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Credit Scoring Affects Your Financial Future

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Jim Banks

In March 2001, Congress passed a law that lifted the veil over credit scoring secrets. Your credit score will tell lenders how likely you are going to pay your bills. As such, the credit score becomes their basis whether they should approve your credit application or not. FICO, acronym for Fair Isaac Corporation which is the brain- child behind the software that has been applied since the 1960's, is the reference of Equifax, TransUnion and Experian.

What is Credit Scoring?

Credit scoring is a mathematical algorithm used by credit reporting agencies like Equifax, Experian, and Trans Union, in order to come up with a three-digit number, based on information found in your credit report as compared to information found in tens of millions of other people's credit reports. Since your credit report contains factors that are predictive of future credit performance, the resulting number is a highly accurate prediction of how likely you are going to pay your bills.

In financing especially in the United States, the most trusted credit score calculator is FICO, acronym for Fair Isaac Corporation which is the brain-child behind such software applied since the 1960's. When you use credit, you are in effect borrowing money from the lender and promising to pay it back on time. Every time you apply for a loan, a lender will check your score to know how likely you'll repay what you owe.

In the United States, credit rating attempts to measure the comparison of a potential borrower who fails to pay or other required obligations in a specific period of time. Such criteria are often predictive of an individual's future credit performance, so that a high credit score means you are more likely to pay your bills on time than a person with low credit score.

Your existing credit card debts are a heavily weighted factor in calculating your credit score so lowering them down or keeping them at a minimum will help you in improving credit score.

The credit report will tell you the reasons for the score. A statement that the individual "failed to score high enough" is insufficient; the reasons must be specific ("too many delinquencies 60 days or greater"). Only one website is authorized to fill orders for the free annual credit report you are entitled to under law annualcreditreport.com that was established in 1995 to provide fast, simple and cheap access to your personal appraisal history.

Now, with the passage of the new law governing credit scoring, a vital change has been made on how your credit score is to be released. Request your credit report only from AnnualCreditReport.com to ensure that your copy of your credit report is free. If you make your request directly with the credit bureaus, there may be a small fee involved. You should request a free credit report every year and verify that the information is correct.

Some of the easiest ways to improve your credit is little more than common sense. Opening checking and savings accounts is an easy way, according to MSN, because lenders see these accounts as signs of financial stability. Pay your bills on time. One of the ways to improve your credit score is to faithfully meet the deadlines of your bills.

Using and maintaining credit is an important skill in today's times. Although credit terms and scores can be confusing learning to navigate your way through the credit language will help you maintain great credit.

Jim Banks has been helping people improve their credit score for years. He decided to start writing articles to help educate consumers on the best practices for improving their credit history and raise their credit score. For a free copy of your credit report visit http://creditcardmonitor.org/creditreports.php