your score lower and may interfere with your ability to qualify for the best loan terms.

How is a credit scoring model developed?

A lender creates a credit scoring model by using several criteria:

• Selecting a large sampling of customers
• Analyzing the data in their credit reports to determine which factors relate to creditworthiness
• Assigning a degree of importance to each of the factors, based on how accurate a predictor it is in determining who will repay their loan on time

5 Quick Steps to a Better Credit Score

Learn how to manage your credit score and improve your creditworthiness. Think of your credit score as a picture of your credit risk. This picture reflects your risk at a specific point in time. A picture does not change; however, when you take another one, you will probably look a little different. Similarly, when your credit information changes, your score will also change to reflect the updated information.

There are steps you can take to ensure that each time a new "credit picture" is taken, it shows your best side. By observing the following guidelines, you can influence your credit worthiness for the better:

1. Be punctual- Pay all your bills on time. Late payments, collections, and bankruptcies have the greatest negative effect on your credit score.
2. Check your credit report regularly and take the necessary steps to remove inaccuracies - Don't let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit report contact the creditor associated with the account or the credit reporting agencies to correct it immediately.
3. Watch your debt - Keep your account balances below 50% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $500.
4. Give yourself time - Time is one of the most significant factors that can improve your credit score. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit report open in order to lengthen your period of active credit use.
5. Avoid excessive inquiries - A large number of inquiries occurred over a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay.

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