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What Does Your Credit Score Mean
You may already know that your credit score plays a big part in your personal finances. At the same time, you may wonder what it means, who decides what your score is, how it really affects your daily life and what things can make it go up or down? All of these are fair questions. And when the economy is on the weak side, like it is today, it's only logical to be concerned about making your money do as much as it can for you. You can never be sure when you may have to borrow money for an unforeseen event or the purchase of a lifetime, that's why getting and keeping a good credit score is so important.
So what precisely does the term "credit score" mean? Basically it's nothing more than a number that has been assigned to virtually every adult in the US. It is meant to be an objective measure of how risky it is to extend credit to an individual. The lower your score, the harder it is to get a loan, and the more of a negative it can have on other aspects of your life as well. However, if you have a higher score, you will find it easier to get loans, and to get better terms attached to those same loans. You will usually pay lower interest on credit cards, too.
Besides being able to get loan or not, and the getting better terms, credit scores are more recently being used by utility companies, cable companies, insurance agencies, landlords and even potential employers. This can affect your rates, whether or not you have to pay deposit to get service, or if you will be able to rent a place to live. Anybody who has a legitimate need to see your credit report, and credit score can do so if they pay a fee to the credit reporting agency.
What are the elements used to come up with a credit score? The largest determinant of your score is how well you have taken care of your credit and debt in the past. Those who have made all of their payments on time will have a higher score. But those who have late or missed payments will have their scores lowered as a result. Needless to say, a missed mortgage payment is worse than a telephone bill that's a day late. While bankruptcy is the one event in your life that can have the longest lasting negative effect on your credit score.
Close behind your past credit history in calculating your credit score is the total amount of debt you owe. If your debt-to-income ratio is too high, it shows lenders that you will probably have a hard time keeping up with a new loan. Even they understand that you can only live beyond your means for so long. Another prime factor in figuring out your score is how far back your credit history goes; the longer, the better. Though a long credit history isn't enough to compensate for missed payments.
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