Credit Score Ratings

 Credit score ratings are a numerological representation of your ability to use credit wisely. In short, when you borrow money, use a credit card, apply for a loan, or make payments on those debts, you are creating a credit history. There are three credit bureaus who gather information reported from your creditors (those who you do business with such as credit card companies and other lenders) and keep a file on you.
All of the information about your credit use, including your personally identifiable information is managed by these bureaus. When another creditor wants to loan to you, it will request a copy of this report. The goal is to learn as much as possible about what type of borrower you are. Do you make payments on time? Do you use all of your available limit? Do you make payments to reduce how much debt you have or are you applying for new debt.
Why It Matters
Credit score ratings matter. If your score is low, this means you are a high risk to lenders. Many lenders turn down borrowers who are have a very low credit score. If you are given a loan with a low score, you will pay for it with a very high interest rate. Even more importantly, some employers use this information to determine if you should be hired. Keep your score as high as possible is critical.
How to Monitor Your Score
To monitor your credit score ratings, the first step is to check your credit report with each of the three bureaus. You can do this one time per 12 months free of charge. However, it does not include your actual score. It will only allow you to verify that the information contained within your file is up to date and accurate. It is up to you, then, to ensure that you make wise credit decisions so your score can increase.
Additionally, you can purchase a credit monitoring service. This type of service allows you to pay a small fee each month that will allow you to know what your score is. If there is a change to it, it will tell you that there is a change. You can monitor any changes in accounts, balances, and payments. This type of tool is also excellent for ensuring that your identity is protected.
Credit score ratings are a critical component to managing your ability to borrow money. If you plan to buy a car, get a job in a financial industry, get cheap car insurance, or purchase a home, you need a good score. By monitoring your score on an ongoing basis, you can make better decisions for yourself moving forward.

Credit Score Facts - 7 Things You Probably Didn't Know Affected Your Credit Score

1. All Credit Reports are NOT Created Equal
This means that your interest rate is somewhat dependent on whichever credit report your lender uses. This may not sound significant but a few points could mean the difference between being classified from the no credit risk category to the some credit risk category or even the default credit risk category. This could mean having several percentage points added to your loan. Make sure you check which reporting agency your lender is using and if you have a better score with another agency, ask the lender to consider that report instead. Depending on the situation, it could be a good idea to switch to a lender who primarily uses a different reporting agency.

2. Where You Got Your Credit Card Can Affect Your Credit Score
In the past, your credit score was often calculated by rating credit cards issued through national banks higher than ones listed through local banks or credit unions. Although this calculation is rarely used anymore, some lenders still calculate your score this way. Owning a credit card issued through a local bank or credit union could be hurting your credit score if you end up with a lender using this old fashioned credit score calculation.

3. The Credit Report You Buy May Not Be The One Your Lender Sees
When you buy a credit report, the score you see is based on a specific calculation by that reporting agency. When a lender looks at your score, they could be using a different calculation and likely a variety of different scores based on calculations associated with specific risks (auto loan score, mortgage score, bankcard score, etc.). So don't be surprised if the lender replies to your loan request differently than you expected.

4. There Might Be Errors on Your Report
It is estimated that up to a quarter of consumers are affected by errors on their credit reports each year. Just imagine paying a higher interest rate or not getting approved at all due to an error! To avoid this, make sure to check your credit report at least once a year for errors. You have the right to one free credit report each year from each credit agency. Only you will be willing and able to find the errors so prudence may be your best bet here.

5. Divorce Doesn't Apply To Your Credit
Divorce will not automatically separate your joint accounts. Although you might manage your credit responsibly, your credit might be still getting damaged by your ex. When you divorce, you must send letters to each credit agency formally acknowledging your divorce. Even once you have done this, errors are likely still going to be made. Checking your credit reports after a divorce can be vital to avoid costly errors that will drop your credit score.

6. Credit Repair Companies Don't Repair Much
Although credit repair companies can talk a big talk, most of the time they don't walk a big walk. Most credit repair companies offer grandiose promises to fix your credit. The reality is they can really only send dispute letters to have items temporarily removed from your report to give you time to address them. However, if you cannot prove the error, the negative items will simply be put back on. Some of the better credit repair companies will negotiate with the creditor for you to make sure you are rewarded on your report for not defaulting on your loan. Although, overall these companies will make bigger promises than they can follow through on.

