Credit Scoring System | Understanding How Your Credit Score is Scored
With the credit scoring system becoming more complex everyday, there are a few guidelines that remain true and will always be constant. Keep reading to find out more about the credit scoring system and the rules and guidelines to follow to ensure a high credit score.
The Credit Scoring System and How It Affects You
The three credit bureaus TransUnion, Equifax, and Experian are for-profit companies who collect your financial information to determine your score. Although they maintain the position that their credit scoring model is a trade secret, there are certain things that cannot be disallowed in determining your credit score. For example, how often you pay your bills on time will always be an indicator in your credit score. What the credit reporting agencies can change is how much weight they place on each factor.
Having a high credit score is advantageous to you clearly in the financial realm, but not many people know that your credit score can affect your daily lives. With a high credit score, you will get the best interest rates on credit lines such as mortgages and car loans. What this means is that throughout your life, you will be paying less to get credit. This means hundreds of thousands of dollars saved throughout a person’s lifespan just with their credit score.
Another factor that is not widely known is your ability to get a job can be affected by your credit score. More and more companies are now doing background checks when interviewing job applicants to not only look at their criminal history, but the background check encompasses other factors such as your credit score. The reason why you did or did not get that last job could well have been because of your credit score.
Even the ease of getting a bank account at your local bank or opening a brokerage account can be effected by your credit score. With a low credit score, you may be denied the opportunity to open these accounts and be denied based on your score alone. When getting auto insurance which is required in most states, and even home insurance, be prepared to pay a lot more in premiums if you have a low credit score.
Credit Scoring System: What is Considered a Low and High Credit Score
According to the major players in the credit reporting game, your credit score ranges from a low of 300 to a high of 850. The higher your credit score the better, so shooting for the 850 credit score is your goal. But getting the highest credit score is harder than you can imagine. Think of the credit score system as a curve where as you get higher in number, it gets even harder to attain that highest number.
To attain and maintain a high credit score, the number one factor that you can control is by paying your monthly recurring bills in full and on time every single time. By doing this alone, you can guarantee a credit score of at least 600. To get an even high score, erase your debt and have a high credit line. This will push your credit score in the mid 700 range and beyond if you keep it up.