More Than a Number
By Cindy Sumner
If you’ve never wanted to be reduced to just a number, you may find the concept of credit scoring disconcerting. A credit score is a single number calculated on a specific date that takes into consideration factors such as bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, the age of your accounts, and recent inquiries about your credit. Based on this information in your credit file, a mathematical equation calculates your credit score. Different credit score models are used by the financial services industry depending on the type of credit under consideration.
What does a credit score mean? The number theoretically assesses the likelihood a borrower will repay a debt. Credit scoring has become the new standard for use by businesses such as banks, mortgage lenders, and insurance companies. The higher your credit score, the better the terms, rate, and amount of credit you will be entitled to–scores over the low seven hundreds will earn you the best terms from creditors.
You can find out your credit score, for a fee ranging from $5.00 to $14.95, from the same three credit agencies that prepare credit reports. Visit these websites to order a copy:
If your score isn’t as high as you’d like, there is no quick fix. However, you can do things to improve that number over time. Whenever information changes at a credit agency, your credit score is also updated. Those with scores below 600 can use these three main strategies to improve their overall standing.
- Pay your bills on time. Late payments have a very negative impact on your score, but the longer you pay your bills on time, the better your score.
- Pay more than the minimum, and work toward keeping balances as low as possible.
- Don’t apply for, and open, new credit accounts unless they are needed. Pay off debt rather than moving it around.
The good news about credit scoring as it applies to lenders is that many institutions look at more than your credit score in deciding whether or not to make a loan. They can consider your income, the length of time at your present job, and the type of credit you are requesting. For this reason, lenders usually have you fill out a lengthy application that asks for this kind of information.
Few of us appreciate having our financial status reduced to a single number. Fortunately, your credit score is a number you control. Based on the effect a credit score can have on your finances, it’s a number worth paying attention to.