These days, the contents of your credit report can affect your quality of life – from whether you can rent a flat, find a job, or obtain financing for a car, home, or personal loan. With your credit score representing you so often, it’s important to know how to read your credit report, and spot [...]
FAQs About Credit Scores
Questions About Credit Scores:
- What is a credit score?
- Do all lenders use the same method of calculating my credit score?
- What should I do if I have a low credit score?
- Do all lenders look for a certain credit score?
- I just obtained my credit score. Will the score change over time?
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Answers:
What is a credit score?
A credit score is a numerical representation of the contents of your credit history. On time payments, a high amount of available credit compared to total credit limit, and a reasonable number of accounts will bring your credit score up. Missed or late payments, defaults, bankruptcies, and foreclosures will bring your credit score down.
Do all lenders use the same method of calculating my credit score?
No, lenders use different methods to calculate scores. The credit reference agencies may calculate a score based on your
credit report, but the scale varies from company to company. As an example, Experian uses the following credit score range:
- Very Poor: 0 – 560
- Poor: 561 – 720
- Fair: 721 – 880
- Good : 881 – 960
- Excellent: 961 – 999
Although the scales differ, your credit score is generally calculated in a similar manner by all companies offering credit scores. Negative items are deemed to bring your credit score down by a certain amount based on what the item is and how long the item has been negative and positive items will bring your credit score up.
What should I do if I have a low credit score?
Provided that your low credit score is due to your own actions, and not due to errors, inaccuracies, or fraud, it is going to take time to raise your score. It is possible, however, to bring a low credit score up into the “good” range with some time and effort.
The first step is to stop using credit in a negative way. If you’re behind on payments, make an effort to catch up. If you’re frequently late with payments, start to pay on time. Sometimes people have trouble paying their bill by the due date because the due date is inconvenient for them. Often, a credit company will do a one-time changing of the due date to be more convenient for the debtor, so contact your lender if this has been an issue for you.
If you have negatives such as bankruptcies, foreclosures, or defaults on your report, these will remain on your report for six years. Keep using credit wisely in the meantime, because you can raise your score despite having these items present on your report. If it has been six years since one of these was placed on your report and it has not been removed, contact all three credit reference agencies.
One of the most important things to do is to not stop using credit all together. You do, however, need to only charge necessities, and should get into the habit of paying your bill in full and on time every month. Having no further credit history will just hurt your credit even more, but using credit in a responsible matter will raise your credit score.
Do all lenders look for a certain credit score?
No, there is no magic number that lenders look for when deciding to lend someone money. Some lenders may deny a loan application from anyone with an Experian credit score under 800, for example. Another lender may lend to people with Experian credit scores under 500.
There is one thing to keep in mind regarding applying for a loan with a low credit score, however. Although some lenders may offer loans for people with a poor credit history, you can be certain that these loans will carry a higher rate of interest than loans for people with fair or good credit. To cut the risk they’re taking on when lending to a person with poor credit, lenders charge more interest to assure they are compensated for the risk.
I just obtained my credit score. Will the score change over time?
Yes. Your credit score is based on your credit history, so it will change as you continue to use credit. Timely payments, low balances, and a reasonable amount of credit accounts will keep your score high. Defaults, missed payments, late payments, bankruptcies, and foreclosures will bring your credit score down. Credit reference agencies generally update your information monthly based on the information provided to them by lenders, so your score could change monthly based on that information.