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Knowing How Your Credit Scores are calculated

By Andy Snyder
Published: Monday, July 12th, 2010

Getting denied or approved for a loan depends on your credit scores. These scores are the basis of credit companies on assessing your worthiness for a new account or a loan application. If your scores are low, your application if denied. Logically, if your scores are high, you will have the chance to enjoy great financial opportunities. Many people seek for the most effective credit report advice they could ever get in order to improve their credit scores. Little do they realize in the end that the primary way to enhance scores is to know how to compute them.

A mathematical algorithm generally makes up a formula comprising the information in the credit report done by the three main credit reporting agencies. The algorithm then reaches a resulting number which is believed by many as the most accurate way to predict your capacity to pay your future bills. Your applications including insurance policies, mortgage and car loan are directly related to your credit scores. Again, if you have high scores, you create a good impression to creditors and you also enjoy low interest rates from the packages you apply for.

Your rating from the reporting agencies is primarily gauged by lenders using the FICO system. Named after the person who proposed it, the FICO ranges from 300 to 900 where the lower numbers pose higher risks. The entire FICO system is divided into several categories with commensurate percentages. Thirty percent of which depends on the total of the credit which is currently used by the consumer, fifteen percent depends on the credit history or how long are the credit lines opened for use, ten percent pertains to the type of credit lines which are under your name, another ten percent considers your past credit lines and the biggest portions include the number of your delinquencies.

Any bulk of credit report advice you can get from lenders and borrowers alike would include your chance of acquiring a copy of your credit reports. The three main credit bureaus should provide you a copy but you can always seek for websites that could help you generate your yearly reports and ratings. Opportunities online are not just enclosed with securing a copy but also include the chance for borrowers and lenders to encourage everyone and help each other in raising their credit ratings. It is then good to know that you can participate in online forums like this in order for you to get the best credit report advice.

Knowing how your credit ratings are calculated will give you a guide on how to work on an impressive credit line. There is not enough time to be wasted as every borrowing and paying opportunity counts while determining your future chances of a credit approval. You may want to use your present credit opportunities wisely because any activities you make are marked on your credit reports. Furthermore, you also need to avoid delinquent payments because they are big determinants of your chances.

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