Your credit score is usually referred to as FICO score and is basically a simple numerical calculation of your financial activities, both at present and in the past. This score is essentially a sort of indication that financial institutions use to determine whether you are a potential bad risk or a potential good risk to the business of the institution. This score also helps them determine if you would make your payments on time.
The higher your score in on your credit report, the more and better options you can choose from while applying for a loan. Through your credit reports and FICO score, institutions can not only measure your efficiency, but also determine if you are trustworthy.
Calculating Your FICO Score
Calculation of your percentage score is done on the basis of the financial activities that you have been involved in, both in the past and the present. This calculation is done by using a complex math formula. While calculating your score there are several other things that are taken into account. These include public records, wage attachments, law suits, liens, the credit cards that you have had before, car payments, home mortgages and several other debts and utilities. If you have made your payments in time, you will have a higher FICO score; where as bad records would mean a lower FICO score.
However, it is imperative that you go through a copy of your credit report on a regular basis; so that you can check for any sort of frauds, errors or wrong information. These things are very important and can cause a negative rating when these are overlooked. With the change in times, the whole system has become more transparent and this information is readily made available to us. You could also obtain a free copy of your FICO score on the internet.
The Average FICO Score in the USA
Usually FICO scores are within the range of 300 and 850. Here in, 300 is the lowest score that you can have and signifies a bad credit. Where as, 850 is the highest credit score that you can have, and it would mean that you have an excellent credit history. For an average American borrower the score is just about 720. This means that lenders would render better business to the people and people with high scores would thus, respond in a favorable manner. However, those with lower score have to either deal with restriction penalties or a higher rate of interest.
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