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Credit Score and Its Importance
By vishnu | May 18, 2008
It is very important to know and fully understand your credit report; this will help you in getting loans, mortgage and even getting a job. Inquiries regarding sanctioning of loans, issue of credit card or anything that requires a copy of your credit record by the lenders, will also be listed in your credit report. Financial situations like bankruptcies, tax liens, non-payment of monthly bills, your personal information like your social security number, no. of family members, your employers (present and past) etc will be listed in your credit report. Therefore one must be fully aware of the records in one’s credit report.
Credit score determines the status of your report. It is based on a mathematical equation which is further based on the information listed in your credit report. The score is called as your FICO score, where FICO is Fair, Isaac, and Corporation. It is named after the company that devised the mechanism. The lending agencies, creditors, companies etc will make use of your credit score to determine if you pose a financial risk to them or not. To have a FICO score you need to have at least one open account and that too from six or more months. Your current and persistent financial status is given more preference. The score depends on your financial history, frequent late payments, past debts, how much debt you currently have, types of debt. Doubtful records will have a negative impact on your credit score. Your FICO score will not only affect sanctioning of the requested loan but will also determine the interest rate on the sanctioned loan. Higher will be your credit score, lower will be your interest rate. Knowing your credit report better will help you make effective financial decisions, it will also help you know your financial state better and ways to improve it, to plan your ways ahead.
Topics: Credit Ratings |
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