Credit reporting agencies collect information from you and the companies, like creditors and insurance companies you have previously made transactions with, information about your credit history and general credit activity. Each of the three agencies will create a report from all of these sources. The credit scoring company then gets copies of these credit reports, apply a mathematical formula, and using a software turn this report and the information it contains into a three digit number.
When you apply for a loan, purchase a house, look for a job or apply for insurance, the people you will talk to will contact either or both the credit reporting and credit scoring companies for a copy of your credit report or your credit score. Some would rather look at your credit score because it is easier to read. The credit score, after all is the mathematical equivalent of the information they look for in your credit report.
This score will tell your creditors what kind of borrower you are. If the score is high, that would most likely mean that you have the financial capability to pay for the money you ask to borrow. On the other hand, when you have a low credit score which could be a product of all the items of delinquency on your credit report, then you would most likely be denied on your applications.
In simple terms, if you are planning to get the loans or insurances, or even the jobs you want, you should see to it that your credit score does not plummet. This means that you can either maintain your present credit score, if you think it looks good to your creditors, or you can start building credit and increase that score. Most people prefer the latter one, because high credit score have more benefits. Think of creditors asking you to apply for their loans and not being the one begging.
Not everything in the credit report is used to make the credit score. In fact some companies and lenders have their own formulas to come up with a score. And do remember that some also do not wholly rely on your credit score when deciding about consumers credit applications.
Still, one of the best ways to increase your credit score is to avoid delinquencies on your credit report. This means that you should be a responsible borrower who always pays bills on time. Don t think that since you owe your creditor a very small amount of debt, you can take it easy on payments. All late payments have a negative impact on your report and eventually your score.
In line with this, you should only apply for credit when you really need it. It is still always best to not owe anyone. If you can pay for something in cash, that s always better. If you are always inquiring about credit you can apply for, these are recorded on your report which gives the creditors an idea that you are having difficulties paying for your present dues. Too many inquiries will weigh your credit score down. Finally, learn how to read your credit report. This is the only way you ll find out what s happening with your credit standing and how you can improve it.
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This article has been provided by http://www.free-credit-reports.com , where you can compare credit report and identity theft protection services with this comprehensive chart of all credit report and credit score service providers.
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