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Credit Score Fundamentals

By Janet Lacey
Published: Tuesday, April 27th, 2010

While we all might know why exactly a credit score is important, some of us might not really know its true significance today. It is quite possible that people might not be aware of some of the basics of the score and why they need to care about it. Many people continue spending frivolously without caring much about how it is going to impact their credit history. Only when they need something later on and won’t be in a position to get it owing to the poor score, will they realize their folly and think of ways to rectify it.

Information used for generating your score

Not everything connected to you in your life is going to be used in order to generate that exclusive number. There are only certain things that companies are going to be using in order to generate the score, and these are the things that you need to care about if you want to have a good credit score. The three things that are used are account information, public records of your finances and also inquiries created by credit providers in order to learn more about your score or your credit history.

Does a good score guarantee a loan?

Having a good credit score does not mean that the banks and other financial establishments have to give you loans, it just means that you might have a much better chance of getting loan approval when compared to someone with a poor credit score. Good scores also automatically get you good interest rates on your loan, which should be seen as another perk of having such a score in the first place. After all, you wouldn’t want to jeopardize your chances of getting a loan simply because you could not exercise better control over your spending habits.

Change of your score

Your credit score will only change if your credit report is being frequently changed. Hence, until new information has been added to your credit report, the score is going to remain stationary. Unless you have not had any significant financial transaction to report about, your score should not really vary.

It will remain more or less static and will only go either easy if you are actively using your account for clearing debt and the like. Also, you are legally allowed to one free credit report every year, so you can use that score as the score for the current financial year. There is no advantage of frequently checking the score, even though it might not affect your credit history.

Loans and your credit score

Having a loan is definitely going to impact your credit score. The kind of impact depends entirely on you, since you can decide whether or not you want it positively impact your balance or negatively affect the score. Just having a loan might make your account look suspicious for the money lenders, but if you are making payments for the loan on time, then it is not considered to be a bad thing and you can in fact improve the score gradually.

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