Every consumer should be aware of the importance of regularly checking and updating their credit report, since this will impact your credit status.
In today's modern world,
an individual's financial status is one of the most vital aspect of human existence. Therefore, it is highly important to learn how to manage your finances well enough and manage to stay out of debt. A person's credit score is one of the most vital pieces of information needed to accurately assess one's financial status.
How Does Credit Score Work
A credit score is a simple three-digit number that basically summarizes your financial capacity and history. It is one of the most basic information used by creditors to determine whether you are a reliable enough person for them to give a loan to, or whether you can buy a new car or house with it. Since there are several variables involved in understanding a person's credit status, this number representation will easily enable lenders to assess whether you are a risk to the company or not.
Nothing about this is exaggerated at all. Thus, it is very important for a person to learn about their credit score, understand how it is calculated, and work on improving credit score to make your financial rating desirable since you'll never know when it might come in handy.
Computing Your Credit Score
You can check credit score online. Before you go deep into the actual process of Check credit report score, it is important to look into the formula used for computation first. The Fair Isaac Company is the one responsible for developing this concept of coming up with a credit score, which is aptly called FICO Score. This method of computing has been utilized by the top 3 credit agencies – Equifax, TransUnion, and Experian – since the 1980s. Before, this number was hidden from consumers but given the importance of this knowledge, it was therefore made known to the person involved. After all, knowing how bad your credit rating is will inspire you to do something to make it better.
The process of computation works just like obtaining your average grade in school, which follows a cumulative process. All of your individual scores in quizzes, oral presentation, homework, and exams are totalled in order to reach an average score. Only this time, it utilizes different factors to reach the intended score.
The formula is determined based on the following factors and their corresponding percentage:
*35 percent on your payment history;
*30 percent on outstanding debts;
*15 percent on length of your debts;
*10 percent on newly opened credits;
*10 percent on the type of credits applied for.
You can check credit report score using the formula, Each of the above listed factors will impact the calculation of your credit score in either the negative or positive way. Over the time though, the three major credit bureaus have also come up with their own unique method of computing, which is still largely based on the formula used on the FICO Score.
Now that you understand how your credit score is computed, you need to work on improving it. It begins with reviewing your credit report for any errors in order to make the necessary corrections immediately. Also, you have to maintain your credit balance such that it does not reach 25 percent from the allowable limit.
