What is a Good Credit Score?

If you have ever had by any chance applied for a loan, then you would readily know, the importance of a good credit score, especially if your loan application has been turned down due to lack of proper credit score. As it is, credit score plays a very pivotal role not only in procuring a debt, but in shaping your financial standing, as well as your goodwill in the market.

If you do not have any idea of what a credit score is all about, then I would like to take this opportunity to tell you about it in detail. As it is, credit score refers to a numerical value, which is arrived at by way of comparing the information, which is provided in your credit report to the same information of other people. This value is formulated by way of using some standard comparison scale. This value, or credit score, is an exact expression of your credibility status.

As it is, this scale ranges from 300 to 850 points; and are very commonly used as an effective means to figure out if an applicant is credit worthy or not. In most cases, applicants with higher credit scores are generally offered credit at lower interest rates, as in comparison to those applicants, who are having lower credit score.

These credit scores are used by several banks and financial institutions, in order to analyze the credibility of the applicant. However, these credit scoring patterns vary greatly in the formulation process of credit scores. This paves way for a lot of confusion. In order to take care of this confusion, the FICO scoring pattern was introduced. This process was introduced by the Fair Isaac Corporation (FICO), in order to arrive at a credit score, by way of using definite standard scales for different parameters. As it is, this FICO score has been adapted by almost all credit scoring institution, in order to promote uniformity in the calculation of the credit score of an applicant.

Now, while a good credit score for different sectors may be different, generally a FICO credit score of 700, or above is considered to be good enough. It is therefore, better for you, to maintain a credit score of around 700 points. Several factors are responsible for affecting the credit score of an applicant. As it is, one of the most important factors, which affect your credit score is your payment history. Your payment history includes information in regard to payment details on your credit cards, as well as your retail accounts. It also takes into account details regarding late or missed payments, apart from public records like suits or bankruptcies.

As it is, a credit score can prove to be an effective way of determining the credibility of a borrower. It lowers the risk of bad debts and defaults, which are faced by the lending institutions.

Best tips to improve your credit score

There are many ways by which you can repair your credit and improve your credit score. Let's discuss some of them.

1. Get a copy of your credit report: take the copy and understand it. Get the copy from all the three bureaus. Find out the faults, if any.
2. Lower your credit card expenses: reduce the use of credit card. Cut down the payment that you make with your credit card.
3. Make sure you pay off all your credit card balances on time. If you don't have cash in hand then request for increase in credit line. Take the limit but don't use it. But before you make a request, clear all your doubts. Inquire about all the aspects before you apply.
4. Apply for secured credit card. You can use this option if you are not eligible for regular credit. You can convert this card to a regular card after certain time period. Now, with this secured card pay your bills timely and keep your balance low. This will help you to rebuilt and improve your credit score.
5. Improve your credit score with credit monitoring program. The criteria considered to calculate your credit score include history of payment performance, current debt level, length of credit history and the credit cards and loan application in your financial statement. All these factors are looked into and the figures considered in calculating your credit score. What you have to do is have a credit monitoring program. Apply for a credit report. Check it regularly for any errors. And if you find any errors then take the responsibility of correcting it. Report the errors to the authorities. Thus a credit monitoring program offers you two major benefits. First, you get to know the type of factors considered by the lenders in calculating your credit score. Second, you improve your credit score.
6. Do not apply for loans unless it is necessary. If you have no other option, apply for the loan by securing your saving account. But here you should have at least $500 in your account.
7. Avoid hard inquiries. These inquiries reduce at least five points of your score.
8. Check the payment dates. Note them down and never miss them. Make timely payments. This will take you a long way in correcting your credit score.
9. Use the re aging technique. By this your lender converts your past due account to current one. This dramatically helps you to improve your credit score. But you have to assure your lender that you will make the payments on time. In fact you should have three timely payments in previous months.