Good Credit Score

October 14, 2011 by  Filed under: Credit 

Due to the fact that we live in a money-driven world, and that we need money for almost everything we want to accomplish in life, having a good credit score is far more valuable than many other things in life. However, even though everybody wants to have a good credit, actually getting to the point where you will be able to apply for a loan and be sure that your application will be approved is not as easy as it may seem. A good credit score is not something you get or something you simply have. It is rather something you have to build for some time, while paying attention to a lot of little details and making sure that every financial move you make is indeed the right one.

What Exactly Is a Credit Score?

Many people are confused by this term, as when they find out what their actual score is, they often do not know what to think of the number in question. Namely, your credit score can be a number anywhere from 300 to 850, the latter being the best score you can possibly have. Now, what exactly is done in order to get this number? Well, the creator of the FICO report is the Fair Isaac Corporation, and they have come up with a way of rating people’s credit in the following way: 35% debt history, 30% debt level, 15% length of debt history, 10% new debt and 10% type of debt. When all of these factors come together, the famous number is created.

Why Is Having a Good Credit Score Important?

Even though many people wrongly assume that they will not get any kind of loan if they have a bad credit score, this is actually not true. No matter how bad your score is you will always manage to find a lender willing to make credit available to you. However, the real question lies in the interest rates involved. This means that people with a good credit score will always get lower interest rates than the ones with a bad score, and the reasons for this are pretty obvious. If you have a good credit score, it automatically means that you are a low-risk borrower, which ultimately means that you are more likely to pay back the money without any problems.

How Can You Improve Your Credit Score?

To start off, you should actually get your credit score and see the number related to it. When you receive the score, you will also receive some advice on how to make this number bigger, which will result in improving your credit score. Basically, here is a list of things you should keep in mind if you want to create a good credit score:

Do not spend more than you can afford to pay back, meaning that you should always try to keep your debt below the maximum limit, as this will increase your score.

Make your monthly payments on time, or even before they are due. This way, you will keep increasing that three-digit number everybody is so interested in.

Avoid having too many credit cards, and if you have to take out a new one you should always wait a few months before taking out any loans, as it takes this much time for your score to bounce back to the usual number.

Check your annual credit report and see if there are any errors. If there are, remove these errors as soon as you can, as they can affect your score in a bad way.

The best way to follow the points mentioned above is simply being responsible with your finances and think very carefully about every financial decision before you actually make it. By doing this you will make sure that you create good credit and maintain it successfully.

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