If you have recently obtained your report and found that you have a 650 credit score, you may be worried and perhaps even slightly confused. Why does it matter what the score is? Which credit bureau should you believe? What factors influence your result? Should you even be concerned?
Why does it matter what the score is?
When a new lender looks at an application for credit card debt, credit score is one of the factors they will use to assess whether to lend the funds in the first place. If they decide to grant the facility, your report will influence the credit limit and interest rate you get charged.
The higher the score the lower the interest rate you will pay and you may be awarded a higher borrowing facility. But it is not just credit card applications that it affects. When you come to renew your auto insurance or your home insurance, your insurer will also look at your credit score and may increase your premiums if he perceives you to be a higher risk than someone with a higher score.
Which credit bureau should you believe?
Your Experian credit score will be slightly different than the Transunion credit score which again will differ from the Equifax one. This is partly because there is no one defined way to calculate this figure and partly because all three credit agencies use slightly different information to compile your credit report. You are best working on an average of the three scores. Anything you can do to increase your rating will have a positive effect on all three bureaus.
What factors influence your result?
Before you can think about raising it, you need to know what factors affect it. The score itself is based on a lot of factors but the ones that seem to have the most influence are
Payment history – you need to make sure that the reports filed are accurate as often mistakes are made. It is estimated that this alone accounts for up to 35% of your score so it is important it is correct.
Amount you owe compared to the credit limits you already have – if you are maxed out on your credit cards, your rating will suffer. So try to get those balances down. It is suggested that you keep them to less than 35% of the available credit which is easier said than done!
Number of credit applications – the more applications for borrowing you submit the more your rating is going to be adversely affected. Don’t apply for any new borrowing unless you really need it and be selective who you apply to i.e. pick the lender with whom you have the most chance of success.
Should you even be concerned?
Yes, yes and yes. Your credit file has an impact on various areas of your life. You can improve it if you follow the proper advice. Steer clear of any “experts” who want to charge you fees for fixing your report. It is easy to do yourself and you need all those extra dollars to get rid of the debt once and for all.
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