Understand The Rules of Credit to Manage Finances Properly

Your credit score is the best way for financial institutions to judge your credit worthiness. Credit rankings are the basis with which a person’s credit history is judged. And lenders judge the capability of a person to manage their loans, as well how responsible they will be in terms of payments and settling bills.

There are perks associated with high credit scores such as getting better financial programs and lower interest rates. Given this, the opposite will also prove true when your score is a lower. Typically, low scores already imply that the person is not financially responsible and are at higher credit risk.

What makes up a credit score?

A credit score of an individual can be between 300 -850 depending on the rating agency. Outcome of the scores are influenced due to following factors:

35 percent of the score depends on payment history

30 percent is associated with the ratio of outstanding debt to credit available and it holds even if credit is not used

15 percent is based on holding a credit

10 percent of the grade is influenced due to the number of inquiries on the credit reports

10 percent of score is due to the credit type.

2008 witnessed the credit crisis situation and made lending standards stricter. Banks wanted to reduce the risk of loss. In 2010, there was some flexibility in lending standards, and 720 and above scores were considered as “excellent”.But it is highly dependent on the grade offered by the credit bureau and also thebank offering loan.693 isthe average credit score from U.S. Lenders and is referenced against FICO. The three major credit reporting bureaus -- Experian, Equifax, and TransUnionwas involved in early 80’ Fair Isaac to develop the grading method.

Boosting credit scores for good credit health

If you are intent on making sure that you improve your credit ratings, then you have to start paying attention to the following:

Make your payments on time

If you only pay the minimum balance, make late payments, or use cash advances to make payments of daily living expenses, then you might be in the credit “danger zone”.

Frequent credit checks on your credit report more often is desired. One should also take care that there are no flaws credit statement.

Thorough review of statement is desired before applying loan or mortgage, to get the best terms.