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Credit Score

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A credit score refers to a numerical expression which is based on a statistical interpretation of an individual’s credit files. A credit score is used in order to determine the creditworthiness of a person. It is mainly created on the basis of credit report supplied by credit bureaus.

Lenders make use of credit scores for determining whether the applicant qualifies for the debt, and if so, at what rate of interest or credit limits. Credit scoring, before authorizing access or approval of credit, forms the basis of a trusted system.

Credit scoring is not confined to use in banks. Companies dealing with mobile phones, insurance, as well as employers, and government departments use the same methods.

Ways to improve your credit score

Dragging on with poor credit scores will make you pay more on credit cards, car loans and mortgages. Statistics have reported that currently there are over 30 million people in U.S.A with severe credit blemishes (less than 620 credit score) who have tremendous difficulty in getting loans as well as credit cards with decent interest rates.

The first step towards improvement of your credit score is getting to know your current score. In U.S.A the credit score ranges from 300 to 850. After this you should work towards increasing your credit score in this manner:

• Clearing your credit cards debt: Repaying your mortgage, car loan and others will certainly help in improving your score but not to such a great extent as paying down your credit cards will do. Credit cards debt keeps on multiplying since it adopts the compound interest form of calculating payments. Making minimum payments every month adds to the burden. You should try to clear off the credit card dues as early as possible. Lenders prefer seeing a considerable hiatus between the credit amount you are utilizing and the available credit limits. Having a balance less than 30% of the credit limit is a positive sign in the eyes of the lender.

• Verify your limits: At certain times, credit scores can be artificially low on account of a lender showing a reduced limit than what you actually have. Generally majority of credit card issuers do update this data when you ask for it. If consumer limits are not reported, the credit bureaus utilize the highest balance for your maximum credit limit.

• Use your old card: You should use your old credit cards every now and then as stopping the use of your old cards may result in the issuers not updating the accounts with the credit bureaus. Always remember it is better to have a old credit history.

• Obtain some goodwill: If you have so long been a generally nice customer, a lender may agree to erase a particular late payment if you make a special request.

Finally you should take care to correcting factual errors if any, as quickly as possible in the credit reports supplied by bureaus. All these factors are the determinants for a good credit score.

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