The credit score has now become the standard on which all of us are judged. Lenders simply won’t entertain your application without satisfying themselves first that you are an acceptable risk. But the credit score is also more than just helping you get approval; it also the one thing that determines whether you pay excessive interest or something manageable. Understanding your credit score is therefore one of the most important steps on your way to approaching lenders. Let’s explore it together below.

So Just What Is A Credit Score?
Your credit score is a measure of your creditworthiness – in simpler terms a judgment of whether a lender thinks they’ll get their money back if they lend it to you. It is often expressed as a number with the higher numbers indicating better credit and the lower ones the worst credit. Various organizations maintain credit records but the most widely acceptable comes from the Credit Score Bureau. The bureau draws data from all your consumer credit reports and compiles one composite score.

How Does Your Credit Score Affect You?
At its most basic, the credit score acts a quick measure of your ‘ability to repay’. Lenders look at this first and then other factors when determining whether you should be considered for a loan. Other things like your employment record, residence tenure and such things are secondary, but nonetheless can support your application. Your credit score is therefore your first opportunity of impressing a lender.

How Do I Determine If My Credit Score Is Good?
Most credit scores are recorded in 3 figure chunks and range from say 300 (lower scores) to 900 (higher scores). There’s usually a ‘median’ score used to make a clear line of demarcation between ‘acceptable risk borrower’ and one that is very risky. Risky borrowers are often considered subprime and anyone who falls below a score of 620 are usually tagged with this unfortunate description. Your interest rate will be tied largely to your score so if you fall below 620, you may need to shop around to avoid very high interest.

How Many Credit Bureau Agencies Evaluate Credit Scores?
There are 3 main credit score bureaus: Experian, TransUnion and Equifax. Each of their own way of expressing your credit score, but each effectively paints the same picture of your creditworthiness. Each has their popularity but Experian is fast becoming the de facto bureau. Its Experian/FICO score is the most quoted score when looking for loans.

Where Can I Find My Credit Score?
Credit rating bureaus offer basic insight into your credit score but not enough for you to judge your chances of being approved. For this you’ll have to purchase a detailed report—for Experian, your report can be accessed at myFico.com. For reports from the other top bureaus you’ll need to access your reports directly through their websites.

What Makes Up My FICO Score?
Your FICO score is a mix of assessments made against your personal financial circumstances. The main assessment looks at your credit payment history and how effective you are at settling your debts. This is the anchor for a good score and accounts for at least 30% of your overall score. Another assessment of your outstanding debts is made and this accounts for around 30% of your score – the weighting will vary by rating bureau but not by much. The length of time you’ve been borrowing is also important and makes up around 15% of your score. Contrary to popular beliefs, age; sex; race and other non-credit factors have no effect on your credit score.

Is There A Way To Improve My Credit Score?
Since a big chunk of your credit score is hinged on payment history, it is really in your best interest to make timely payments on amounts owing to creditors. Many feel that ‘paying off’ a loan is the way to go, but credit scores are usually improved by steady borrowing with a solid history of payments. These two factors alone can improve your credit score significantly. You can also improve your credit score by purging it of incorrect or out-of-date information.

How Long Does Information Stay On My Credit Report?
Information has a long life on your credit record and stays for 7 years unless you can prove that the information is incorrect.

What Is An Inquiry?
Each time you apply for credit of any time the lender makes an inquiry on your credit record. Ratings bureaus consider too many inquiries a sign of desperation on your part so it’s not a good idea to make too many if you run into rejection repeatedly. There is however some grace given for certain types of loan applications and so when mortgage lenders or automobile dealers make inquiries on your account, these inquiries are taken as one. Overall though, you should keep inquiries to a minimum.

What Do I Do If I Am Denied Credit?
From time to time you’ll be turned down for credit and when this happens, lenders are obligated to tell you why – usually by writing in about 30 days. Once you get this information you have 60 days to query the reasons cited for denial. If the reason for denial is legitimate, try to fix it before you approach another lender.