If you've ever wondered exactly how it your credit score is
calculated or what effects your credit score can have, you're
not alone. Though most people use their credit or make decisions
that can cause changes to their credit score most every day, the
majority of consumers tend to know little more about their
credit score than the fact that it exists and that having a
higher score is better than having a low one.
Below you'll find information on what your credit score really
is, how it's calculated, and the effect that having a lower
credit score can have on your life.
Defining the Credit Score
If you're not exactly sure what your credit score is then you
might not be utilizing your credit opportunities to their
maximum potential, or you may find yourself being denied new
lines of credit without really knowing why.
Looking at your credit score from the most basic standpoint,
your score is simply a numerical indication of how much of a
credit risk you might be to potential lenders.
The higher the score is, the less risk of defaulting on the
credit line there is associated with an individual... the lower
the score, the more risk and the greater chance that they might
default on the credit offered to them.
How Your Credit Score is Calculated
Since your credit score is a numerical value, there is obviously
a method that is used to create this number. Whenever a copy of
your credit report is requested, your credit score is generated
by adding to the score for each positive record that appears on
your report and subtracting from the score for each positive
record. Though this may seem relatively straightforward, it can
cause a bit of confusion at times... after all, records can stay
on your credit report for up to seven years before they expire
and are removed.
As an added complication, not all creditors report to credit
bureaus consistently... and some only report to certain bureaus.
There are several different bureaus that compile credit reports
for individuals, and potential creditors need only request a
score form one of them; this can be a problem should a potential
lender request a report from a bureau that your current
creditors don't report to. Luckily, this doesn't happen too
often.
The Effects of a Low Credit Score
Obviously, having a low credit score can hinder the lending or
credit process if you're shopping for a new loan or credit card.
There can be other effects generated by a low credit score that,
while not common, can cause other problems with your way of
life.
Some employers perform a credit check on their potential
employees before making a job offer, especially in industries
that deal with finance, banking, or sales.
Some private schools, institutions, and organizations may also
require a credit screening before allowing new members to attend
or join. Individuals who take advantage of some credit cards
that are offered specifically for those with bad credit may be
opening themselves up to a bit of additional hassle, as well...
less reputable lenders sometimes sell contact information of
their customers to telemarketers and junk e-mail senders.
This is why you should always do your research before deciding
on any new service, so as to make sure to avoid unsavory
businesspeople such as these.
Other problems may arise as well, though they tend to be less
common than those listed here... and even these are not common
occurrences.
You may freely reprint this article provided the following
author's biography (including the live URL link) remains intact:
About the author:
John Mussi is the founder of Direct Online Loans who help
homeowners find the best available loans via the
www.directonlineloans.
co.uk website.