7. Your Credit Score Can Fluctuate A Lot
Your credit score is constantly being updated and your score is partially calculated by factoring in your credit card utilization rate (total card balances/card limit). One day you might have a 30% credit card utilization rate and another day a 70% or 80% credit card utilization rate. This factor can cause your credit score to fluctuate quite a bit. So don't be alarmed, just make sure you keep your credit card utilization rate to a minimum when seeking larger forms of credit.

What Exactly Is a Credit Score?

When you apply for a loan in order to buy the house or car of your dreams lenders will look at your credit score and they will use it to decide if they should give you the loan or not.
There are lots of Americans who don't know what a credit score is or how it is calculated. If you belong to this group of people, then don't worry because in this article you will learn all these basic concepts that are necessary to start improving yours and to buy the house or car of your dreams once and for all!

What Exactly is a Credit Score?
A credit score is a number of 3 digits that lenders use as an indicator of your capacity to meet financial obligations such as mortgage payments, car payments, credit card bills, loan repayment, etc. It basically tells lenders how likely you are to pay your debts.
It is usually a number between 300 and 850. The higher the credit score, the less risky you are to lenders. And the less risky you are to lenders, the better interest rates you will get. Also, the higher your credit score is, the more chances you have in getting a loan. Sounds simple right?
A score of 750 or more will give you the best interest rates and the best chance of being approved for a loan. On the other hand, with a of 600 or less you will have a hard time finding a lender who is willing to give you a loan. And if you find it, you will have to pay a lot of money in interest just because of that low score.
That's why you have to improve your credit score as soon as possible (if you have a low one or not):

• To avoid high interest rates.
• To save thousands of dollars in interest in the long run.
• And to get the house or car of your dreams at the lowest cost possible.

Where Does It Come From?
Now you are probably wondering "Where does my credit score come from?" This is a very common question and the answer is simple: Your credit score comes from your credit report.
This credit report is created by the three major credit bureaus in the states and it contains the history of your payments, the amount of loans that you have, how much you owe, and a few other things.
The bureaus use the information contained in your credit report to calculate your score. The three major credit bureaus use the FICO scoring system, which ranges from 300 to 850.

What Exactly is Your Credit Score Made Of?
Your credit score is made of five different parts:

Payment History (35%)
Payment history refers to the ability to pay your bills on time. It represents 35% of your credit score. Your history is considered the best indicator of your future financial behavior. Late payments, missed payments, loan defaults, unpaid taxes, and the worst of all, bankruptcy, will all hurt your score.
It's also important the amount of negative events and when these events happened. Newer events affects your score more than older ones. More severe events (like bankruptcy) are worse than less severe events. And many events hurt your score more than only a few of them.

Amounts Owed (30%)
Amounts owed represent 30% of your credit score. It refers to the amount of debt you have in comparison to your credit limits. This is also called the "debt to credit ratio" and it works like this:
Let's say you have $10,000 available and you only owe $3000, then your ratio is 30%. So the formula for the "debt to credit ratio" is: your debt divided by your available. The lower the ratio, the better for your score
Important: If you have a high ratio, don't apply for more available credit to lower it. It will only hurt your score even more so please don't do that.

Credit Length (15%)
Credit length represents 15% of your score. The longer your history is the better for your score. This is based on the assumption that your past financial habits are likely to be the same in the future. And if you have a long history, the bureaus can see exactly what your financial behavior is.

New Credit (10%)
The application for new credit represents 10% of your credit score. Every time you apply for new credit, an inquiry is added to your credit report. This inquiry hurts your score, because it tells the bureaus that you are in the need for more money.
Also, taking new credit will bring down the average length of your credit accounts. This is because now the new credit account is taken into consideration to calculate the average length.

Credit Types (10%)
The types of credit that you have represent 10% of your score. It's good to have different types of credits because it shows the lenders that you have experience managing different credit accounts.
Important: Having different types of credits can help your score but don't go out and get loans if you don't need them. This isn't a significant part in the credit score formula (it only represents 10% of your credit score) so don't get yourself into more debt just to have a better mix of credit.

How Can I Improve My Credit Score?
Now that you know what a credit score is and where it comes from, the next thing you have to do is to start improving it as soon as possible. The truth is that it won't be an easy task (especially if you have a low one): it will take some time, money and patience but it will be worth it. A few more points could be the difference between buying the home or car that you and your family deserve or not!

For more information on how to improve your credit score Here