Credit Scores QA

There is a set of numbers that rules your life. It is with you no matter what you do and where you go. Credit scores seem to be involved in every aspect of our lives. Good credit scores or even poor ones can determine whether or not you drive a new car, own a home or even have the job that you want. It is hard to believe that something so simple, yet complicated, can make or break you. A good credit score is absolutely fundamental if you want to do anything in today's economy. But there is a lot of confusion on how a credit score is calculated and what makes it a good score or a poor one. In this article we will cover how credit scores affect your daily life and how important it is to have good credit.

What is credit?

You can think of credit as something such as a material item or goods given to you now that you pay for later. You agree that you will pay back the merchant a set amount, plus interest, for letting you get something immediately. In the times before credit cards many people would open lines of credit with local merchants that sold food or machinery. It was an easy and convenient way for farmers to get the goods they needed until their crops came in and they could get paid. People today use credit for just about everything. It is a record of how you have paid past debts and many institutions use these lines of credit to determine whether or not you are eligible for any further advances.

What are credit scores?

Credit scores are the three digits numbers that businesses use to determine the credit worthiness of an applicant. These numbers range from 300 to 850 depending on the credit scoring company. If you have low credit scores from the three main credit reporting bureaus you will probably have a tougher time getting an unsecured credit card, place to live and even a job. Credit scores are becoming increasingly important in today's world so using and managing your credit scores is extremely important. You can be denied a vehicle, a mortgage on a new home or even a job if your credit scores are too low. Businesses feel that if you are delinquent in the past on paying bills then you will be too much of a risk for further credit.

When did credit scores become so important?

Credit scores have been pretty important for the last thirty years but within the last ten years it has been a fundamental way to have a good way of life. More and more jobs are now basing their hiring on what a credit score shows. The same thing applies to rental homes and apartments. Owners figure that if you were delinquent on past bills that you will be a high risk to rent to. Is this always correct? No, there are extenuating circumstances that have lead to poor credit scores for some people. Is it still a fact of life that you need a good credit score? Yes, strangers do not have the opportunity to know you intimately and know whether or not you will be a good customer or tenant.

How are credit scores figured?

There is a break down in how each credit compiles into a score. 35% of your credit scores are determined by your payment history. This is how well you have paid your past bills and whether nor not they have been on time. Another 30% is figured by outstanding debts meaning how much credit you currently owe on things like credit cards, mortgages or even hospital bills. 15% is calculated by how long you have had a credit history. The longer you have an established credit history the better off you will be. How many accounts you have applied for or are open is another 10%. The final 10% is the mix of credit you have. This is how many of your debts are credit cards, automobiles or loans.

What companies handle credit scores?

There are three main credit reporting bureaus in the United States that report all over the world. Equifax, TransUnion and Experien. The way that each company comes up with your credit score is based on their policies. You may have a higher credit score with Equifax than you do with TransUnion or vice versa. It is wise to have a credit checking service that monitors your credit scores with all three businesses as you never know what one business is going to show over the other two businesses. By monitoring your credit score you can also stop any fraudulent accounts being opened in your name because you will be able to see and dispute any open or closed accounts that you may not have opened.

If my credit score is low, is there a way to raise it?

A low credit score can happen for two reasons. The first is that you simply do not have any credit yet. The second is that you have had credit but have defaulted on payment arrangements thus lowering your score. If you have a low credit score there are steps you can take to raise it. It may mean applying for a high risk credit card to slowly build your credit back. It can also mean paying off any closed accounts due to nonpayment. If you need a loan for an automobile or a home you will probably need a cosigner with good credit. Then you should start making your payments on time and at the right amount. Over time your credit score will begin to go up and you will be able to do more on your own.

What happens to my credit scores after a bankruptcy?

Bankruptcy is a hard hit to credit scores. The main reason is that you probably have already defaulted on some credit agreements. But once you declare bankruptcy and are either absolved of the credit debt or you have paid a portion of it back, bankruptcy will remain showing on your credit for many years. Bankruptcy is not an option that you should consider lightly. But if you find that you are missing payments and are financially unable to pay back the debts, you need to speak to a bankruptcy attorney as soon as possible to go over your options. Your credit scores will be affected but you will get a chance at a clean slate to start over again with time.

What does a credit score tell about a person?

A credit score tells a lender whether or not you have been faithful to your contracts and have paid your debts in full or are regular about making payments on time. It paints you as a responsible person and a reliable one at that. This is why so many businesses look at a credit score to determine your eligibility to pay back a loan, move into a home or start a business. Your friends may know you as a responsible person but that does not help a lender that does not know you.

Can I be denied a job based on my credit score?

In today's competitive job market many employers are requesting a credit history on new applicants. The thought process is that if you are responsible about paying your bills, you will be responsible about coming to work. But there are many people who have had past problems with credit due to personal reasons such as divorce or bankruptcy that are being denied certain jobs. Is it fair to be denied a job based on your credit score rather than your past work history? Many people feel unfairly denied when in truth they are highly capable of the job responsibilities.

How do I handle a dispute over my credit score and some erroneous information?

Yes, you can handle a dispute over your credit score and erroneous information. The first step is to have a membership to a website that monitors all three of the major credit bureaus. When you notice an account that you did not open or are disputing the claims, you will need to contact that credit bureau and open up a dispute. The credit bureau will contact the financial institution and then an investigation will occur. Hopefully you will be able to provide documentation that the account was never requested, never opened or was opened by someone using your identity. This is why it pays to monitor your credit.

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