Credit Awareness in Layman’s Terms
When you apply for any form of credit, the lending institution would make an assessment of you to evaluate whether you deserve to be given credit and if so, at what terms and conditions. Obviously, the more they deem you less likely to repay the money they lend, the higher the possibility they will decline your application. However, in certain cases, the lenders (usually banks) will grant you credit but under strict terms and conditions if they deem you as not very credit worthy. These strict terms and conditions usually come in the form of higher interest rates, additional fees and charges.
But how do the banks evaluate you? They would base their evaluation on your credit profile. This credit profile is not solely based on what you reveal to the bank when you apply for credit. Your credit profile also comprises your credit score. Not everyone knows about credit score.
Your credit score is a number that is calculated based on a statistical analysis of your credit report provided by the three major American credit reporting agencies, Equifax, TransUnion and Experian. These reporting agencies collect your data to produce their credit reports about you. In 1958, a company called Fair Isaac Corporation (FICO) formulated the first credit scoring system in the United States. This scoring system uses a complex algorithm to determine your three-digit FICO score based on the data from the credit reporting agencies. Hence, your FICO score is basically your credit score. Today, the FICO credit scoring system is the most widely used credit score model in the US.
Many banks use FICO scores to determine your credit worthiness. A person’s FICO score is independent of race, gender or ethnic background and is therefore considered unbiased and accurate. Based on this, the banks decide whether to extend credit to you, and if so at what rate of interest and how much collateral. The higher your FICO score, the lower your interest rates and the better the terms of credit given to you. Each bank has its own minimum FICO score below which they will not extend credit.
Generally, the use of credit scores has increased the availability of credit while reducing its cost.
You can increase your credit score but it normally takes time. The legitimate way to do so would be to maintain a good payment record on all your debts. Sometimes, your score may become inaccurate because the bank failed to inform the credit bureau that you have reduced or fully settled your loan. If you discover such an incident, report it yourself to the credit bureau so that an accurate credit score is reflected on you.
If you want more information on how to increase your credit score, please call us at Tampa Bankruptcy (813) 200 4133. Thousands of people have consulted us on their credit scores. You can be next.