Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you'd be a good risk for credit cards and auto loans. More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans.
Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles.
A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.
Why is credit scoring used?
Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applicants objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.
What can I do to improve my score?
Credit scoring models are complex and often vary among creditors and for different types of credit. Only the creditor can explain what might improve your score under the model used to evaluate your credit application. Nevertheless, scoring models generally evaluate the following types of information:
- Have you paid your bills on time?
- What is your outstanding debt?
- How long is your credit history?
- Have you applied for new credit recently?
- How many and what types of credit accounts do you have?
To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. Working with Mississippi Credit Repair will help increase your credit score to its maximum rating starting today.
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