Credit Score Scale
With the availability of all sorts of financing options available, people have started using the credit facility so much so that in most cases, this has resulted in folks coming under large amounts of debt. When applying for a credit card or any other credit related facility, one of the most important things that the lender does besides getting the application filled out, is to perform a credit check on the borrower. If the borrower has a good credit history, has made timely debt repayments, does not have huge outstanding loans and has an overall good track record ñ the borrower will most likely get a low interest payment credit offer. On the other hand, if the borrower has a poor track record, has not paid their debt repayments, have huge amounts of outstanding debt ñ then most probably the borrower will end up paying a high amount of interest.
What basically happens is that once the borrower fills out the application form for credit and gives it to the lender, the lender then approaches a credit bureau to get a credit score rating scale on the individual. Fair, Isaac Company (FICO) created an application of a credit scoring model which creates a create score based on certain facts about the individual borrower. These facts include the borrowers past history, frequency of debt applications, how much credit cards they own etc. FICO scores range from 300 to 850, but almost all consumers have a score between the 600s and the 700s. Credit score scales are readily available even to the borrower so they can also be informed about where they stand and how they can improve their credit score rating scale.
There are basically five components of credit score scales, they are:
1) Past payment history – a good past repayment history will lead to a good score
2) Credit usage – if a person is constantly using credit to purchase commodities, this person is inclined to have a longer credit usage history and a lower score.
3) Credit history – like any other customer relationship, the longer an account has been opened with the financial institution, the better the credit score would be
4) Types of credit used – credit accounts with reputable companies will lead to a good score.
There are numerous books and credit score scale guides informing people on how to improve their credit scale score if they are faring poorly. The answer to this is quite simple actually. Firstly, one needs to start making their credit card payments on time. If you can’t repay the whole amount of credit used, at least make the minimum payment so you don’t get charged another late fee and subsequent credit charges. Secondly, while it may be tempting to have high credit limits, it’s not necessary to max your credit cards out just because you have the option to do so. Moreover, with all the financing options available in the market these days, it is very easy for anyone to get tempted to go on a shopping spree without realizing the cost associated with it. Thirdly, the financial institutions and credit companies offering amazingly good credit deals often have hidden charges involved; so it is always good to be aware of the company you are dealing with and what kind of deal they are offering.