What Affects My Credit Score
You may be wondering what a credit score is or how you go about identifying the extent of the damage that it can have on day-to-day life. It can feel as though you require a master’s degree in finance or economics just to understand how anything to do with your credit works. Luckily, this is not the case. Your credit score is based on an amalgamation of factors that entities can use to determine how trustworthy you will be in either your repayments or payments. Once you understand how these factors affect your total score, as well as how potential debtors use this information, you will find that your credit score is not something to fear, but rather a metric that you can easily improve month on month.
What is a FICO score?
Fair, Isaac, and Company are a data analytics company that founded a scoring system to assist lenders in determining the risk of investing in the borrower. This risk is determined by multiple factors that FICO deems as critical information that a lender should be aware of, before proceeding with any transactions. FICO credit scoring has been adopted as an industry standard and is widely used because of its efficacy.
What contributes to your score?
As we made mention of previously, multiple factors affect your total credit score. Payment history and length of credit refer to how you pay your debt and the length of time that you have been paying, respectively. Your credit mix refers to the number of varied accounts that you have open at any given time. This helps lenders understand how many types of debt you are capable of handling at the same time. Hard inquiries and new credit refer to the number of queries new inquiries lenders have made on your account and how much credit you have applied for recently, respectively. If you would like more information on any of these from a knowledgeable professional, contact us.
Revolving credit VS installment loans
Everyone who has had credit, even once, has a credit file at any one or more of the major credit bureaus. Two kinds of credit are recorded in credit files: installment loans and revolving credit. Installment loans refer to debt that has been taken on prearranged terms. These terms will include the amount being borrowed, the length of time that the borrower will pay the loan back within, and the interest rates attached to the loan. Revolving debt generally refers to debt that is taken without terms, such as the length of repayment, being discussed beforehand. These most commonly include credit cards and store accounts.
Your score from a lenders view
The reason that the FICO credit score system was so readily adopted was that it is simply the most effective means for lenders to ascertain the risk involved with the transaction they intend to make with a borrower. Without a system like the FICO credit score, lenders would have to make poorly informed decisions about borrowers and stand to lose substantial amounts of revenue. It is important to note that this system is not designed to hurt consumers, but rather assist both them and businesses in doing smarter business, while both parties remain protected from unfair practices. Unfortunately, the system is not always favorable to the consumer, which is why companies such as Credit Repair Services, Military, Fort Hood Killeen TX are here to help!