Your Credit Score Explained

Credit score is a formula used by lenders from your credit report compared to that of many others to determine your credit worthiness, i.e how much they believe you can really pay back and that affects how much you can borrow. The higher the number of your credit score the better you look to the lender and the lower the interest rate you receive.

You Credit Worthiness
FICO, created by Fair Issac is the most popular system used to assess credit risk. With the FICO system data about you is collected from three main credit bureaus (TransUnion, Equifax and Experian). They do not really asses your income as some people have very high incomes but they never pay their bills. The factors they do consider include: debt, the type of credit you use, the length of your credit history, your new credit and most important of all your payment history. This is then uses to tally up a score between 300 and 850 in order to ascertain your credit worth. The higher the number the lower your interest rate.




Can I Check My Credit Reports ?

1. You are entitled to get a free credit report once annually from the three main bureaus listed above. You can do this by calling 1-877-322-8228 or visiting annualcreditreport.com
2. Checking your report does not affect your credit worth score.
3. If you dispute something on the report (which you are also entitled to do) keep in mind that this is considered a hard enquiry and this in itself will affect your credit score. This stays on your records for 3 years.
4. The cost of one report is $14.95 or you can purchase all three reports for $44.85.
5. Lenders look for trends when assessing your credit score so one late payment alone should not make much difference.
   
6. FICO records go back 7 years, however most lenders tend to look at just the last two years.