Whenever you need to borrow money a lender will first check your credit score.
Your credit score is based on the information in your credit report and it measures the likelihood you will repay the loan. If you have a high credit score, you will qualify for more loans and pay lower better rates. In other words, the higher your score, less you'll pay.
For example, on a $25,000, six-year auto loan, a borrower with a credit score between 500-589 will pay approximately $885 per month. In comparison, a borrower with a credit score between 720-850 will pay only $766 per month. That's a savings of $79 per month, over 10%, simply by having a better credit score
How is My Credit Score Determined?
Your credit score is calculated using a complex algorithm that takes into account many different factors. It is difficult to predict how many points you can gain by changing the individual components of a credit score.
Although there are different types of credit scores that are available to lenders, the most commonly used (especially for big loans) are called FICO scores. FICO scores are based on a scoring system created by Fair, Isaac & Co. and are provided to lenders by the three national credit bureaus - Equifax, Experian and TransUnion.
The Process of Improving Your Credit
There are no magic formulas to improve your credit score, however the answer is really quite simple: continue paying your bills on time, reduce your debts, and remove negative inaccuracies from your credit report. Managing your credit responsibly over time are the two most important factors for improving your credit score.
There are no quick fixes. In fact, quick fixes can sometimes hurt your score. Read in detail about 5 specific tips for improving your credit score:
- What is a Credit Score?
- Co-Signing A Loan: What You Need to Know!
- Debt Relief: How to guide to get help
- Correcting Fraudulent Information in Your Credit Report
- How Landlords Can Use Credit Scoring to Make Rental Decisions
- Saving and Managing Your Money During a Recession
- How To Reduce Your Rent
- Buying A Gift Card? What You Need To Know.