Since most credit scores are based off the FICO score model, we can get an understanding of what our credit score means by observing the FICO model.
FICO has come up with a complicated mathematical equation, called and algorhythem, that is generally accepted as an adequate way to measure one’s credit worthiness. What exactly goes into your credit score is a trade secret. BUt FICO does release this much information
Your credit score breakdown
35% paying your bills on time
30% maintain a good ratio of available credit to used credit (generally, the less you use your available credit, the better)
15% the length of your credit history (the longer you keep your credit accounts open the better)
10% applyihg for new credit (apply for it occassionally, but not too often)
10% the types of credit you use (have a good mix of mortgages, car loans, credit cards, bank loans and student loans)
So you can easily see how you can maintain the greatest results with your credit score by focusing on the largest category and paying your bills on time, every time. You can also get the biggest improvement on your credit score by removing the evidence of any late payments, charge offs or collections accounts. Judgements, foreclosures and bankruptcies all fall into this largest area of your credit score.
Before you start boosting your credit score, you need to know the basics. You need to know what a credit score is, how it is developed, and why it is important to you in your everyday life.
If you are going to improve your credit score, then logic has it that you must understand what your credit score is and how it works. Without this information, you won’t be able to very effectively improve your FICO score because you won’t understand how the things you do in daily life affect your score.
If you don’t understand how your credit score works, you will also be at the mercy of any company that tries to tell you how you can improve your score - on their terms and at their price.
Lenders certainly know what sort of information they can get from a credit report and credit score, but knowing this information yourself can help you better see how your everyday financial decisions impact the financial picture lenders get of you through your credit score and credit reports.
Your credit score is a number, usually between 300 and 850, that lets lenders know how well you are paying off your debts and how much of a credit risk you are.
In general, the higher your credit score, the better credit risk you make and the more likely you are to be given credit at great rates. Scores in the low 600s and below will often give you trouble in finding credit, while scores of 720 and above will generally give you the best interest rates out there. However, credit scores are a lot like GPAs or SAT scores from college days - while they give others a quick snapshot of how you are doing, they are interpreted by people in different ways. Some lenders put more emphasis on credit scores than others.
Some lenders will work with you if you have credit scores in the 600s, while others offer their best rates only to those creditors with very high scores indeed. Some lenders will look at your entire credit report while others will accept or reject your loan application based solely on your credit score.
The credit score is based on the information in your credit report, which contains a history of your current and past debts and repayments. Credit bureaus use computers and mathematical calculations to arrive at a credit score from the information contained in your credit report.
Each credit bureau uses different methods to do this (which is why you will have different scores with different companies) but most credit bureaus use a FICO-based system. FICO is an acronym for the credit score calculating software offered by the firm Fair Isaac And Company. This is by far the most used software since the Fair Isaac developed the credit score model used by many in the financial industry and is still considered one of the leaders in the field.
In fact, credit scores are sometimes called FICO scores or FICO ratings, although it is important to understand that your score may be tabulated using different software and formulas.
Most of the things we find on our credit report that lower our score and require credit repair are relatively simple matters we can deal with on our own. The problem with credit repair is that there is quite a bit of misinformation circulated about, especially through some less than scrupulous companies who claim they can help you with your credit report and credit score - for a cost, of course.
From advertisements and suspect claims, customers sometimes come away with the idea that in order to boost their credit score, they have to pay money to a company or leave credit repair in the hands of so-called “experts.” Nothing could be further from the truth. It is perfectly possible to repair your credit, pay down debts and boost your credit on your own, with no expensive help whatsoever.
Unlike your SAT score, which pretty much serves it’s lifetime purpose as soon as you get into college, your credit score stays with you forever. So doesn’t it make sense to put at least as much study, preparation and attention to your score as you did your SAT exam?
It’s true that more than 78% of all credit scores contain factual errors. It’s also true that 1/4 of all these errors will result in the denial of getting credit. So you need to know how to deal with removing errors from your credit report. If not now, you definitely will in the future.
Every technique that’s used to repair credit that’s a legal strategy can be done on your own, without the help of an expensive and slow service that bills by the hour. OR a monthly service that charges you even when they are just waiting for responses from your creditors.
There are some advanced strategies that are best left to the attorneys, things like suing your lenders in court to remove the item. But even these strategies can be done without legal assistance if you’re willing to learn how to do it yourself.
Ready to get started repairing your credit? Consider picking up the Credit Millionaire System for step-by-step instructions on how to do so.
