Credit Score Ratings Explained
With the ups and downs of the economy recently credit scores has been a popular topic in the media.
Credit score is important because it determines if you are qualified to buy things like cars, houses and other large ticket items.
In other words, you need a good rating to obtain any kind of loan.
With this being said, there is a ton of confusion when it comes to the ins and out of the rating system.
Banks, credit card companies and loan consolidation companies have created large misconceptions about it and what affects your score.
Credit Score vs.
Credit Rating Most people are not aware that a credit score and a credit rating are two different things.
A credit rating is when a person's score, history and other aspects of their financial history are taking into account to determine if they qualify for something.
With this in mind, a credit score is simply the number that describes your credit.
A score can range anywhere from 400 to 894 points, with 894 being the best.
There are three credit reporting agencies that determine a person's credit score: Experian, Equifax and Transunion.
You can obtain your credit score by purchasing a credit report from any of these agencies.
Meaning of a Credit Score So how do you know what it means or what you can get with it? Scores are usually evaluated by the particular range of scores they fall into.
For example, if you have a score between 500 and 579 then there is very little chance you will qualify for any type of loan.
This is because there is discrepancies on your credit history that show you are not capable of paying the monthly payment on time every month.
So what is a decent score? Financial companies consider a mediocre score to fall anywhere between 620 to 659.
You chances are of getting a decent size loan with mediocre is a toss-up.
If your credit score is higher than 659 you are considered to be in good shape.
Having a good score will allow you to get better interest rates as well.
Most people will never obtain a score higher than 760.
Anything above 760 is golden.
What Determines a Score? There is a very complex formula used by credit reporting agencies to calculate an individual's score.
There are five elements that are used to determine your score, which include: owed accounts, payment history, credit history length, recent borrowings and type of credit.
Each element is weighted differently.
As you can see, there are some elements that you are not in control of, like the length of your credit history.
This is why young adults sometimes experience a lower score than they should have.
This is just a brief introduction to the complex world of credit.
The increased use of credit cards has made this a very popular topic in the news and the daily life of an individual.
Credit is hard to repair so be careful before you choose not to pay your next bill.
Credit score is important because it determines if you are qualified to buy things like cars, houses and other large ticket items.
In other words, you need a good rating to obtain any kind of loan.
With this being said, there is a ton of confusion when it comes to the ins and out of the rating system.
Banks, credit card companies and loan consolidation companies have created large misconceptions about it and what affects your score.
Credit Score vs.
Credit Rating Most people are not aware that a credit score and a credit rating are two different things.
A credit rating is when a person's score, history and other aspects of their financial history are taking into account to determine if they qualify for something.
With this in mind, a credit score is simply the number that describes your credit.
A score can range anywhere from 400 to 894 points, with 894 being the best.
There are three credit reporting agencies that determine a person's credit score: Experian, Equifax and Transunion.
You can obtain your credit score by purchasing a credit report from any of these agencies.
Meaning of a Credit Score So how do you know what it means or what you can get with it? Scores are usually evaluated by the particular range of scores they fall into.
For example, if you have a score between 500 and 579 then there is very little chance you will qualify for any type of loan.
This is because there is discrepancies on your credit history that show you are not capable of paying the monthly payment on time every month.
So what is a decent score? Financial companies consider a mediocre score to fall anywhere between 620 to 659.
You chances are of getting a decent size loan with mediocre is a toss-up.
If your credit score is higher than 659 you are considered to be in good shape.
Having a good score will allow you to get better interest rates as well.
Most people will never obtain a score higher than 760.
Anything above 760 is golden.
What Determines a Score? There is a very complex formula used by credit reporting agencies to calculate an individual's score.
There are five elements that are used to determine your score, which include: owed accounts, payment history, credit history length, recent borrowings and type of credit.
Each element is weighted differently.
As you can see, there are some elements that you are not in control of, like the length of your credit history.
This is why young adults sometimes experience a lower score than they should have.
This is just a brief introduction to the complex world of credit.
The increased use of credit cards has made this a very popular topic in the news and the daily life of an individual.
Credit is hard to repair so be careful before you choose not to pay your next bill.
